Excellent study material for all civil services aspirants - being learning - Kar ke dikhayenge!
SHARE:
G-7, G-20, RCEP, ASEAN, RTAs - Part 1
1.0 The concept of Economic Integration
If each nation were to decide to stay all alone, not trade with anyone else in the world, it would be an insular world. It actually was, for a large part of mankind's ancient and medieval history. For example - medieval Chinese and Japanese empires, that were closed entities.
But slowly, nations realized that it made sense to trade with others, as different nations (states / empires) had different skills. A lot of benefits flowed when such exchanges happened. But then, with the advent of mercantilism and worldwide colonial expansion, other problems began emerging like the need for fiat money instead of commodity money.
1.1 What happens really
Economic integration refers to the deals between nations or groups where barriers to trade are minimized, or eliminated. There is a mind-boggling range of such deals possible, and our world today - despite claims of universal globalization - is witnessing a flood of Regional Trade Agreements (RTAs) and Free Trade Areas (FTAs). The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. Economic integration reduces or eliminates trade barriers among nations, and coordinates monetary and fiscal policies.
By integrating the economies of more than one country, the short-term benefits from the use of tariffs and other trade barriers is diminished. But there is a problem -the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In other words, "sovereignty of nations reduces".
The aim is to reduce costs for consumers and producers, as well as to increase trade between the countries participating in the agreement. The more integrated economies become, the fewer trade barriers exist, and the more politically coordinated they are.
1.2 A mixed blessing
However, it is a mixed blessing. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse. The good thing about economic integration is its members pay smaller expenses to trade, which can spur economic growth.
But one member of a bloc can bring others down if its economy or growth slows. The more integrated the economies become, the less flexibility the governments of member nations have to make adjustments that would benefit themselves.
1.3 Types of economic integration models
There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets and economic and monetary unions. Countries can agree to different levels of economic integration:
A preferential trade agreement (PTA) is a trading bloc where members reduce or remove tariffs on certain goods imported and exported throughout their region.
A free trade area (FTA) is a bloc in which countries reduce or remove tariffs on all goods among member nations. An example is the North American Free Trade Agreement.
In a customs union, member countries reduce or remove tariffs among themselves and impose a common tariff against non-member countries.
Countries involved in a common markets bloc freely exchange all goods, services, labor and capital.
An economic union is a common markets bloc among members that also share one trade policy with non-members.
And in a monetary union, nations share a single currency, such as the euro.
2.0 Understanding FTA
The acronym FTA stands for Free Trade Agreement, reflecting the sentiment that trade of economic goods and services between the relevant party nations should be free, or unrestricted. Thus, the concept of an FTA is rooted in the tradition of laissez-faire trade.
2.1 History
The contemporary origins of free trade are traditionally attributed to the thought of Adam Smith and David Ricardo, prominent 16th century British economists opposed to mercantilist policies. Mercantilism is rooted in the desire of governments to shield domestic industries from external economic shocks, and most commonly manifest in the form of tariffs on imported goods and services. Given that almost all European economic thought between 1500 and 1750 was broadly mercantilist, Smith and Ricardo's argument that free, unimpeded trade as more beneficial to the economy was considered quite revolutionary.
It is easy to attribute the current economic success of Western nations to their laissez faire policies, and fall into a linear narrative of progressive free trade gradually breaking down antiquated protectionist policies, propelling Europe and the United States to economic greatness. However, it is important to note that now-industrialized countries such as the United States and Great Britain were often the most deft employers of trade protectionism.
Accordingly, FTAs in their modern incarnation are largely a result of post-WWII policies championed by that phoenix rising from the ashes-a resurgent USA driven by the exigencies of industrial supremacy and the onset of the Cold War. Unsurprisingly, many developing nations have accused Europe and America for exporting free trade ideals only after the latter have benefited from protectionism by allowing them to fully industrialize.
2.2 Theory
The general basis of a Free Trade Agreement is the elimination or restriction of price controls in forms of quotas or tariffs between the signing nations. However, the specifics are left up to the negotiating parties: areas of debate include the types of standard customs procedures, trade dispute resolution mechanisms, intellectual rights management mechanisms etc.
The most well-known FTA is probably NAFTA, the North American Free Trade Agreement, between the United States, Canada and Mexico. NAFTA was signed in 1992 between presidents Bush, Mulroney and Salinas, and its provisions cover intellectual property, environment, agriculture and infrastructure.
2.3 Bilateral vs. Multilateral
A bilateral trade agreement means exactly what it sounds like: a trade agreement between two nations. A multilateral agreement refers to an agreement signed between three or more countries. Generally speaking, bilateral trade agreements are more prevalent than multilateral trade agreements, for obvious reasons of greater convenience, flexibility and hedging against risk. Here is a list of existing bilateral trade agreements.
FTAs theoretically benefit consumers by making available less expensive goods and services by taking advantage of economic specializations. For example, China is a large producer of agricultural products, while South Korea has a large pool of high-skilled human capital. One of the expected benefits of the China-Korea-Japan FTA is the inflow of cheap produce into Korea and Japan, and the outflow of skilled talent into China, providing cheaper services.
2.4 Not all FTAs are made equal
Analysis of these externalities lead us to an important conclusion: in practice, participant countries never benefit equally. There is little doubt that the United States is the undisputed winner in NAFTA, benefiting disproportionately from Canadian timber and oil reserves (Canada is the largest supplier of oil to the US) and Mexican labor and manufacturing. Canada sees little benefit from exporting valuable natural resources, while Mexico seems to be actively suffering from human and capital flight, resulting in economic sluggishness and lost potential.
Given China's vast human resources and economic clout, it looks to be poised to be the winner in any future FTA it decides to sign. But here is the rub: most neighboring countries do not have a choice whether to sign an FTA with China. At their core, FTAs are international trade agreements: ten years ago, China was not part of the international economic paradigm. Now, China might as well be the byword for the international economy. For most Asian nations, economic integration with China is an inevitability. It is simply a question of whether to be forcefully integrated through economic or military pressure, or to peacefully integrate on one's own terms, where at least some face (and economic benefits) can be salvaged.
3.0 GROUP OF SEVEN NATIONS (G-7)
The Group of Seven most industrialised (and rich) nations of the world is a collective of the world's most developed economies. Their political leaders come together annually, in an informal setting, to discuss important global economic, political, social and security issues. The platform helps intense discussions on a one-to-one basis. The seven members of G-7 are - France, Italy, Japan, Germany, Canada, United States and United Kingdom. The European Union is also represented at the G-7 summit.
3.1 The origin of G-7
The G7 was formed due to a series of global financial crisis, most notably the Oil Crisis precipitated by the Organisation of Arab Petroleum Exporting Countries (OAPEC). That was the '1973 Oil Crisis'. The first oil shock and the collapse of the Bretton Woods fixed exchange rate system due to 'Nixon shock' had the world on tenterhooks. These were grounds enough for the heads of state and government to consult on international economic policy. Another crisis came in 1979.
3.2 The nature of Oil Crisis 1973
It began in October 1973 when the members of the OAPEC proclaimed an oil embargo. The embargo was targeted at nations perceived as supporting Israel during the Yom Kippur War, and included Canada, Japan, the Netherlands, the United Kingdom and the United States. By the end of the embargo in March 1974, oil had become nearly 400% costlier (from US$3 per barrel to nearly $12 globally). An economic recession naturally followed, that hit many nations of the world.
3.3 The initial years
The idea for the first meeting was the initiative of French President Valéry Giscard d'Estaing and Chancellor Helmut Schmidt. In 1975 they instigated the first summit meeting in Paris. At the summit the heads of state and government of France, West Germany, the USA, Japan, the United Kingdom and Italy discussed the oil shock, the financial crisis and the ways out of recession. At this first G6 summit, they adopted a 15-point communiqué, the Declaration of Rambouillet, and agreed to meet in future once a year, under a rotating Presidency. In 1976 Canada joined the group, which henceforth became known as the G7.
3.4 European Union joins in
Direct talks between the G7 and the European Community were held for the first time in London in 1977. The President of the European Commission was invited to attend the G7 summit. Today the President of the European Council also attends the summit meetings. So today, 7 + 2 = 9 members attend all summits.
3.5 Evolution over time
In the 1980s the G7 extended its interests to embrace foreign and security policy issues. International challenges at that time included the long-standing conflict between Iran and Iraq and the Soviet occupation of Afghanistan.
The group expanded its brief to cover a large number of international issues, including energy security, trade, climate change, global health issues, gender equality, poverty - and any other topic the country holding the G7 presidency chooses to put on the agenda.Today, the G7 nations are reckoned as the seven wealthiest and most advanced nations in the world because China, which holds the second largest net worth in the world, nonetheless has a low net worth per individual and an economy that has not yet fully modernized.
The G7 fill out numerous global top lists:Leading export countries, Largest gold reserves, Largest nuclear energy producers, and Top contributors to the UN budget etc.
3.6 Other international organisations invited by G7 group
The group of seven i.e. G7 started a tradition of inviting other international organizations to the summits in the late 1990s, a list that has included:
- International Monetary Fund
- World Bank
- United Nations
- World Trade Organization
- African Union
- International Energy Agency
Other nations have also been invited to participate from time to time, such as the G20 and the G8+5, each of which are simply different groups of nations with growing economic interests.
3.7 The role of Russia
After the end of the East-West conflict, the G-7 invited Mikhail Gorbachev, the General Secretary of the Communist Party of the Soviet Union, to talks in London in 1991, parallel to the G-7 summit. The USSR soon collapsed in 1991, and the Russian Federation came into being. Russia then regularly attended the summit meetings until 2013.
In 1998, Russia was formally admitted to the group, making it the G-8. At the Birmingham summit, Russia became a member of the Group of Eight leading industrial nations.
3.8 End of the G-8
The year 2014 saw the breakup, as a result of Russia's violation of the sovereignty and territorial integrity of Ukraine due to annexation of Crimea. Then, the heads of state and government of the G-7 decided not to attend the planned G8 summit in Sochi under the Russian Presidency. The G-7 nations would not attend G-8 summits until Russia changes course and an environment is once again created in which it is possible for the G8 to hold reasonable discussions.
3.9 The 45th G-7 Summit 2019
The 45thG-7 summit was held from August 24-26, 2019, in Biarritz, France. It focussed on fighting income and gender inequality and protecting biodiversity.
In March 2014, the G7 declared that a meaningful discussion was currently not possible with Russia in the context of the G8. Since then, meetings have continued within the G7 process.
The participants in G-7 2019 were Canadian PM Justin Trudeau,French President Emmanuel Macron, German Chancellor Angela Merkel, Italian caretaker PM Giuseppe Conte, Japanese PM Shinz? Abe, United Kingdom PM Boris Johnson (first time),United States President Donald Trump, and European Union Council President Donald Tusk.
4.0 GROUP OF EIGHT NATIONS (G-8)
4.1 What is the Group of Eight (G-8)
The Group of Eight (G8) refers to the group of eight highly industrialized nations - France, Germany, Italy, the United Kingdom, Japan, the United States, Canada, and Russia - that used to hold an annual meeting to foster consensus on global issues like economic growth and crisis management, global security, energy, and terrorism. The forum enabled presidents and prime ministers, as well as their finance and foreign ministers, to informally discuss pressing international issues. Its small and static membership, however, excludes emerging powers from important talks concerning the global economy and international security, and as an informal grouping, states have little leverage over other members with which to secure compliance on agreements beyond imposing reputational costs.
4.2 Membership of G-8
When the group was formed in 1975, it was known as the G6, comprising France, West Germany, Italy, Japan, the United Kingdom, and the United States. Cold War politics invariably entered the group's agenda. Later, the G8 comprises its six charter members, in addition to Canada, which joined in 1976, and Russia, which became a fully participating member by 1998. The EU is a "non-enumerated" ninth member; represented by the presidents of the European Council and European Commission, the EU participates as an equal. The aggregate GDP of G8 states makes up some 50 percent of the global economy.
While there are no formal criteria for membership, member states are expected to be democracies and have highly developed economies. The G8, unlike the United Nations, is (was) not a formal institution, and there is no charter or secretariat.
4.3 Russia and the G8
Russia formally joined the group in 1998, after steps toward democratization and years of gradual engagement with what was then the G7. With the Cold War over, several world leaders, particularly U.S. president Bill Clinton, encouraged Russia's inclusion as a gesture toward Russian president Boris Yeltsin. Russia had neither a fully liberalized economy nor Western-style democracy, but G7 leaders hoped Russia's inclusion would safeguard its democratic progress. Russia held the G8 presidency for the first time in 2006 and will once again assume the presidency in 2014, with the summit set to be held in Sochi, a Black Sea resort city that was host to the 2014 Winter Olympics.Russia's membership remains contentious. Since the G8 was intended as a forum for like-minded democracies, Russia's backsliding toward authoritarianism has raised concerns among human rights advocates. The issue took on added significance in 2013 as Russia continued to support Syrian president Bashar al-Assad's regime with arms, financing, and diplomatic clout at odds with the positions of other G8 members.
4.4 Annexation of Crimea
Moscow faced criticism in March 2014 on the heels of its invasion of neighboring Ukraine's Crimea region, the home of Russia's Black Sea Fleet and many ethnic Russians, amid political transition in the capital of Kiev. The seven other members of the G8, joined by the presidents of the European Council and European Commission, condemned "the Russian Federation's clear violation of the sovereignty and territorial integrity of Ukraine." Russia's actions "contravene the principles and values on which the G7 and the G8 operate," they said, announcing a suspension of preparatory talks for the Sochi summit.
4.5 Criticism of the G8
The G8's exclusiveness is the focus of much criticism, but its small size and the relative like-mindedness of its members is also the source of its efficacy.Criticism of the G8 extends well beyond Russia's membership. With the G8's persistent focus on trade liberalization, summits are reliably targets of anti-globalization protests. Other critics argue that the exclusivity of the group results in a focus on the needs of industrial at the expense of developing countries. The persistence of the G8 has also been often cited as a reason for the rise of BRICS nations (Brazil, Russia, India, China, and South Africa) as an alternative caucus. The G8 was also no longer seen as accommodating the world's biggest or most dynamic economies.
COMMENTS