International Economic
Integration
Assoc. Prof. Dr. Ngo Thi Tuyet Mai
CHAPTER ONE
1 Introduction
2
Course requirement & expectation
◼ Grading:
• Attendance: 10%
• Midterm exam: 20%
• Group assignments: 20%
• Final exam: 50%
◼ Bonus Points:
• may be given to students actively participating in
class discussions
Attendance
1. If you attend all of your timetabled classes,
then your attendance level will stay at 100%.
2. If you are going to miss a class, please let the
class monitor/I know
3. If the lecturer authorizes all your absences,
then your recorded attendance level will stay
at 100%.
Group Assignments (1)
◼ A group of 5-7 students
◼ Each group will discuss two pre-assigned topics:
➢ MAKE a PRESENTATION & GIVE answers
➢ REVIEW and ADD comments to another group discussion
◼ Submit a draft outline of how the
presentation will be organized to the
lecturer TWO WEEKS before the
presentation (Presentation: Week 8 & 14)
Group Assignments (2)
◼ Submit a 15-20 slide-page handout to the
PowerPoint Presentation to the lecturer
PRIOR to the group presenting.
◼ The presentation should last about 35
minutes (15 minutes for presentation and 15
minutes for Q&A)
◼ Group paper: NO more than 2,500 words
Introduction to International
Economic Integration
1. What is international economic integration?
2. Why it is important to study international
economic integration?
Contents (8 Chapters)
◼ Chapter 1 :Introduction to International
Economic Integration
◼ Chapter 2: The WTO and Economic
Integration
◼ Chapter 3: Theories of Economic
Integration
◼ Chapter 4: Common Markets
Contents (8 Chapters)
◼ Chapter 5: Globalization & Global
Institutions
◼ Chapter 6: European Union
◼ Chapter 7: Integration Groups
◼ Chapter 8: Economic Integration Among
Developing Countries
Textbook & Reference Books
◼ Textbook: Miroslav N. Jovanovic (2015),
Economics of International Integration, Second
edition, Edward Edgar Publisher.
◼ Reference books:
◼ Ngô Thị Tuyết Mai & Nguyễn Như Bình (đồng chủ biên) (2019),
Hội nhập kinh tế quốc tế, NXB Đại học Kinh tế Quốc dân
◼ Peter Robson (1998), The Economics of International Integration,
4th edition, Routledge
11
[Link]
References
1. The WTO [Link]
2. Trade Policy Review: Viet Nam
[Link]
3. World Trade Organization, World trade report 201..
[Link]
4. World Trade Organization, Regional trade agreements
[Link]
5. Handbook of the European Union’s Trade Policy - Sổ tay Tổng quan chính
sách thương mại của Liên minh châu Âu, EU-VN MUTRAP
[Link]
%20TM%20cua%20Lien%20minh%20Chau%[Link]
6. Guide to the EU-Vietnam Trade and Investment Agreements
[Link]
12
Introduction to International Economic
Integration
◼ Learning Goals:
After studying this chapter, you should be
able to:
▪ Understand what is international
economic integration?
▪ Understand levels of international
economic integration
▪ Understand reasons for global and
regional economic integration
Contents
◼ Introduction
◼ Levels of international economic
integration
◼ Reasons for regional economic
integration
◼ Regional economic integration
14
Introduction
◼ International Economic Integration
◼ institutional combination of separate national
economies into larger economic blocks (at least 2 or
more than 2 economies) or communities
◼ International Economic Integration
◼ a process by which economies of separate states
merge into larger entities (e.g. By joining
ASEAN/AFTA, …)
◼ discriminatory removal of all barriers to economic
cooperation
➔ What is international economic integration?
15
Introduction
◼ Three levels of economic integration
▪ Global: trade liberalization by GATT
(General Agreement on Tariffs and Trade) or WTO (Word Trade Organization)
▪ Regional: preferential treatment of member
countries in the group
✓ ASEAN, EU, NAFTA
▪ Bilateral: preferential treatment between two
countries
✓ U.S.- Vietnam (BTA)
✓ BFTA between Vnese Gov. and other governments?
16
Introduction
Global economic integration - efforts to reduce trade
and investment barriers around the globe
Benefits - Global economic integration raises incomes,
generates jobs, and stimulates economic growth
Challenges – Environmental impact, unequal distribution of
the fruits from more trade and investment among the countries
in the world
Introduction
▪ Regional economic integration refers to
agreements between countries in a geographic
region to reduce or eliminate tariff and non-tariff
barriers to the free flow of goods, services, and
factors of production between each other
➢ AFTA, ACFTA, NAFTA, EU, CPTPP, AEC,….
Regional Economic Integration
Regional Geographic No. of Effec Member countries
Economic Region econo tive
Integration mies date
ASEAN/AFTA Southeast Asia 10 1967/ Vietnam, Laos, Cambodia,
1992 Singapore, Myanmar,…
NAFTA North American 03 1993 Mexico, Canada, the U.S
Q&A
◼ Two major ASEAN regional economic groups are:
1. APEC and NAFTA
2. APEC and ASEAN
3. CAFTA and NAFTA
4. CAFTA and ASEAN
Q&A
◼ Which of the following is an example of a regional
trade agreement
1. AFTA
2. NAFTA
3. WTO
4. UNDP
5. OECD
.
Q&A
◼ Which of the following CANNOT be argued to be
a regional integration group?
1. AFTA
2. CARICOM
3. PAFTA
4. OPEC
5. OECD
CPTPP & AEC - 2022
Introduction
▪ A bilateral trade agreement confers favored trading
status between two nations
▪ The U.S has bilateral trade agreements in force with
12 other countries:
➢ South Korea (March 15, 2012):
➢ Almost 80 percent of tariffs have been removed, boosting exports by
$10 billion.
➢ On March 26, 2018, the Trump administration exempted South
Korea from a 25 percent steel tariff.
➢ The U.S. ally is the third-largest foreign supplier of steel.
➢ Korea is currently our 6th largest goods trading partner with $130.8
billion in total (two way) goods trade during 2018.
Introduction
◼ The U.S has bilateral trade agreements in force
with 12 other countries:
➢ Colombia (March 15, 2012): (October 21, 2011)
◼ Over 80 percent of U.S. exports of consumer and
industrial products to Colombia will become duty free
immediately, with remaining tariffs phased out over 10
years.
◼ The U.S.–Colombia Trade Promotion Agreement (TPA)
will support more American jobs, increase U.S. exports,
and enhance U.S. competitiveness.
◼ Tariff reductions expanded exports of U.S. goods by at
least $1.1 billion and increased U.S. GDP by $2.5 billion.
Vietnam’s Bilateral Trade Agreements
Agreements Effective Signatories
Abbreviat date
ion
Vietnam-Chile Free Trade Agreement CVFTA 2012 Chile, Vietnam
South Korea-Vietnam Free Trade Agreement VKFTA 2015 South Korea,
Vietnam
United Kingdom-Vietnam Free Trade UKVFTA 2021 United
Agreement Kingdom,
Vietnam
Japan-Vietnam Economic Partnership VJEPA 2009 Japan, Vietnam
Agreement
Types/Levels of Regional Economic
Integration
What is the lowest level of Regional Economic Integration?
AFTA
Regional Economic Integration
Process whereby
countries in a
geographic region
cooperate to either
reduce or eliminate
barriers to the free
flow of products,
people, or capital
Types/Levels of Regional
Economic Integration
◼ The process of regional economic integration
does not necessarily have to be gradual from
one type to another
◼ The establishment of any type of regional
economic integration depends on the
agreement among participants/participating
counties
30
Regional Economic Integration
◼ Free trade areas (FTA)
◼ Removes all barriers/or eliminate barriers to
trade among members
◼ BUT each nation retains its own barriers to
trade with non-members.
❖ European Free Trade Association (EFTA), 1960, between
United Kingdom, Austria, Denmark, Norway, Portugal,
Sweden and Switzerland
❖ North American Free Trade Agreement (NAFTA), 1993,
between the United States, Canada and Mexico
❖ ASEAN Free Trade Areas (AFTA), 1992, between….
Vietnam joins ASEAN/AFTA
Eg. On 20 March 2023
Under ASEAN/AFTA: Tariff imposed on X must be 5% with the
members
- If company A in VN imports X from Thailand
Thailand’s gov. will impose 5% tariff on X imported from VN
- If company A in VN imports X from Malaysia
Malaysian gov. will impose 7% tariff on X imported from VN?
Do you think Thailand’s gov. or Malaysia’s gov. obey the agreement?
YES/NO? Wright /wrong decision?
Vietnam joins ASEAN/AFTA
Eg. On 20 March 2023
ASEAN/AFTA: Tariff imposed on X must be 5% with/among the
members
▪ Company A in Vietnam imports X from Bangladesh (non-
member/third party)
=> Vietnamese Gov. imposes 2% tariff on X imported from Bang
▪ Company B in Thailand imports X from Bangladesh
=> Thailand Gov. imposes 10 % tariff on X imported from Bang.
▪ Company C in Philippines imports X from Bangladesh
Philipp. Gov. imposes 15% tariff on X imported from Bang.
Do you think Thailand’s gov. or Philippines’s gov. has complied with the
agreement/ the AFTA regulations?
YES/NO ?
Regional Economic Integration
◼ AIFTA" means the ASEAN-India Free Trade Area under
the Framework Agreement on Comprehensive Economic
Co-operation between the Republic of India and the
Association of Southeast Asian Nations
◼ VJEPA: Vietnam- Japan Economic Partnership
Agreement
◼ JAEPA: Japan-Australia Economic Partnership
Agreement
How many free trade agreements the Vietnamese
government has signed with the Japanese government?
FTA Vietnam-Lao PDA-Cambodia
◼ ASEAN/AFTA: Cambodia, Laos PDR, VN,..
◼ Trade promotion agreement between
Cambodian Gov. and Vietnamese gov. in 2013
◼ Trade agreement between Laos gov. and VN’s
gov. in 2015
Explain why Vietnam, Laos, and Cambodia are members of
AFTA, BUT Vietnam and Laos signed another bilateral
FTA?
e.g. Trade Agreement between the Government of the Lao PDA and the Government of
the Socialist Republic of Vietnam (Date of signature: 03/03/2015)
Example
On 10 March, 2023, Company A in Vietnam exported USD 20,000 to
Japan
• VJEPA: Japan’s gov. imposed 5% import tariff on seafood imported from
Vietnam
• AJEPA (ASEAN Japan Economic partnership Agreement): Japan’s gov.
imposed 8% tariff imposed on X imported from VN
• CPTPP: Japan’s gov. Imposed 12% tariff imposed on X imported from VN
On 10 March, 2023,
• VJEPA: Japan’s gov. imposed 3% import tariff on seafood
imported from Vietnam
• AJEPA (ASEAN Japan Economic Partnership Agreement):. Japan’s
gov. imposed 2% tariff imposed on X imported from VN
• CPTPP: Japan’s gov. Imposed 1% tariff imposed on X imported
from VN
Rules of Origin (ROO)
◼ Not all products traded in an FTA are accorded
the tariff preference.
◼ An FTA extends preferential tariffs ONLY to
products originating from the country/area.
◼ A good is considered to be originating if it meets
the origin criteria (on) stipulated in the Rules
of Origin (ROO) chapter of an FTA.
Rules of Origin (ROO)
◼ ROO apply mostly to FTAs like AFTA, ACFTA,
CPTPP.
◼ ROO will determine which products are
considered originating.
◼ ROOs help to determine the “nationality” of a
good.
◼ ROOs vary from FTAs to FTAs
◼ AFTA/ACFTA
➢ Not less than 40% of its content originates
from any Party/member
ROO
Where is beef originally from?
ROO
Where is wine originally from?
ROO
◼ Preferential ROO:
➢ Application of EPA (Economic Partnership
Agreement)/ FTA tariff rates
➢ Application of GSP (Generalized System of
Preferences) tariff rates
◼ Non – preferential ROO (application of
WTO tariff rates, trade statistics, etc.
ROO
◼ ATIGA (ASEAN Trade In Goods Agreement)
➢ A RVC of not less than 40% of the FOB value.
◼ AIFTA
➢ the AIFTA content is not less than 35 % of the
FOB value
=> Visit: Handbook on Rules of Origin for Preferential Certificates of Origin (2017)
[Link]
origin/[Link]
Regional Value Content (RVC)
◼ Qualifying Value Content (QVC)/ Regional
Value Content (RVC)
◼ Goods are considered as originating if a
certain value (%) is added through the
production undertaken in the territory of a
party/country, and the value added exceeds
the prescribed threshold (%).
RVC - %
◼ RVC of good can be calculated on the basis of
the following method:
FOB: Free On Board value of the good;
VNM: value of the non-originating materials.
(normally: The value of the non-originating materials shall be the CIF value at the time of
importation of the material)
CIF: value of goods imported, the cost of freight and insurance up to the
port or place of entry into the country of importation
Japan-Australia EPA: the value added in the country of manufacture (Qualifying Value
Content) is not less than 40% and the last process of production has been performed in the
exporting party
Regional Economic Integration
◼ Customs union (FTA+)
◼ Removes all barriers to trade among members
and harmonizes trade policies toward the rest
of the world.
◼ Examples:
➢ European Union (EU), or European Common
Market, 1957, between West Germany, France,
Italy, Belgium, the Netherlands, and
Luxembourg.
➢ The Customs Union of Belarus, Kazakhstan and
Russia, 2010.
Customs Union: Common Commercial
Policy
◼ Common External Tariff
◼ Export Subsidies
◼ Intellectual Property
◼ Labour Standards
◼ Competition Policy
◼ Environmental Policy, etc
Regional Economic Integration
◼ Customs union (FTA+)
◼ EU is a CU (1968)
◼ The EU also has CU agreements with Turkey,
Andorra, and San Marino
◼ EU adopt a common external tariff (CET) on imports
from non-members countries
◼ The CU is a foundation of the EU
◼ Capacity to negotiate and conclude multilateral or
plurilateral agreements in WTO context
Q and A
◼ Do you know WHY the number of Free Trade
Agreements is more than the number of
Customs Union in the World?
◼ In 2019 (WTO):
◼ CU: 16 customs unions notified at the WTO.
50
Regional Trade Agreements
[Link]
RTAs and Average Tariff Rates
52
Regional Economic Integration
◼ Common market (CU+)
◼ Removes all barriers to trade among members,
harmonizes trade policies toward the rest of
the world, and allows free movement of labor
and capital among member nations.
◼ Examples:
➢ European Union (EU) achieved common
market status in 1993.
➢ MERCOSUR (between Brazil, Argentina,
Paraguay, and Uruguay)
Regional Economic Integration
◼ EU is a CM
◼ EU is a single market/internal market:
➢ Most trade barriers are removed
➢ Free movement of goods, capital, services and
labour
➢ Membership of the single market requires
regulatory alignment for EU members
◼ No police or customs checks at borders
between most EU countries
Regional Economic Integration
◼ Economic union (CM+)
◼ Removes all barriers to trade among
members, harmonizes trade policies towards
the rest of the world, allows free movement
of labor and capital among member nations,
and unifies monetary and fiscal policies of
members.
◼ Examples:
➢ EU
➢ Benelux, formed after World War II between Belgium,
the Netherlands and Luxembourg
Regional Economic Integration
◼ Political union - independent states are
combined into a single union
◼ Coordinate the economic, social, and foreign
policy of member states
◼ The EU is headed toward at least partial political
union, and the United States is an example of an
even closer political union
Basic theoretical types of international economic
integration
Arguments supporting Regional
Integration
◼ There are both economic and political
arguments supporting regional economic
integration
◼ Generally, many groups within a country
fight against the idea of economic integration
[Link]
Economic Case for Integration
◼ Economically, regional economic integration
is an attempt to achieve additional gains from
the free flow of trade and investment between
countries beyond those achievable under
international agreements such as the WTO
◼ Since it is easier to form an agreement with a
few countries than cross all nations, there has
been a push toward regional economic
integration
Political Case for Integration
◼ Politically, linking countries together, making
them more dependent on each other:
◼ Creates motivations for political cooperation,
and reduces the probability of aggressive
conflict
◼ Gives countries greater political power when
dealing with other nations.
Obstacles to Regional Economic
Integration
◼ It can be costly, while a nation as a whole
may benefit from a regional free trade
agreement, certain groups may lose.
◼ It can result in a loss of national autonomy
Obstacles to Regional Economic
Integration
What are the problems of CPTPP?
▪ Jobs could be lost and wage levels could
decline in Japan and Australia
▪ Pollution could increase due to Vietnam’s
weak standards
▪ The business environment becomes
competitive
▪ Vietnam would lose its sovereignty
▪ …
How successful has CPTPP?
Studies of CPTPP’s early impacts showed good
results:
◼ Trade between the 12 countries increased
by…%
◼ The members have become more integrated
◼ Productivity has increased in member nations
◼ Employment effects have been small
◼ …
Regional Economic Integration
◼ Interdependence
◼ Sovereignty
Regional Economic Integration
Interdependence
◼ The interdependence of economic life among
countries created a situation in which
national economic problems increasingly
became a matter of international concern
◼ Coordination of economic policies & IEI may
alleviate and even solve a number of
international economic problems.
Regional Economic Integration
Interdependence
◼ Economic objective of integration:
◼ to secure access to markets of partner countries;
◼ to secure and cement domestic market –orientated reforms
◼ to adapt barriers to trade according to preferences of the
members
◼ because of trust among members;
◼ because a very large group of countries may have many
conflicting objectives & interests;
◼ because integration potentially weakens and shrinks the
power of vested interests and monopolies;
◼ because integration agreements can be employed as a
bargaining tool with third countries/non members;
Regional Economic Integration
Interdependence
◼ Economic objective of integration:
◼ because terms-of-trade effects & gains to exporters provide
benefits from preferential trading agreements that are not
available from unilateral trade liberalization policies;
◼ because in the long run the benefits of integration may be felt
by all members;
◼ because the long-term dynamic benefits are greater than the
possible short-run static costs; and
◼ because IEI is a desirable strategy, at least for small and
medium-sized countries.
Regional Economic Integration
Sovereignty
◼ It reduces a country’s national sovereignty
◼ The expectation of a net economic gain
compared with the situation without
international economic integration is the most
fundamental incentive for such integration.
◼ Integration will be beneficial when cooperation
and coordination of policies takes place instead
of the disintegrated exercise of sovereign
economic power through conflicting policies.
International Economic Integration
Q&A
The End