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.Economic Integration and WTO

.Economic Integration and WTO

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Published by carolsaviapeters
Notes on international economics
Notes on international economics

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Published by: carolsaviapeters on Aug 30, 2013
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Meaning of Economic Integration
Economic integration has emerged as an alternative to the policy of free trade.It is anarrangement in which certain countries having common economic interests and politicalsystem,agree upon to reduce or remove tariff and other trade barriers among themselveswhile retaining them against the rest of the world.In recent decades,the movement towards the formation of regional economic groups has gained considerable momentum.In its broadest sense, economic integration refers to the unification of distinct economiesinto a single lager economy. Some of the definitions of the term economic integration areas under :(1) According to D. Salvatore, economic integration means the "commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joiningtogether".(2) In the opinion of J.Timbergen, economic integration refers to "the creation of themost desirable structure of international economy removing artificial hindrances tothe optimum operation and introducing deliberately alldesirable elements of coordination and unification".(3) B. Balassa defines economic integration"as a process and as a state of affairs". As a process,economic integration consists of measures which aim at abolishingdiscr imination between economic units belonging to different nations. As a state of  affairs, it can be represented by theabsenceof variousforms of discrimination between counties. Economic integration is characterized by two important features:(i) Re-introduction of free trade among the member nations.(ii) Imposition of a common external tariff policy against the non-member countries.In the light of these two features, economic integration may be viewed as asynthesis between free trade and protection.
The following are the main objectives of economic integration:(1) To reap economic benefits from achieving a more efficient production structure byexploiting economies of scale.(2) To pursue non-economic objectives such as strengthening political relations andmanaging migration flows.(3) To ensure increased security of market access for smaller countries by theformation of regional trading blocs.
International Trade and Finance - I
Economic Integration and WTO
(4) To develop regional infant industries which cannot survive without a protectedregional market..(5) To prevent further damage to their trading strength due to further trade diversionfrom third countries.It may be noted that regional agreements have political objectives and even non-economic dimensions, including national security, increasing of bargaining strengthetc.
5.2Types of Economic Integration
The essence of economic integration is the economic co- operation among theparticipating countries. Hence, on the basis of the degree of cooperation, economicintegration assumes the following forms:(i) Preferential trade area or association(ii)Free trade area (ill)Customs union (iv) Common Market, and(v) Economic union(vi) Economic integrationNow we have to explain the above different forms of economic integration.
(i) Preferential Trade Area or Association
This is considered to be the most loose form of economic integration. In this case,the member countries lower tariffs on imports from each other .That is, they offer preferential treatment to the member countries. As regards the non-membecountries, they ikpose their individual tariffs. The classic example of this form of economic integration is the Commonwealth System of Preferences established in1932. It is headed by Britain and comprises of all Commonwealth countries -countries which were the colonies of Britain.
(ii) Free Trade Area
Under this system, the member countries abolish completely both tariff andquantitative restrictions among themselves. But each country has the freedom tomaintain its own trade barriers against the non-member countries.Examples of thiskind of arrangement are - European Free Trade Association (EFTA) formed in 1959and Latin American Free Trade Association (LAFTA) formed in 1961.
(iii) Customs Union
Customs union constitutes a more formal type of economic integration.In acustoms union, the following features are found:(a)Member countries abolish all tariffs and other trade barriers amongthemselves.
International Trade and Finance - I
Economic Integration and WTO
(b)They adopt a common external tariff and commercial policy to the nonmembers.(c) Customs union and free trade area are similar with regard to the abolition of alltrade barriers for the member countries.But the customs union differs from thefree trade area in respect of common external tariff to the non-member countries.(d) The customs union is a more close form of economic integration than a freetrade area. In a customs union, all the member countries act as a singleeconomic unit against the non-member countries.The most well-known customs union is the European Economic community (EEC)formed in 1957 by West Germany, France, Italy, Belgium, Netherlands andLuxemberg.It was Jacob Viner who put forth the theory of customs union for the first time. Other writers who contributed to the theory of customs union include J.E.Meade,R.G.Lipsey, H.G.Johnson, J.Vanek and others.
(iv) Common Market
The Common Market represents a more unified arrangement among group of countries than a customs union. Its features are as under:(a)Abolition of tariff and trade restrictions among the member countries.(b)Adoption of common external tariff.(c)Free movement of labour and capital among member countries. There is afree and integrated movement of goods and factors among.the member countries. The best example of the common market is the European CommonMarket.
(v) Economic Union
Economic union constitutes the most advanced form of economic'integration. Itsfeatures are as follows:(a)Two or more countries form a common market.(b) Member countries try to harmonise and unify their fiscal, monetary, exchangerate, industrial and other socio-economic policies.(c) Member countriesseek tohave a common currency and banking system. The best example of an economic union is the European union, earlier known asthe European Economic Community.
(vi) Economic Integration:
It is the ultimate and full form of economic integration. It is characterised by thecompletion of the removal of all barriers tointra-bloc movement of goods andfactors and unification of socialas well as economic policies. All the members arebound by super national authority consisting of executive, judicial and legislativebranches.
International Trade and Finance - I
Economic Integration and WTO

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