Economic Integration Some countries create business opportunities for themselves by integrating their economies in order to avoid unnecessary

competition among themselves and also from the other countries. They discriminate against the other countries, which are not parties to the agreement, through tariffs. Economic integration can be defined as a kind of arrangement where countries get in agreement to coordinate and manage their fiscal,

trade, and monetary policies in order to be mutually benefitted by them. There are many degrees of economic integration, but the most preferred and popular one is free trade Different forms integration Free Trade Area Customs Union Common Market Economic Union Political Union Free Trade Area of economic

If a group of countries agree to abolish all trade restrictions and barriers or charge low rates of tariff in carrying out international trade, such a group is called Free Trade Area (FTA). A free trade area is usually a permanent arrangement between neighbouring countries. The arrangement does not, in general, apply to agriculture, fishing or service. Examples: 1. The North American Free Trade Agreement (NAFTA)

2. European Free Trade Association (EFTA) 3. Asian Free Trade Area (AFTA) Customs Union Customs union is advanced in degree to a free trade area. It has two basic features: 1. The member countries abolish all the restrictions and barriers on trade among themselves or charge low rates of tariffs. 2. They adopt a uniform commercial policy jointly on

barriers and restrictions with regard to the trade with the nonmember countries. Example: European Union (EU) agreed to form a customs union with Turkey in 1995 Common Market Common market has three basic features: 1 and 2 are same as customs union 3. They allow free movement of human resources, capital and

technology among the member countries. Thus, common market is superior to customs union The best example of a common market is the EU, which has achieved this status in 1990s as a result of a 35-year struggle to end barriers to the free movement of labour, capital and technology. Economic Union Economic union has four basic features:

1, 2 and 3 same as common market 4. They achieve uniformity in monetary and fiscal policy among the member countries. The Belgium-Luxembourg Economic Union, founded in 1922, is the best existing example of this form of economic integration. Political Union Political union implies formal political links between countries.

Limited form decision making common policies

Common bodies and

Extended form Unification of previously separated nations The Unification of East and West Germany in 1990 is an example of total political union. Advantages of Integration An increase of welfare has been recognized as a main objective of economic integration. The increase of trade between member countries

result in higher GDP, which in turn increases the economic condition of the member countries. Progress in trade All countries that follow economic integration have extremely wide range of goods and services from which they can choose. Introduction of economic integration helps in acquiring goods and services at much low costs. This results in higher savings that can be used for buying more products and services. Productive efficiency

As the factor of production of the countries are combined, the resources of the region are pooled. The pooling increases efficiency of output or productivity due to large scale economies. Long term benefits When countries enter into regional integration, they easily get into agreements and stick to them for long periods of time and thereby getting benefits for a long period of time. Improved political cooperation

Countries entering economic integration form groups and have greater political influence as compared to influence created by a single nation. Opportunities for employment Economic integration helps to liberalize and encourage trade. This results in market expansion due to which high amount of capital is invested in a countrys economy. This creates higher opportunities for employment of people from all over the world. They can move from one

country to another in search of jobs or for earning higher pay. Increase in Investments. Foreign Direct

Due to liberalized trade policy and co-operation among groups, economic integration helps to increase FDI. European Union 1952: European Coal and Steel Community (ECSC) was formed with six countries West Germany,

France, Italy, Belgium, and Luxembourg.

Netherlands

Objective: To eliminate import duties and quotas on coal, iron, steel and scrap regarding the international trade among the member countries 1957: The successful functioning of ECSC gave birth to European Economic Community (EEC) and European Atomic Energy Community (EAEC).

Objective: To extend this facility to all commodities among the member countries 1986: Establishment of Single European Act. This is known as Single European Market. 1991: Treaty on European Union 1992: The Treaty is signed, creating the European Union and introducing new forms of cooperation between Member governments Objective: To cover a wider range of policy

At present EU has 27 members and some more are expected to join. Main Activities/ objectives: 1. Elimination of custom duties, restrictions with regard to exports and imports of goods among the member countries 2. Establishment of a common customs tariff and common commercial policy with regards to non-member countries 3. Abolition of all obstacles for movement of persons, service and

capital among countries

the

member

4. Formulation of common policy in the area of agriculture and transport 5. Control the disequilibrium in the balance of payments among the member countries 6. Establishment of European Social Fund with a view to enhance the employment opportunities for workers and to improve their living standards

7. Establishment of European Investment Bank for mobilization of fresh resources and to contribute to the economic development of the community 8. Development of association with foreign countries to promote jointly the economic and social development of the member countries. One of the major achievements of the EU is the introduction of a single currency EURO for all the member countries w.e.f 1999 except three

countries Sweden.

UK,

Denmerk

and

Common Agricultural Policy (CAP) Different member countries of EEC were following different agricultural policy before the formation of EEC. Now there is a common agricultural policy among the member countries: 1. Agricultural products are free to move from one member country to other member countries.

2. Imports are allowed only when the demand for a product is more than its supply. 3. If the supply is more than demand, subsidies are allowed to export or to encourage additional consumption among the member countries. EEC established common price level for agricultural products in 1968 Evaluation of CAP

EEC reformed its CAP in 1992 with a view to make its agriculture more competitive globally. Since 2005 farmers are no longer subsidised, but instead receive a lump-sum called the Single Farm Payment (SFP) and are encouraged to produce in response to consumer demand. In May 2008 the Commission conducted a major review of the CAP to try to make it more efficient. Its proposals included: 1. Reducing SFPs to large farms

2. Increasing the amount of funds transferred to the Rural Development budget. The CAP budget for 2010 was 31% of the EU budget and 6.4% more than in 2009. For 2011 the CAP budget was reduced by 3%. Farming sector employment reduced by 25% during 2000-10. The reforms helped the rich farmers, but the financial strength of poor farmers is declining continuously.

The number of unemployment in agricultural sector is increases day by day, but the EU could not motivate them to seek alternative employment. Employment in Agriculture and other sectors of EU -27 Export and Import Data The Associations of South-East Asian Nations (ASEAN) A group of six countries- Singapore, Brunei, Malaysia, Philippines, Thailand and Indonesia agreed to

establish a common tariffs plan in 1992. This plan helped to create ASEAN free trade area with effect from January 1993. Later 4 countries joined the group: Vietnam (1995), Laos & Myanmar(1997) and Cambodia (1999). At present there are 10 member countries. Objectives 1. To encourage inflow of foreign investment into this region

2. To establish free trade area in the member countries 3. To reduce tariff of the products produced in ASEAN countries