Institutions and Deep Integration

The paper explains why institutions matter for a deep integration process, as illustrated by the liberalization of Non-Tariff Barriers (NTBs) in Europe. We argue that deep trade liberalization requires supranational institutions of deeper integration that permit enforcement, surveillance, and adjudication. To support the claim, we develop a simple model showing why mutual recognition of norms and testing procedures, coupled with a supranational institution can shape the equilibrium level of NTBs in every member state. Member states host special-interest groups that make political contributions to influence their respective government's choice of NTBs. Politicians maximize a realistic welfare function that favours contributions over consumer's social welfare. The supranational institution drains the incentive to lobby for NTBs. The paper discusses the structure of protection that emerges in the equilibrium, stressing how the lobbies' contributions vary with the effectiveness of the supranational institution in reducing NTBs in the final policy outcome. We then use the model to explain the liberalization of NTBs in the EU.economic integration; endogenous protection; International Economics; Trade; European Union;

Deep Integration in EU FTAs

This paper explores the paradox that the EU invests significant effort into including regulatory issues into Free Trade Agreements with apparently little binding impact other than in the case of prospective candidate countries who are likely to become members of the EU. The explanation does not appear to be pressure from the EU for binding agreements that is resisted by developing country partners. The main non trade issues in the recent CARIFORUM EPA appear to have been sought by the CARIFORUM negotiators, perhaps for internal reasons. The EU may also be seeking to establish softlaw precedents for more binding rules, but there is little evidence as yet of this and the EU itself is equally unwilling to be bound, eg on competition policy, leaving the mystery still unresolvedNon trade issues, bilateral trade agreements

Deep integration, nondiscrimination, and Euro-Mediterranean free trade

"Deep integration"--explicit government actions to reduce the market-segmenting effect of domestic regulatory policies through coordination and cooperation--is becoming a major dimension of some regional integration agreements, led by the European Union. Health and safety regulations, competition laws, licensing and certification regimes, and administrative procedures such as customs clearance can affect trade (in ways analogous to non-tariff barriers) even though their underlying intent may not be to discriminate against foreign suppliers of goods and services. Whether preferential trade agreements (PTAs) can be justified in a multilateral trading system depends on the extent to which formal intergovernmental agreements are technically necessary to achieve the deep integration needed to make markets more contestable. The more need for formal cooperation, the stronger the case for regional integration. Whether PTAs are justified regionally also depends on whether efforts to reduce market segmentation are applied on a nondiscriminatory basis. If innovations to reduce transaction or market access costs extend to both members and nonmembers of a PTA, regionalism as an instrument of trade and investment becomes more attractive. Using a standard competitive general equilibrium model of the Egyptian economy, the authors find that the static welfare impact of a"deep"free trade agreement is far greater than the impact that can be expected from a classic"shallow"agreement. Under some scenarios, welfare may increase by more than 10 percent of GDP, compared with close to zero under a shallow agreement. Given Egypt's highly diversified trading patterns, a shallow PTA with the European Union could be merely diversionary, leading to a small decline in welfare. Egypt already has duty-free access to the European Union for manufactures, so the loss in tariff revenues incurred would outweigh any new trade created. Large gains in welfare from the PTA are conditional on eliminating regulatory barriers and red tape-in which case welfare gains may be substantial: 4 to 20 percent growth in real GNP.Payment Systems&Infrastructure,Economic Theory&Research,Labor Policies,Environmental Economics&Policies,Decentralization,Environmental Economics&Policies,Trade and Regional Integration,Economic Theory&Research,Rules of Origin,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Shallow versus Deep Integration between Mediterranean Countries and the EU and within the Mediterranean Region

The paper aims at assessing the specific impact of shallow versus deep integration between Mediterranean (MED) countries1 and their partners in the European Union (EU) as well as between the MED countries themselves. It relies on dataset developed for this project concerning tariffs (as a proxy for shallow integration) and Non Tariff Measures (NTMs)2 (as a proxy for deep integration). Additional data are also included in order to take into account other trade costs, especially transport costs and logistics costs. In this regard, an original dataset of maritime freight cost (Maersk, 2007) is introduced as well as the trade logistics performance (TLP) index produced by the World Bank. Such datasets are useful for providing additional insight into deep integration. The paper starts by calculating the magnitude of NTMs in terms of ad valorem tariff equivalent (AVEs). The estimation of NTMs through ad valorem equivalents (AVEs) shows that Algeria and Jordan have the highest value of AVEs, whereas Tunisia, Morocco, and Egypt have the lowest value. A gravity model is then estimated with special emphasis on trade costs which are the crucial point in our research study. Given the limitation of data on NTMs, the gravity model is estimated for only one year (2001), and for each MED country. Trade costs are represented by tariffs, AVEs of NTMs, and transport and logistics costs. The idea is to test which of the three elements of trade costs are the most impeding to bilateral trade between MED countries and EU countries as well as amongst MED countries. The model shows that tariffs, NTMs, and trade and logistics costs have a significant impact on trade, but is highly vivid in countries suffering from high tariff rates, prevalence of NTMs, and trade costs. A number of simulations are carried out trying to differentiate between the impact of partial liberalization and full liberalization on trade creation. The results obtained show that full liberalization has a significant effect whether it is only related to shallow integration (tariff removal) or deep integration (NTMs and trade and logistics). The effect is higher if trade costs and logistics are improved. The results are far less if only partial liberalization takes place and in several countries is insignificant implying that marginal reductions in NTMs or tariffs cannot always help to create trade. Finally the study shows that there is a huge potential for enhancing trade amongst MED countries if trade costs are lowered, logistics is improved, and NTMs are abolished.Regional Trade Agreements, Regional Integration, Non-Tariff-Measures, Deep versus shallow integration, South Mediterranean countries, European Union Trade Agreements

Deep Integration and Its Impacts on Nonmembers: EU Enlargement and East Asia

Ten countries-most completing their transition from socialist-based economies to market economies-became the EU members in 2004, two additional countries are slated to join the Union in 2007, and a few others are expected to become members at some future dates. Despite a relatively small economic size of the new member, acceding and candidate countries, this type of deep integration can have non-negligible effects on countries outside of the preferential zone as the reduction in barriers across partners leads to a re-orientation of trade. In this study, we evaluate the extent of trade adjustments and the economic impacts it will have on the East Asian economies using a dynamic computable general equilibrium (CGE) model. The overall macroeconomic effects on East Asia are small. There is some trade diversion, but there may be an opportunity to increase market penetration in some sectors of the expanding EU for which East Asia has a marked comparative advantage. This paper also assesses the relative importance of linking trade openness to productivity and lowering trade costs between the new member, acceding and candidate countries and the EU-15.EU enlargement, East Asia, CGE model

Regional integration as diplomacy

Regional integration agreements (RIAs) are examples of second best and have an ambiguous impact on welfare, contend the authors. They build a model in which RIAs unambiguously raise welfare by correcting for externalities. It assumes that trade between neighboring countries increases trust between them and reduces the likelihood of conflict. The optimum intervention in that case is a subsidy on imports from the neighbor. The authors show that an equivalent solution is for the neighboring countries to tax imports fromthe rest of the world -that is, to form an RIA- together with imposing some domestic taxes. In fact, security threats have moved neighboring countries to form RIAs. Examples include the creation of the European Coal and Steel Community (1951) and the European Economic Community (1957) to reduce the threat of war in Europe, as well as various RIAs among developing countries. The authors show, among other things, that: 1) the optimum tariffs on imports from the rest of the world are likely to decline over time; 2) deep integration implies lower optimum external tariffs if it is exogenous; 3) but if deep integration is endogenous, it implies higher optimum external tariffs before it occurs and lower ones thereafter; and 4) enlargement of a bloc (in terms of symmetric countries) has an ambiguous impact on external tariffs but improves welfare, and some form of domino effect exists in the sense that enlargement increases the incentive for nonmembers to seek accession. Although externalities associated with security matters imply that an RIA may maximize welfare, this model suggests that the RIA is a transitory arrangement in the sense that optimum trade preferences are highest at the time the RIA is formed (when security is low) and tend to decline over time. In other words, the RIA's external trade policy becomes increasingly open over time (as well as following deep integration).Rules of Origin,Environmental Economics&Policies,Economic Theory&Research,Payment Systems&Infrastructure,Trade Policy,Trade Policy,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade and Regional Integration

Deep Integration with the EU and its Likely Impact on Selected ENP Countries and Russia

Deep Integration with the EU and its Likely Impact on Selected ENP Countries and Russia Abstract: The aim of this study is to estimate the impact of the removal of NTBs in trade between the EU and its selected CIS partners: Russia, Ukraine, Georgia, Armenia and Azerbaijan (CIS5). The report includes a discussion of methodologies of measurement of non-tariff barriers and the impact of their removal, including a review of previous studies focusing on CEE and CIS regions. Further, we employ a computable general equilibrium model encompassing the following three pillars of trade facilitation: legislative and regulatory approximation, reform of customs rules and procedures and liberalization of the access of foreign providers of services. We conclude that a reduction of NTBs and improved access to the EU market would bring significant benefits to the CIS5 countries in terms of welfare gains, GDP growth, increases in real wages and expansion of international trade. The possible welfare implications of deep integration with the EU range from 5.8% of GDP in Ukraine to sizeable expected gains in Armenia (3.1%), Russia (2.8%), Azerbaijan (1.8%) and Georgia (1.7%).Institutional harmonization, European integration, European Neighborhood Policy, ENP, non-tariff barriers, NTBs, Computable General Equilibrium, CGE model

'A Deep Trade Agenda': The convergence of trade and Fundamental Rights

A key feature of the latest EU trade negotiations was the pursuance of a “deep trade agenda” for “deep integration” with the trade partners. The concept of “deep” has yet remained unexplored from a fundamental rights perspective. The central question of this chapter asks how a methodological framework of “convergence” can help the exploration and understanding of “deepness of fundamental rights” in the new generation of EU trade agreements. Using the Civil Society Forum under CETA as a case-study, the chapter argues that while convergence can justify the targeting of certain analytical elements as opposed to others, its usefulness remains limited for more normative explorations