Non-member Countries Research Articles

The Global Implementation of Basel II: Prospects and Outstanding Problems

Basel II may lead to far-reaching changes in the regulation and supervision of banks, risk management, and other aspects of banking practice; these changes may well be considered as one of the most important elements of the global financial system. This paper reviews prospects for the implementation of Basel II, risks due to the changes involved, and features which may affect international trade in banking services. The discussion on prospects summarizes data in a survey conducted by the Basel-based Financial Stability Institute (FSI) of supervisors in countries, which do not belong to the Basel Committee on Banking Supervision (BCBS). More than 90 countries participating in this survey have decided that they will implement Basel II, although the challenge to supervisors will be great as nearly a quarter of them to upgrade their skills. The discussion also covers other less systematic information, related to the implementation in member, as well as non-member countries of the BCBS, such as surveys of banks in developed countries and the impact of Basel II on capital requirements in the EU. Additional problems for implementation may result from disagreements between supervisory authorities in different countries as to the way in which Basel II should be implemented for banks with cross-border operations. Basel II may prove a source of macroeconomic risks in many emerging-market countries owing to changes following its adoption in lender-borrower relations and in the way in which banks are supervised. Basel II incorporates the fundamental assumption that the relationship between a bank and its counter-parties is conducted at arms-length. A different model of borrower-lender relations in many emerging-market countries, especially in parts of Asia, has involved practices such as policy or directed lending, relationship or name lending and collateral-based lending. In this model, loans are made on the basis of criteria different from those underlying Basel II and often resemble equity investments. Too rapid a change to the new model of banking practice of Basel II could undermine an economy's credit mechanism and could have adverse knock-on macroeconomic consequences. Basel II coincides with the financial services negotiations, which form part of the WTO Doha round. The paper reviews somewhat inconclusive evidence on the relation between foreign banks' presence in selected emerging-market countries and prospects for implementation. Nevertheless, Basel II's effects on banks' costs via its rules for both overall regulatory capital and different categories of exposure will be a significant influence on the economic opportunities of foreign banks, and are thus likely to influence negotiating positions in the WTO.

EU political accession conditionality after the 2004 enlargement: consistency and effectiveness

Has the EU's political accession conditionality changed after the enlargement of 2004 against the backdrop of apparent ‘enlargement fatigue’ and domestic obstacles in the remaining non-member countries? Based on an empirical analysis of non-member eligibility and EU discrimination, this article concludes that EU enlargement policy has remained consistently linked to compliance with basic democratic norms in the target countries. The recent drawbacks in the negotiations of the EU with Croatia, Serbia, and Turkey have been caused by issues of national identity related to legacies of ethnic conflict that are likely to create high political costs to the target governments. As a result, whereas consistency has remained high, effectiveness is reduced. The findings confirm the continuing relevance of the external incentives model of EU conditionality after the recent enlargement.

Free trade: what are the terms-of-trade effects?

Changes in trade policy affect a nation’s economic welfare through terms-of-trade and volume-of-trade effects. A move to global free trade would imply higher world economic welfare equal to the sum of all nations’ volume-of-trade, or efficiency, effects. Since the sum of the terms-of-trade effects across all nations is zero, terms-of-trade effects are contentious. Konishi, Kowalczyk and Sjostrom (2003) have shown that if customs unions do not affect trade with non-member countries, immediate global free could be achieved if free trade were proposed together with international sidepayments equal to the terms of trade effects. How large would these terms of trade effects, and hence transfers, be? This paper presents estimates from a simple computable general equilibrium model of a world economy of perfect competition. We show that, in some cases, terms-of-trade effects are small compared to efficiency gains, and transfers are not necessary for free trade. In other cases, terms-of-trade gains may account for more than 50% of a country’s gains from free trade and transfers could be large.

Verification of Properties of Concrete Reinforcement Bars: Nigeria as a Case Study

An investigation was conducted into the level of conformance of ribbed steel bars used in Nigeria's structural concrete practice to relevant international and local provisions. In this research, all bars imported into Nigeria from member countries of ISO as well as those marked with the identity of the local producing mill are classified as steel of recognizable origin while bars imported from ISO nonmember countries as well as those without an identifying mark from the producing works are classified as steel of non recognizable origin. The investigation showed that steel of recognizable origin satisfied both local and ISO requirements for strength and ductility whereas those bars of nonrecognizable origin failed to satisfy the above requirements for high-yield bars but satisfied the local specifications if used as mild steel. Based on these findings, appropriate recommendations are made.

The Distribution Effect of Support System of the CAP on Producers in the Light of the Turkey's EU Membership

The objective of this study is to measure the level of the European Union's (EU) Common Agricultural Policy (CAP) price support system (PSS) applied to producers in the EU-15 and in Turkey. The producer subsidy estimate (PSE) method has been used to determine protection levels for selected cereal products from the beginning of the application of the PSE method in 1986 to 2004. The expected contribution of this study is to determine which support instruments, such as countervailing levies or direct payments (based on limited or unlimited area) against export subsidies, voluntary or compulsory set-aside measures and price interventions, are more appropriate for the CAP in reducing destabilizing effects on trade with selected products between the EU and Turkey with respect to distribution effects (how income is distributed between different groups involved in the production operation process). Does the current PSS of the CAP have positive effects on agricultural producers in Turkey as a non-member country? The major finding of this paper is the evaluation of benefits and costs of common agricultural policies of the EU on fair trade. The assessment of the PSE of the EU's CAP will be used to determine the impact of current support measures of the CAP reforms on fair trade and how the CAP measures can be reformed for the improvement of producer gain in accordance with fair trade.

Capital Ownership and the Political Economy of Free Trade Agreements

This article examines the political economy of free trade agreements. It assumes that, unlike labour, capital in two countries is owned and represented by the same lobby group. Using a Heckscher-Ohlin framework, factors affecting the likelihood of political parties and lobby groups supporting free trade agreements are investigated. The effects of free trade agreements on tariffs facing non-member countries are also examined. • JEL classification: F1, D7

Verification of Properties of Concrete Reinforcement Bars: Nigeria as Case Study

An investigation was conducted into the level of conformance of ribbed steel bars used in Nigeria's structural concrete practice to relevant international and local provisions. In this research, all bars imported into Nigeria from member countries of ISO as well as bars marked with the identity of the local producing mill are classified as steel of recognizable origin. On the other hand, bars imported from ISO non-member countries as well as those without identifying mark of the producing works are classified as steel of non-recognizable origin. The results of the investigation showed that steel of recognizable origin satisfy both local and ISO requirements for strength and ductility. On the other hand, steel of non-recognizable origin failed to satisfy the above requirements for high-yield ribbed bars but satisfies the local specifications if used as mild steel. Keywords: Ribbed steel bar, Strength, Ductility, Recognizable, Tensile testAfrican Research Review Vol. 2 (2) 2008 pp. 234-252

SPILLOVER EFFECTS OF ECONOMIC INTEGRATION IN A THREE-COUNTRY MODEL

Using a simple monopoly model, we examine the effects of economic integration. We show that the number of markets and the shapes of marginal revenue curves, are crucial in evaluating economic integration when the marginal cost is not constant. The effects of tariff reductions in a three-country model contrast with those found in a two-country model. Effects also depend on which trade policy the non-member country adopts. When both importing countries simultaneously lower their tariffs, the Metzler paradox may arise.

The Contribution of Intra-Regional and Extra-Regional Trade to Growth: Evidence from the European Union

In this paper, we assess whether trade among member countries of a regional trade agreement (intra-regional trade) contributes more to output growth than trade with nonmember countries (extra-regional trade). We use Granger causality tests to evaluate the trade-growth relationship in 13 countries from the European Union and separately estimate the differential impact of the two kinds of trade on economic growth over the period 1980-2003. In addition to the basic influences of investment and population growth, we find that intra-regional trade has had a lesser impact on growth in output per capita than extra-regional trade by almost 30%.

The Economic Effects of Common Custom Tariffs on Producer Prices in the EU and in Turkey as a Non-Member Country

The objective of this paper is to estimate the economic impact of tariff measures on the prices and quantities of goods produced and traded, as well as on the economic welfare of the EU in the light of producers in Turkey. In fact, currently applied Common Custom Tariffs (CCT), which are considered in the price support system (PSS) applied to producers in the EU's Common Agricultural Policy (CAP), prevents producers from competing fairly in the EU market. The removal of tariff measures is not expected in the near future, but at least a decrease in their negative impacts on the producer gain and consumer surplus is possible if suitable amounts of tariff measures are applied in order to protect producers, as well as Turkish producers.

Euro's Influence upon Trade: Rose Effect versus Border Effect

This paper assesses the Euro’s influence upon European trade by estimating two different indicators. The first is the so-called “Rose Effect”, while the second is the “Border Effect”. The former measures how much a country within a currency union trades more with its partners than with non-member countries, the latter measures the integration of a country with its trade partners. This study of the Euro’s influence by means of the Border Effect is a novelty in the literature, it reveals that the Euro’s influence upon trade is not so clear as papers focused only on the Rose Effect claim. This casts doubts about the consequences of the Euro introduction for the European Single Market. Both indicators are estimated by means of a gravity model for bilateral trade flows using a panel of manufacture exports among twenty-four OECD countries. JEL Classification: F10, F14, F15

The Hague Convention: The Problems with Accession and Implementation

The Hague Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption (“the Hague Convention”) was developed to enable adoptions to proceed according to the “the best interests of the child with respect for his or her fundamental rights.” This Note discusses the dynamics of the Hague Convention with respect to the implementation process and the relationships between members of the Convention that are abiding by Hague Convention standards, members of the Convention that are not abiding by Hague Convention standards, and non-members of the Convention. The United States’ recent ratification of the Hague Convention exemplifies the difficulties of implementing Hague Convention standards and the changing relationships between itself and sending countries. Member countries of the Hague Convention are the sending countries most likely to realize positive changes in adoption relationships through the United States’ ratification. But, problems with non-members and members not abiding by Convention standards, namely Guatemala, frustrate the goals of the Hague Convention. However, the United States plans to continue adoptive relationships with non-member sending countries and plans to refuse those relationships with member countries not abiding by Convention standards. This Note argues adoptive relationships between member countries should continue with those members not abiding by Convention standards if relations are continued with non-member countries. This reasoning is explored through the United States’ relationship with Guatemala and the difficulties Guatemala faces implementing Convention standards.

External Tariff Liberalization in Caricom: A Commodity-Level Analysis

This paper estimates the impact of the tariff liberalization in four largest CARICOM countries (Barbados, Guyana, Jamaica, and Trinidad and Tobago) on their trade flows. I trace changes in the product-line imports from CARICOM and non-CARICOM countries against time and commodity-level variation in external tariffs. I find that in each country the reduction of the external tariff, which eroded preferences enjoyed by member imports, increased the ratio of imports from non-member countries to imports from member countries. In Trinidad and Tobago, the higher ratio was largely the result of non-member imports crowding out member imports. In the three other countries, the ratio increased mainly because of higher non-member imports; there is little evidence that tariff reductions had an impact on member imports. Findings suggest that in Trinidad and Tobago liberalization of the external tariff reversed some of the trade diversion effects of CARICOM.

Asia/Pacific Regional Trade Agreements: An empirical study

At the same time as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) have been encouraging trade liberalized, there has been a proliferation of Regional Trade Agreements (RTAs). These RTAs also aim to reduce trade barriers, but they do so it in a preferential way. There is continued debate as to whether such RTAs are an effective way of achieving free trade, or if increased trade among members causes less trade with non-member countries? If RTAs increase total trade, this is known as ‘trade creation’, whereas if the extra trade occurs at the expense of non-members, this is called ‘trade diversion’. Trade creation implies improved welfare, whereas ‘trade diversion’ may adversely affect welfare. This paper examines five different RTAs using a gravity model to see if they have been trade creating or trade diverting. Annual data from 26 countries covering five RTAs in the Asia and Pacific region for the years 1980–2000 was used. The results show that the effects of the different RTAs varied remarkably. The Association of South East Asian Nations (ASEAN) and the Australian and New Zealand Closer Economic Relations (CER) fostered greater trade with trading partners and with the rest of the world. While the Asian Pacific Economic Cooperation (APEC), the Southern Cone Common Market (MERCOSUR) and the North American Free Trade Association (NAFTA) tended to be trade diverting, that is, they expanded intra-bloc trade at the expense of trade with others.

Regional groupings, discrimination, and erosion of preferences: Effects of EU enlargement on the Mediterranean Basin

With the spread of regional and bilateral trade arrangements, there is always concern about the discriminatory impact on non-members. For example, the establishment of NAFTA deprived the Caribbean Basin of its preferential status vis-à-vis Mexico in the US market. Or alternatively, the enlargement of the EU from 15 to 25 countries may have adverse discriminatory effects on outsiders. This paper develops a method for assessing the effect of regional integration on non-member (non-integrating) countries that sustain trade diversion and/or lose preferential status in the integrating area. It then applies this methodology to gauge the impact of the 2004 EU Enlargement from 15 to 25 countries on the Mediterranean Basin. The method consists of three sequential steps: (1) determine the commodity overlap in the exports to the EU-15 between the acceding 10 and the Mediterranean countries. This is done by use of correlation coefficients and a specially-devised ‘export-similarity index’; (2) to the extent that significant overlap is found, identify the product groups in which it exists; and (3) determine the degree of protection in the EU-15 in those products and, hence, the erosion of competitive position of outsiders. Textiles and clothing are the sectors hit hardest in the Mediterranean countries by the EU enlargement.

A Proposed Korea-U.S. Free Trade Agreement and Kaesong Industrial Complex

IntroductionA free agreement is one form of a trading block, a preferential economic arrangement amongst a group of countries that reduces barriers to trade. Trading blocs have emerged as the most debated topic in world trade. While countries around the world are making efforts to suppress national interests in favor of trading blocs, these groupings are also seen as evidence of difficulties in preserving the current global trading system under the World Trade Organization (WTO).The WTO has five major functions: (1) administering its agreements; (2) acting as a forum for negotiations; (3) monitoring national policies; (4) offering technical assistance and training for developing countries; and (5) cooperating with other international organizations (Kim and Kim, 2006, p. 38).As a multi-party negotiation promoted by the WTO travels along a bumpy road, making little progress, trading blocs-particularly FTAs-have seen accelerated expansion. For example, a total of 43 agreements were reported to the WTO during a roughly one-year period from January 2004 to February 2005 (Lee, 2006, p. 122).South Korea and the U.S. agreed to start serious negotiations for a free agreement between the two countries on February 2, 2006. During the first preliminary session held in Seoul on March 6, they agreed to begin the formal negotiations on June 5. Because the U.S. president's authority to negotiate agreements, called the trade promotion authority, expires on June 30, 2007, and includes the 90-day congressional review period on the final negotiation results, the deal must be concluded by late March. One of the major sticking points for a successful conclusion has to do with disagreement between the two countries over the inclusion of products made by the Kaesong Industrial Complex (KIC), the first large-scale economic project jointly undertaken by both Korean governments.This article is organized as follows. The first section discusses types of trading blocs. The second section analyzes reasons for trading blocs. The third section describes U.S. objectives in an FTA. The fourth section considers Korean objectives in this FTA. The fifth section covers the Korean request for duty-free treatment for goods produced by the KIC. The last section describes the impact of the U.S. elections on the KORUS FTA.Trading Blocs: Types of Economic CooperationA trading bloc is a preferential economic arrangement amongst a group of countries that reduces interregional barriers to in goods, services, investment, and capital. Historically, trading blocs have consisted of member countries with similar levels of per capita income, geographic proximity, comparable trading regimes, and political commitment to regional organization (Ronkainen, 1993, pp. 1-18). While the European Community displayed all of these characteristics in its early stages with six members, recent developments have shown that political will to cooperate does overcome consequences of dissimilarity in the first three characteristics. The admission of Greece and Poland into the European Union and the bilateral agreement between Chile and Korea indicate that a united political will can overcome the consequences of most dissimilarity. Thus, five forms of economic integration have developed among countries: the free area, the customs union, the common market, economic union, and political union (Kim and Kim, 2006, pp. 39-43).The free area type of cooperation requires member countries to remove all tariffs amongst themselves. However, the member nations are allowed to have their own tariff arrangements with nonmember countries. The North American Free Trade Agreement (NAFTA) involving the U.S., Canada, and Mexico illustrates this free area type of agreement.Under the customs union arrangement, member nations not only abolish internal tariffs amongst themselves but also establish common external tariffs. …

ECONOMIC INTEGRATION AND RULES OF ORIGIN UNDER INTERNATIONAL OLIGOPOLY*

Free trade agreements (FTAs) have rules of origin (ROOs) to prevent tariff circumvention by firms of nonmember countries. This article points out that in imperfectly competitive markets, ROOs have another role overlooked in the existing literature. Instead of focusing on the impacts of ROOs in the intermediate‐good markets, we draw our attention to the final‐good markets to examine the effects of ROOs. We find that under some conditions, ROOs benefit both firms at the expense of consumers. Under some other conditions, ROOs benefit the firm producing outside the FTA and hurt the firm producing inside the FTA.

The Contribution of Intra-Regional and Extra-Regional Trade to Growth: Evidence from the European Union

Since the formation of the World Trade Organization, the proliferation of regional trade agreements has raised concerns regarding the prospects of multilateral trade liberalization. The objective of this paper is to assess whether trade among member countries (intra-regional trade) contributes more to output growth than trade with nonmember countries (extra-regional trade) using 13 European Union states. The empirical framework first estimates a series of Granger causality tests for the trade-growth relationship for EU countries in our sample. Next, the marginal effects of intra-regional and extra-regional trade on economic growth in the EU are estimated using a standard growth model with trade intensities as our focus variables. In addition to the basic influences of investment and population growth, the results confirm the importance of trade openness for growth. More importantly, they show that intra-regional trade has had a lesser impact on growth in output per capita than extra-regional trade by almost 30% over the period 1980-2003.

Short - term capital flows and growth in developed and emerging markets

Short-Term Capital Flows and Growth in Developed and Emerging Markets: A lot of attention has been directed towards recent financial crises. Empirical studies have found that short-term flows increase financial fragility and also increase the probability of financial crises. This study takes a macro-oriented approach and shows that large and volatile short-term flows may be growth inhibiting for emerging markets, while no effect is apparent for rich countries. The results in this study indicate that opening up emerging markets capital accounts, which implies increased short-term capital flows, is not a clear-cut way to prosperity.Macroeconomic Effects of Capital Controls on Short-Term Inflows: The financial turbulence of the last decade has led to a reanimated interest in capital controls as means to reduce volatile capital flows and exchange rate movements in emerging markets. A theoretical framework is set up where the effects on the return to capital, due to a tax on short-term capital inflows, are incorporated into a modified Dornbush model. Empirical findings in the form of GARCH and VAR estimations corroborate the theoretical assumptions and predictions of this simplified open economy model, when it comes to real and nominal exchange rates, interest rates and prices.The Effect of the Euro on Foreign Direct Investment: The recent effect of the European Monetary Union on inward FDI-flows is examined here. We use a difference-in-differences approach and fixed effects with common time controls. The estimated results of the latter approach show that the introduction of the Euro raises inward FDI by 17 percent within the Euro-area and by 9 and 12 percent to and from non-member countries respectively. Moreover the geographical effects of the Euro are explored. The results show partial agglomeration tendencies for the euro area. There are also some indications of increased importance of vertical specialization in the sample.

The effect of the euro on foreign direct investment

In this paper the recent effect of the European Monetary Union on inward FDI-flows is examined using a difference-in-differences approach. The estimated results show that the introduction of the euro raised inward FDI flows by approximately 16% within the euro area, by approximately 11% to non-members and weakly by around 8% from non-member countries into the euro area. Moreover, the geographical effects of the euro are explored. The results show partial agglomeration tendencies for the euro area. There are also some indications of increased importance of vertical specialization in the sample.