[SOUND]. [MUSIC] Now we'll speak about global regional trade system. And we'll start from the global system where trade organization, it's a region, and it's wise to remember since that general system of Bretton-Woods system including its trade wing, but also IMF and World Bank was created very much because of the memory of Great Depression of 1929, 1933. And here this is borrowed from IMF website, it's a graph from the very well known Kindleberger book on the Great Depression. And it illustrates how uncoordinated response to Great Depression worked and how the damaging for world trade. I mean, not that there are protection measures in trade policy, but also uncoordinated in actual devaluation. We see that, actually, in 1973 the volume of world trade was around 30% of the volume of 1929. So, it was really very damaging for the entire world economy. To avoid this already in the very early stage of building the post Second World War order it was convened United Nations Conference on Trade and Employment in Havana in 1947-1948 in order to establish the International Trade Organization, which was to be the said plug against old institution, apart from IMF and World Bank. However, some countries failed to ratify the ITO charter and first instance was the US Congress. And this organization was never established, but, fortunately, the parallel negotiations in Geneva on tariff reductions led to the signing of the General Agreement on Tariffs and Trade in 1947. And actually this institution called achronym GATT replaced the ITO. And then there was seven rounds of GATT negotiations between 1949 and 1994, and here we see record of these rounds. Most of them focus Geneva, Annecy, Torquay, again Geneva, and Geneva Dillon Round. Many countries beginning of 60s, they focus on tariffs, on cutting tariffs. But then starting from Geneva, so-called Kennedy Round, because this was of late President John Fitzgerald Kennedy. This was also started to imply anti-damping measures. Then, Tokyo Round, in 1970s. Also address non-tariff measures, and finally the Uruguay Rounds. So-called Uruguay Round, which lasted eight years from 1986 to 1994 dealt with tariffs, non-tariff measures, trading rules, services, intellectual property rights, dispute settlement, textile, agriculture. And finally to creating the WTO which became operational since 1995. And under already WTO agenda in 2001 a new round of trade liberalization negotiations, so-called the Doha, the Doha Development Round, was started. And after 12 years of very difficult negotiation produced very partial agreement on trade facilitation in Bali in December 2013. And the farther prospective rules of these are very unclear, because of too much disagreement between measure partners. The WTO is like IMF and World bank, a global character, it has 159 members since 2013. However several emerging markets economies remain outside WTO or are in the process of accession, but this process is in many cases far from being completed. This are Afghanistan, Algeria, Azerbaijan, Belarus, Bosnia and Herzegovina, Ethiopia, Iran, Iraq, Kazakhstan, Lebanon, Liberia, Libya, Serbia, Sudan, Syria, Turkmenistan, Uzbekistan, and Yemen. We see that especially two sub-regional groups here prevail. Countries of Commonwealth of Independent States, former Soviet Union, and some Arab countries. And what is WTO agenda? It's basically covers areas: trade in goods, trade in services, whereas general agreement of trade and services you have to GATT. Then intellectual property rights, trade, aspect of treaty-related issue of property rights, TRIPS. Dispute settlement, meaning mechanism of arbitrage between countries, and Trade policy review mechanism. And agenda of the most important part of this agreement, GATT General Agreement Tariffs and Trade, includes several issues: agriculture, health regulations for farm products, so-called sanitary and fetal sanitary measures, agreement protocol on textiles and clothing, product standards which are called in trade policy jargon, technical barriers to trade, investment measures, anti-dumping measures, customs valuation methods, pre-shipment inspection, subsidies and counter-measures. Rules of origin where a country can be considered as source of export and import licensing and finally safeguards. Agenda of General Agreement of Trades and Services is also a complex movement of natural persons, related to providing of services, provision of services: air transport, financial services, shipping, and telecommunication. And here's overall picture how the system works. Umbrella. This is agreement establishing World Trade Organization. Then we have three pillars of agreements, which we mentioned. Goods, services, intellectual property. And then we have dispute settlement mechanics, and trade policy reviews. And important parts of our market access commitments. Countries which apply to become members of the WTO. They go through process of bilateral, multilateral negotiations. They have to commit certain schedules of reaching the declared level of tariff and elimination of non-tariff measures and also potential exception to most nation for information rule. Doha Development Round, which I mentioned already, is even more ambitious and maybe this is one of the reasons why it didn't bring visible effects so far. This covers agricultural, services, market access, intellectual property rights, trade in, investment, trade and competition policy, government procurement, trade facilitation and WTO rules. So far, as I have mentioned, only trade facilitation agenda has been completed and effected in signings by the agreement in December 2013. And then is another set of issue under the Doha Develop Round is dispute settlement understanding, trade and environment, electronic commerce, the new phenomena in the world trade, special provision for small economies, trade, depth and finance, transfer of technology, technical cooperation, special agenda for least developed countries, and special and differential treatment. Quite an ambitious agenda, and again long way to go to complete the round. But apart from the global trade system, and probably because the progress in this global system is not so rapid. And actually for the last 15 years is a kind of stagnation, several groups of countries prefer to go ahead in regional, or some other grouping. This is the background of regional trade agreements, and this is a very complicated story from the point of view of trade theory. Because actually regional trade agreement, it means exception from the WTO non-discrimination principle of most favored nation treatment. That nobody can be treated worse than that the country to receive the lowest tariff. And as we know, regional trade agreements are usually cutting MFN tariffs, sometimes to zero. So this is a important exemption from WTOs. And this can bring most trade creation for members of such agreement. But also trade diversion, data discrimination to outsiders, but also sometimes to insider. It very much depends on the, intensity of trading you wouldn't block and also level of the preferential types versus to level of MFN types. Often such agreements also include non-economic agenda based on building friendship relations between neighboring countries for example. An impasse of the Doha round bring a new round of Regional Trade Agreements in many continents, especially in Asia, Africa, Latin America, but also between the largest partners like EU and US and many other emerging market economies. Whether such, this proliferation of new regional trade will help in reaching a new global agreement, it may but may not. Some economists, for example, the famous professor of the Columbia University, Jagdish Bhagwati, he considered the regional trade, trade agreements are like termites in trading system. So they lead towards undermining and do not bring global benefits. They were detrimental to global scale. And thee are various types of regional trade agreements. There are partial scope agreement, so covering some, just some issue, some sectors. There are free trade agreement. Comprehensive in two forms. Simple and deep. Simple usually deals only with tariffs and sometimes only in some part of the economy manufacturing goods. And deep agreements cover usually also other agriculture services and deal with non-tariffed barriers, investment rules, intellectual property rights, and several others. Then there are custom unions. The basic idea of custom unions is the elimination of custom borders between its members, and establishing the common external tie and common external border vis-a-vis said countries. And then there's common market. It's a bit like going with deep free trading only much farther. This is question also of market access, a lot of common regulatory agenda, which allow enterprises unrestricted access to market in other countries. This also usually involves, like in the EU, also free movement of capital and free movement of people. Then there is economic union, another form which also involved combination of macroeconomic policies. Sometimes monetary policy and we have few of them in the world, especially European Union. And then there are, we also have another form of partial trade liberalization, preferential trade arrangement. So, these are unilateral trade benefits provided by developed economies, like EU, US, Japan and others to less developing countries without expecting reciprocity. And now let's look for examples of customs unions, which are either fully functional or in the process of being built. European Union is the best known story. Customer between Belarus, Kazakhstan, and Russia newly created. EU, Turkey custom union inspector manufactured goods existed since mid-90s. Andean Community, covering countries such as Peru, like Ecuador, Colombia and then in Caribbean communities and common market, CARICOM, central American common market, common market for Eastern and Southern Africa, COMESA. East African Community, Economic and Monetary Community of Central Africa, CEMAC. This is also economic and monetary union. Economic Community of West African States, ECOWAS. Gulf Cooperation Council of countries of Arabian peninsula. West African Economic and Monetary Union, this is also a monetary union and partly economic union. Southern Common Market in Latin America, covering some big countries, like Brazil and Argentina but also Uruguay, Paraguay and others. MERCOSUR. Southern African Customs Union. SACU. And there are examples of multilateral free trade agreements which are not custom union but still are quite important. There is European Economic Area, which brings together EU and three countries of European Free Trade Area. Norway, Iceland, Lichtenstein. And Europe involves also Switzerland, three countries and Switzerland. Then we have Central European Free Trade Agreement. CEFTA which in the current form 2006 covers a number of European countries of Western Market Division. And then we have Commonwealth of Independent States. Countries of former Soviet Union, which apart from political dimensions this is also trading bloc. The same as a similar association of Southeastern Asian nations. This is political bloc, but also is trade and economic dimension. North American Free Trade Agreement between US, Canada and Mexico, NAFTA. Southern African Development Community. Pacific Island Countries Trade Agreement. So is quite many of the regional trade agreements and two big trade deals are on the table now. Trans-Pacific partnership between the United States and number of its. Australia is our partner, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US and Vietnam. And Transatlantic Trade Investment Partnership between European Union and US. In the next part we'll speak about free trade agreement between leading advanced economies and emerging market economies. [SOUND] [MUSIC]