1

1.1 INTRODUCTION TO ECONOMIC INTEGRATION

MEANING :

Economic integration is the unification of economic policies between different states
through the partial or full abolition of tariff and non-tariff restrictions on trade taking place
among them prior to their integration. This is meant in turn to lead to lower prices for
distributors and consumers with the goal of increasing the combined economic productivity
of the states.
There are varying levels of economic integration, including preferential trade agreements
(PTA), free trade areas (FTA), customs unions, common markets and economic and
monetary unions. The more integrated the economies become, the fewer trade barriers exist
and the more economic and political coordination there is between the member countries.
By integrating the economies of more than one country, the short-term benefits from the use
of tariffs and other trade barriers is diminished. At the same time, the more integrated the
economies become, the less power the governments of the member nations have to make
adjustments that would benefit themselves. In periods of economic growth, being integrated
can lead to greater long-term economic benefits; however, in periods of poor growth being
integrated can actually make things worse.


DEFINITION OF 'ECONOMIC INTEGRATION'

An economic arrangement between different regions marked by the reduction or elimination
of trade barriers and the coordination of monetary and fiscal policies. The aim of economic
integration is to reduce costs for both consumers and producers, as well as to increase trade
between the countries taking part in the agreement.



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1.2 BENEFITS OF ECONOMIC INTEGRATION

The ultimate aim of economic integration is to increase trade across the world. There are
many other advantages associated with this concept. Some of these are:

1. Progress in trade.

All countries that follow economic integration have extremely wide assortment of goods and
services from which they can choose. Introduction of economic integration helps in acquiring
goods and services at much low costs. This is because the removal of trade barriers reduces
or removes the tariffs entirely. Reduced duties and lowered prices save a lot of spare money
with countries which can be used for buying more products and services.

2. Ease of agreement.

When countries enter into regional integration, they easily get into agreements and stick to
them for long periods of time.

3. Improved political cooperation.

Countries entering economic integration form groups and have greater political influence as
compared to influence created by a single nation. Integration is a vital strategy for addressing
the effects of political instability and human conflicts that might affect a region.

4. Opportunities for employment.

The various options available in economic integration help 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 thus move from one country to another in search of jobs or for earning higher
pay.
5. Beneficial for financial markets.
3


Economic integration is extremely beneficial for financial markets as it eases firm to borrow
finances at low rate if interest. This is because capital liquidity of larger capital market
increases and the resultant diversification effect reduces the risks associated with high
investment.

6. Increase in Foreign Direct Investments.

Economic integration helps to increase the amount of money in Foreign Direct Investment
(FDI). Once firms start FDI, through new operations or by merger, takeover, and acquisition,
it becomes an international enterprise.
Thus economic integration is a win-win situation for all the firms, people and the economies
involved in the process. Is has become a preferred strategy for most countries of the world.














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1.3 LEVELS OF ECONOMIC INTEGRATION








Levels of Economic Integration There are about five additive levels of economic integration
impacting the global landscape:
Free trade. Tariffs (a tax imposed on imported goods) between member countries are
abolished or significantly reduced. Each member country keeps its own tariffs in
regard to third countries. The general goal is to develop economies of scale and
comparative advantages, which promotes economic efficiency.
Custom union. Sets common external tariffs among member countries, implying that
the same tariffs are applied to third countries. Custom unions are particularly useful to
5

level the competitiveness playing field and address the problem of re-exports (using
preferential tariffs in one country to enter another country).
Common market. Factors of production, such a labor and capital, are free to move
within member countries, expanding scale economies and comparative advantages.
Thus, a worker in a member country is able to move and work in another member
country.
Economic union. Monetary and fiscal policies between member countries are
harmonized, which implies a level of political integration. A further step concerns a
monetary union where a common currency is used, such as with the European Union
(Euro).
Political union. Represents the potentially most advanced form of integration with a
common government and were the sovereignty of member country is significantly
reduced. Only found within nation states, such as federations where there is a central
government and regions having a level of autonomy.













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1.4 AIMS AND OBJECTIVES OF ECONOMIC INTEGRATION

Economic integration refers to the coordination of national economic policies as a means of
boosting international trade, market activity and general cooperation among economies.
Formal international economic unions are a recent phenomenon, but former International
Monetary Fund economic counselor Michael Mussa traces the roots of global economic
integration to the medieval era. Despite the fact that the general aim of making trade flourish
remains the same, particular objectives of economic integration agreements have changed to
correspond to modern
political and economic circumstances.


INCREASE OF TRADE
When foreign products are subject to tariffs, exporters either have to accept the extra cost of
trade or make do with a lesser volume of exported products. A basic element of economic
integration policies is the abolition of part of the extra fees or even the full amount of them,
making trade cheaper and giving exporters a bigger incentive to do business with integrated
economies.


ALLOWING CONSUMERS TO SPEND MORE
Economic integration reduces or eliminates customs duties, which in turn results in cheaper
imported products for consumers. This way, the purchasing power of consumers grows, and
with it, activity in the market. The public can start buying more imported products or spend
former duty expenses on other products or services. In addition, goods that are not produced
in sufficient quantities in one country can be imported and distributed in the market with low
cost.
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MOVEMENT OF CAPITAL
Movement of capital refers to the transfer of business or individual assets among countries.
The benefits of capital movement is the investment in new markets, leading to their eventual
development. Economic integration removes barriers to foreign investors, minimizing or
abolishing extra tax, while advanced integration policies, such as a monetary union, can even
eliminate the cost of currency exchange. Movement of capital is recognized as an essential
element of economic integration by associations such as the European Union and the
Caribbean Community.

ECONOMIC COOPERATION

The concepts of economic cooperation and equitable economic development are the basis of
economic unions. When economies within the integrated area encounter problems, it is the
duty of other members to help, not only as a moral obligation, but because a failing economy
can have serious effects in the whole integration process. For this reason, European Union
countries have offered to bail out the troubled economies of Greece, Ireland and Portugal,
while the ASEAN (Association of Southeast Asian Nations) Vision 2020 declaration stresses
the importance of "equitable economic development" among member states.









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2.1 INTRODUCTION TO REGIONAL ECONOMIC INTEGRATION

Regional economic integration is a process in which neighboring states enter into an
agreement in order to upgrade cooperation through common institutions and rules. The
objectives of the agreement could range from economic to political to environmental,
although it has typically taken the form of a political economy initiative where commercial
interests are the focus for achieving broader socio-political and security objectives, as defined
by national governments. Regional integration has been organized either
via supranational institutional structures or through intergovernmental decision-making, or a
combination of both.
Past efforts at regional integration have often focused on removing barriers to free trade in
the region, increasing the free movement of people, labour, goods, and capital across national
borders, reducing the possibility of regional armed conflict (for example, through Confidence
and Security-Building Measures), and adopting cohesive regional stances on policy issues,
such as the environment, climate change and migration.
Intra-regional trade refers to trade which focuses on economic exchange primarily between
countries of the same region or economic zone. In recent years countries within economic-
trade regimes such as ASEAN in Southeast Asia for example have increased the level of
trade and commodity exchange between themselves which reduces
the inflation and tariff barriers associated with foreign markets resulting in growing
prosperity.











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2.2 ADVANTAGES OF REGIONAL ECONOMIC INTEGRATION

Regional economic integration refers to the agreement amongst countries within a certain
geographic area for reducing and ultimately removing tariff barriers, making sure there is
better flow of services or goods through the respective nations. The following article takes a
look at the benefits of regional economic integration.


1. Enhanced political cooperation

Several nations usually have a much larger political influence as compared to the influence
that each individual country would have. This kind of integration is a vital strategy for
addressing the issues of political instability and conflicts that might affect that particular
region. Moreover, improved political cooperation due to regional economic integration is also
vital for handling the economic and social challenges linked to globalization.


2. Creates trade

Member countries in a regional economic integration agreement have a wider choice of
services and goods that were previously unavailable. They can also easily acquire products at
lower costs following the removal or lowering of tariffs. This encourages more trade amongst
member nations. Actually, the extra money got from purchasing cheaper products may be
useful for buying even more goods and services.


3. Employment prospects

Since economic integration encourages trade liberation, market expansion and more
increased investment to member nations, it creates employment prospects. People can be able
to migrate from one nation to another for finding new jobs or earning higher pay. Industries
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that require mainly unskilled labor usually shift their production processes to the low wage
nations within the regional cooperation.


4. Encourages economic growth

Economic integration not only leads to creation of new and better technology, but it also
encourages economic growth. As the respective countries trade freely, their GDP increases
and
therefore improves their economies.

Nevertheless, regional economic integration usually requires that member nations give up
their control over key policies such as trade, fiscal and monetary policies.



















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2.3 TYPES OF ECONOMIC INTEGRATION
Economic cooperation or integration may take any one or a combination of any of the
following forms:
(i) Economic Union, (ii) Customs Union, (iii) Free Trade Area, (iv) Sectoral or Partial
Integration, (v) Preferential Trading, (vi) Long-term Trade Agreements.
These different forms of integration visualise different degrees of economic cooperation in
the descending order.
(I) ECONOMIC UNION
An Economic Union is a case of absolute integration. It implies complete economic
integration of a group of countries. There is, thus, free mobility of factor resources and
commodities in such a union. The economic activities and policies (fiscal, monetary and
general) of the member nations are perfectly harmonised, coordinated and collectively
operated. Benelux (Belgium, the Netherlands and Luxembourg) and the European Common
Market (ECM) are such economic unions. An economic union is, therefore, commonly
referred to as a common market.

(II) CUSTOMS UNION
A Customs Union involves a common external tariff against non-member countries, while
within the union itself there is unrestricted free trade. From the customs union gradually,
complete economic union is evolved. For instance in the case of ECM, the Rome Treaty
(1958) laid the basis of a customs union of the six member countries, leading finally to an
economic union by 1970.

(III) FREE TRADE AREA
A Free Trade Area involves the abolition of all trade restrictions within the group, but each
individual country in the group is free to maintain any sort of relation with the non-member
countries. Countries in a free trade area have, thus, no common external tariffs to maintain.
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The European Free Trade Association (EFTA), 1959, and the Latin American Free Trade
Association (LAFTA) serve as examples of such free trade areas.

(IV) SECTORAL OR PARTIAL INTEGRATION
A Sectoral of Partial Integration refers to the establishment of a common market in a given
product or products. The European Coal and Steel Community (ECSC), 1952, is such a
sectoral integration by which members of the "Inner Six" have created a common market in
coal and steel products within their territories.

(V)PREFERENTIAL TRADING
Preferential Trading is a sort of trading technique involving various measures for promoting
trade among the members of the group.
Generally, agreements may be entered into to ensure to each contracting party a favoured
treatment as compared to others. Such an agreement is usually referred to as the most-
favoured nation agreement. It may relate to commerce, industry and navigation, or it may
relate either to commodities or merely to customs duties. Ordinarily, the most-favoured
nation clause is bilateral in operation.
The trade liberalisation programme of the OEEC can be regarded as an example of
preferential trading. In 1950, the Code of Liberalisation was adopted by the members of the
OEEC in order to increase intra-European trade.

(VI)LONG-TERM TRADE CONTRACT
The Long-term Trade Contract is a type of bilateral arrangement, either in a single product or
many products of trade between any two nations. Its minimum duration may be an year or
more. For instance, India had once entered into a trade agreement with Japan for the supply
of iron ore for a period of five years. Such an agreement tends to stabilise the export of a
given product or products of the country concerned.
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2.4 STAGES OF ECONOMIC INTEGRATION:

As international trade and investment levels continue to rise, the level of economic
integration between various groups of nations is also deepening. The most obvious example
of this is the European Union, which has evolved from a collection of autarkical nations to
become a fully integrated economic unit. Although it is rare that relationships between
countries follow so precise a pattern, formal economic integration takes place in stages,
beginning with the lowering and removal of barriers to trade and culminating in the creation
of an economic union. These stages are summarized below.














Basic Elements of the Stages
of Economic Integration
Free Trade
Agreement (FTA)
Zero tariffs between
member countries and
reduced non-tariff
barriers
Customs Union
(CU)
FTA + common external
tariff
Common Market
(CM)
CU + free movement of
capital and labour, some
policy harmonization
Economic Union
(EU)
CM + common
economic policies and
institutions
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FREE TRADE AGREEMENTS
The first level of formal economic integration is the establishment of free trade agreements
(FTAs) or preferential trade agreements (PTAs). FTAs eliminate import tariffs as well as
import quotas between signatory countries. These agreements can be limited to a few sectors
or can encompass all aspects of international trade. FTAs can also include formal
mechanisms to resolve trade disputes. The North American Free Trade Agreement (NAFTA)
is an example of such an arrangement.
Aside from a commitment to a reciprocal trade liberalization schedule, FTAs place few
limitations on member states. Although FTAs may contain provisions in these areas if the
signatory countries agree to do so, no further harmonization of regulations, standards or
economic policies is required, nor is the free movement of capital and labour a necessary part
of a free trade agreement. FTA signatory countries also retain independent trade policy with
all countries outside the agreement.
However, in order for an FTA to function properly, member countries must establish rules of
origin for all third-party goods entering the free trade area. Goods produced within the free
trade area (and subject to the agreement) may cross borders tariff-free, but rules of origin
requirements must be met to prove that the good was in fact produced in the exporting
country. In the absence of rules of origin, third-party countries seeking trade access to the
FTA area will choose the path of least resistance the country where they face the lowest
opposing tariff in order to gain effective entry to the entire FTA region.

CUSTOMS UNION
A customs union (CU) builds on a free trade area by, in addition to removing internal barriers
to trade, also requiring participating nations to harmonize their external trade policy. This
includes establishing a common external tariff (CET) and import quotas on products entering
the region from third-party countries, as well as possibly establishing common trade remedy
policies such as anti-dumping and countervail measures. A customs union may also preclude
the use of trade remedy mechanisms within the union. Members of a CU also typically
negotiate any multilateral trade initiative (such as at the World Trade Organization) as a
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single bloc. Countries with an established customs union no longer require rules of origin,
since any product entering the CU area would be subject to the same tariff rates and/or import
quotas regardless of the point of entry.
The elimination of the need for rules of origin is the chief benefit of a customs union over a
free trade area. To maintain rules of origin requires extensive documentation by all FTA
member countries as well as enforcement of those rules at borders within the free trade area.
This is a costly process and can lead to disputes over interpretation of the rules as well as
other delays. A CU would result in significant administrative cost savings and efficiency
gains.
In order to gain the benefits of a customs union, member countries would have to surrender
some degree of policy freedom specifically the ability to set independent trade policy. By
extension, because of the increased importance of trade and economic measures as foreign
policy tools, customs unions place some limitations on independent foreign policy as well.

COMMON MARKET
A common market represents a major step towards significant economic integration. In
addition to containing the provisions of a customs union, a common market (CM) removes all
barriers to the mobility of people, capital and other resources within the area in question, as
well as eliminating non-tariff barriers to trade, such as the regulatory treatment of product
standards.
Establishing a common market typically requires significant policy harmonization in a
number of areas. Free movement of labour, for example, necessitates agreement on worker
qualifications and certifications. A common market is also typically associated whether by
design or consequence with a broad convergence of fiscal and monetary policies due to the
increased economic interdependence within the region and the effect that one member
countrys policies can have on other member countries. This necessarily places more severe
limitations on member countries ability to pursue independent economic policies.
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The principal advantage of establishing a common market is the expected gains in economic
efficiency. With unfettered mobility, labour and capital can more easily respond to economic
signals within the common market, resulting in a more efficient allocation of resources.

ECONOMIC UNION
The deepest form of economic integration, an economic union adds to a common market the
need to harmonize a number of key policy areas. Most notably, economic unions require
formally coordinated monetary and fiscal policies as well as labour market, regional
development, transportation and industrial policies. Since all countries would essentially
share the same economic space, it would be counter-productive to operate divergent policies
in those areas.
An economic union frequently includes the use of a common currency and a unified
monetary policy. Eliminating exchange rate uncertainty improves the functioning of an
economic union by allowing trade to follow economically efficient paths without being
unduly affected by exchange rate considerations. The same is true of business location
decisions.
Supranational institutions would be required to regulate commerce within the union to ensure
uniform application of the rules. These laws would still be administered at the national level,
but countries would abdicate individual control in this area.






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3.1The European Union (EU)
The European Union (EU) is a politico-economic union of 28member states that
are primarily located in Europe. The EU operates through a system
of supranational independent institutions and intergovernmental negotiated decisions by the
member states. Institutions of the EU include the European Commission, the Council of the
European Union, the European Council, the Court of Justice of the European Union,
the European Central Bank, the Court of Auditors, and the European Parliament. The
European Parliament is elected every five years by EU citizens.
The EU traces its origins from the European Coal and Steel Community (ECSC) and
the European Economic Community (EEC), formed by the Inner Six countries in 1951 and
1958, respectively. In the intervening years, the community and its successors have grown in
size by the accession of new member states and in power by the addition of policy areas to its
remit. The Maastricht Treaty established the European Union under its current name in
1993 The latest major amendment to the constitutional basis of the EU, the Treaty of Lisbon,
came into force in 2009.
The EU has developed a single market through a standardised system of laws that apply in all
member states. Within the Schengen Area, passport controls have been abolished. EU
policies aim to ensure the free movement of people, goods, services, and capital, enact
legislation in justice and home affairs, and maintain common policies on
trade, agriculture, fisheries, and regional development.
The monetary union was established in 1999 and came into full force in 2002. It is currently
composed of 18 member states that use the euro as their legal tender. Through the Common
Foreign and Security Policy, the EU has developed a role in external relations and defence.
The union maintains permanent diplomatic missions throughout the world and represents
itself at the United Nations, the WTO, the G8, and the G-20.
With a combined population of over 500 million inhabitants, or 7.3% of the world
population, the EU in 2012 generated a nominal gross domestic product (GDP) of 16.584
trillion US dollars, constituting approximately 23% of global nominal GDP and 20% when
measured in terms of purchasing power parity, which is the largest economy by nominal GDP
and the second largest economy by GDP (PPP) in the world. In 2012, the EU was awarded
the Nobel Peace Prize.
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Member states
There are 28 sovereign states constitute the union.
Through successive enlargements, the Union has grown from the six founding states
Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands to the current
28. Countries accede to the union by becoming party to the founding treaties, thereby
subjecting themselves to the privileges and obligations of EU membership. This entails a
partial delegation of sovereignty to the institutions in return for representation within those
institutions, a practice often referred to as "pooling of sovereignty
To become a member, a country must meet the Copenhagen criteria, defined at the 1993
meeting of the European Council in Copenhagen. These require a stable democracy that
respects human rights and the rule of law; a functioning market economy; and the acceptance
of the obligations of membership, including EU law. Evaluation of a country's fulfilment of
the criteria is the responsibility of the European Council No member state has ever left the
Union, although Greenland (an autonomous province of Denmark) withdrew in 1985.
The Lisbon Treaty now contains a clause providing for a member to leave the EU.
There are six countries which are recognized as candidates for
membership: Albania, Iceland, Macedonia, Montenegro, Serbia, and Turkey However, on 13
June 2013, Iceland's Foreign Minister, Gunnar Bragi Sveinsson, informed the European
Commission that the newly elected government intended to "put negotiations on hold".
Bosnia and Herzegovina and Kosovo are officially recognised as potential candidates, but
none have submitted a membership application. Due to the lack of recognition by five of the
28 EU member states, the European Commission refers only to "Kosovo*", with an
asterisked footnote containing the text agreed to by the BelgradePristina negotiations" This
designation is without prejudice to positions on status, and is in line with UNSCR 1244 and
the ICJ Opinion on the Kosovo Declaration of Independence."
Four countries forming the European Free Trade Association (EFTA) (that are not EU
members) have partly committed to the EU's economy and regulations: Iceland (a candidate
country for EU membership), Liechtenstein and Norway, which are a part of the single
market through the European Economic Area, and Switzerland, which has similar ties
through The relationships of the European microstates, Andorra, Monaco, San Marino, and
the Vatican include the use of the euro and other areas of co-operation.

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CONSTITUTIONAL NATURE
The classification of the European Union in terms of international or constitutional law has
been much debated, often in the light of the degree of integration that is perceived, desired, or
expected. Historically, at least, the EU is an international organisation, and by some criteria,
it could be classified as a confederation; but it also has many attributes of a federation, so
some would classify it as a (de facto) federation of states. For this reason, the organisation
has, in the past, been termed sui generis (incomparable, one of a kind), though it is also
argued that this designation is no longer

GOVERNANCE
The European Union has seven institutions: the European Parliament, the Council of the
European Union, the European Commission, the European Council, the European Central
Bank, the Court of Justice of the European Union and theEuropean Court of Auditors.
Competencies in scrutinising and amending legislation are divided between the European
Parliament and the Council of the European Union while executive tasks are carried out by
the European Commission and in a limited capacity by the European Council (not to be
confused with the aforementioned Council of the European Union). The monetary policy of
the eurozone is governed by the European Central Bank. The interpretation and the
application of EU law and the treaties are ensured by the Court of Justice of the European
Union. The EU budget is scrutinised by the European Court of Auditors. There are also a
number of ancillary bodies which advise the EU or operate in a specific area.








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3.2 NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

The North American Free Trade Agreement (NAFTA) is an agreement signed
by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North
America. The agreement came into force on January 1, 1994. It superseded the Canada
United States Free Trade Agreement between the U.S. and Canada.
NAFTA has two supplements: the North American Agreement on Environmental
Cooperation (NAAEC) and the North American Agreement on Labor Cooperation
(NAALC).
In terms of combined purchasing power parity GDP of its members, as of 2013the trade bloc
is the largest in the world as well as by nominal GDP comparison.

INTELLECTUAL PROPERTY
North American Free Trade Agreement Implementation Act made some changes to
the Copyright law of the United States, foreshadowing the Uruguay Round Agreements
Act of 1994 by restoring copyright (within NAFTA) on certain motion pictures which had
entered the public domain.

ENVIRONMENT
Securing U.S. congressional approval for NAFTA would have been impossible without
addressing public concerns about NAFTAs environmental impact. The Clinton
administration negotiated a side agreement on the environment with Canada and Mexico, the
North American Agreement on Environmental Cooperation (NAAEC), which led to the
creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate
concerns that NAFTA, the first regional trade agreement between a developing country and
two developed countries, would have negative environmental impacts, the CEC was given a
mandate to conduct ongoing ex post environmental assessment of NAFTA
In response to this mandate, the CEC created a framework for conducting environmental
analysis of NAFTA, one of the firstex post frameworks for the environmental assessment of
trade liberalization. The framework was designed to produce a focused and systematic body
of evidence with respect to the initial hypotheses about NAFTA and the environment, such as
21

the concern that NAFTA would create a "race to the bottom" in environmental regulation
among the three countries, or the hope that NAFTA would pressure governments to increase
their environmental protection mechanisms. The CEC has held four symposia using this
framework to evaluate the environmental impacts of NAFTA and has commissioned 47
papers on this subject. In keeping with the CECs overall strategy of transparency and public
involvement, the CEC commissioned these papers from leading independent experts.

AGRICULTURE
From the earliest negotiation, agriculture was (and still remains) a controversial topic within
NAFTA, as it has been with almost all free trade agreements that have been signed within
the WTO framework. Agriculture is the only section that was not negotiated trilaterally;
instead, three separate agreements were signed between each pair of parties. The Canada
U.S. agreement contains significant restrictions and tariff quotas on agricultural products
(mainly sugar, dairy, and poultry products), whereas the MexicoU.S. pact allows for a
wider liberalization within a framework of phase-out periods (it was the first North
South FTA on agriculture to be signed).

TRANSPORTATION INFRASTRUCTURE
NAFTA established the CANAMEX Corridor for road transport between Canada and
Mexico, also proposed for use by rail, pipeline, and fiber optic telecommunications
infrastructure. This became a High Priority Corridor under the U.S. Intermodal Surface
Transportation Efficiency Act of 1991.

IMPACT ON MEXICAN FARMERS
In 2000, U.S. government subsidies to the corn sector totalled $10.1 billion. These subsidies
have led to charges of dumping, which jeopardizes Mexican farms and the country's food
self-sufficiency.
Other studies reject NAFTA as the force responsible for depressing the incomes of poor corn
farmers, citing the trend's existence more than a decade before NAFTA's existence, an
increase in maize production after NAFTA went into effect in 1994, and the lack of a
measurable impact on the price of Mexican corn due to subsidized corn coming into Mexico
from the United States, though they agree that the abolition of U.S. agricultural subsidies
would benefit Mexican farmers. According to Graham Purchase in Anarchism and
22

Environmental Survival, NAFTA could cause "the destruction of the peasant cooperative
village holdings by corporate interests, and threatens to completely reverse the gains made by
rural peoples in the Mexican Revolution

TRADE BALANCES
The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25
billion) over 2009. The US goods trade deficit with NAFTA accounted for 26.8% of the
overall U.S. goods trade deficit in 2010. The US had a services trade surplus of $28.3 billion
with NAFTA countries in 2009 (the latest data available).
In a study published in the August 2008 issue of the American Journal of Agricultural
Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even
though most of this increase occurred a decade after its ratification. The study focused on the
effects that gradual "phase-in" periods in regional trade agreements, including NAFTA, have
on trade flows. Most of the increase in members agricultural trade, which was only recently
brought under the purview of the World Trade Organization, was due to very high trade
barriers before NAFTA or other regional trade agreements.

INVESTMENT
The US foreign direct investment (FDI) in NAFTA Countries (stock) was $327.5 billion in
2009 (latest data available), up 8.8% from 2008. The US direct investment in NAFTA
countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and
mining sectors. The foreign direct investment, of Canada and Mexico in the United States
(stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.

ENVIRONMENT
Overall, none of the initial hypotheses were confirmed, NAFTA did not inherently present a
systemic threat to the North American environment, as was originally feared. NAFTA-related
environmental threats instead occurred in specific areas where government environmental
policy, infrastructure, or mechanisms, were unprepared for the increasing scale of production
under trade liberalization. In some cases, environmental policy was neglected in the wake of
trade liberalization; in other cases, NAFTA's measures for investment protection, such as
Chapter 11, and measures against non-tariff trade barriers, threatened to discourage more
vigorous environmental policy.
23

The most serious overall increases in pollution due to NAFTA were found in the base metals
sector, the Mexican petroleum sector, and the transportation equipment sector in the United
States and Mexico, but not in Canada.

Mobility of persons
According to the Department of Homeland Security Yearbook of Immigration Statistics,
during fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign
professionals (64,633 Canadians and 9,247 Mexicans) were admitted into the United States
for temporary employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of
their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-
country nationals married to Canadians and Mexicans) entered the U.S. in the treaty
national's dependent (TD) status. Because DHS counts the number of the new I-94 arrival
records filled at the border, and the TN-1 admission is valid for three years, the number of
non-immigrants in TN status present in the U.S. at the end of the fiscal year is approximately
equal to the number of admissions during the year. (A discrepancy may be caused by some
TN entrants leaving the country or changing status before their three-year admission period
has expired, while other immigrants admitted earlier may change their status to TN or TD, or
extend TN status granted earlier).
Canadian authorities estimated that, as of December 1, 2006, a total of 24,830 U.S. citizens
and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers
include both entrants under the NAFTA agreement and those who have entered under other
provisions of the Canadian immigration law. New entries of foreign workers in 2006 were
16,841 (U.S. citizens) and 13,933 (Mexicans).







24

3.3 ASIA-PACIFIC ECONOMIC COOPERATION (APEC)

Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim member
economies that seeks to promote free trade and economic cooperation throughout the Asia-
Pacific region. It was established in 1989 in response to the growing interdependence of
Asia-Pacific economies and the advent of regional trade blocs in other parts of the world; to
fears that highly industrialized Japan (a member of G8) would come to dominate economic
activity in the Asia-Pacific region; and to establish new markets for agricultural products and
raw materials beyond Europe (where demand had been declining). APEC works to
raise living standards and education levels through sustainable economic growth and to foster
a sense of community and an appreciation of shared interests among Asia-Pacific countries.
APEC includes newly industrialized economies, although the agenda of free trade was a
sensitive issue for the developing NIEs at the time APEC founded, and aims to
enable ASEAN economies to explore new export market opportunities fornatural
resources such as natural gas, as well as to seek regional economic integration (industrial
integration) by means of foreign direct investment. Members account for approximately 40%
of the world's population, approximately 54% of the world's gross domestic product and
about 44% of world trade. For APEC Economic Trends Analysis in 2012, see.
An annual APEC Economic Leaders' Meeting is attended by the heads of government of all
APEC members except Taiwan (which is represented by aministerial-level official under the
name Chinese Taipei as economic leader). The location of the meeting rotates annually
among the member economies, and a famous tradition, followed for most (but not all)
summits, involves the attending leaders dressing in a national costume of the host country.

APECS THREE PILLARS
To meet the Bogor Goals, APEC carries out work in three main areas:
1. Trade and Investment Liberalisation
2. Business Facilitation
3. Economic and Technical Cooperation


25

APEC AND TRADE LIBERALISATION

According to the organization itself, when APEC was established in 1989 average trade
barriers in the region stood at 16.9 percent, but had been reduced to 5.5% in 2004.

APEC'S BUSINESS FACILITATION EFFORTS

APEC has long been at the forefront of reform efforts in the area of business facilitation.
Between 2002 and 2006 the costs of business transactions across the region was reduced by
6%, thanks to the APEC Trade Facilitation Action Plan (TFAPI). Between 2007 and 2010,
APEC hopes to achieve an additional 5% reduction in business transaction costs. To this end,
a new Trade Facilitation Action Plan has been endorsed. According to a 2008 research brief
published by the World Banks part of its Trade Costs and Facilitation Project, increasing
transparency in the region's trading system is critical if APEC is to meet its Bogor Goal
targets. The APEC Business Travel Card, a travel document for visa-free business travel
within the region is one of the concrete measures to facilitate business. In May 2010 Russia
joined the scheme, thus completing the circle.


PROPOSED FREE TRADE AREA OF THE ASIA-PACIFIC

APEC first formally started discussing the concept of a Free Trade Area of the Asia-Pacific at
its summit in 2006 in Hanoi. However, the proposal for such an area has been around since at
least 1966 and Japanese economist Kiyoshi Kojima (ja)'s proposal for a Pacific Free Trade
agreement proposal. While it gained little traction, the idea led to the formation of Pacific
Trade and Development Conference and then the Pacific Economic Cooperation Council in
1980 and then APEC in 1989.
In more recent times, economist C. Fred Bergsten has been the foremost advocate of a Free
Trade Agreement of Asia-Pacific. His ideas convinced the APEC Business Advisory Council
to support this concept.
The proposal for a FTAAP arose due to the lack of progress in the Doha round of World
Trade Organization negotiations, and as a way to overcome the "noodle bowl" effect created
26

by overlapping and conflicting elements of the copious free trade agreements there were
approximately 60 free trade agreements in 2007, with an additional 117 in the process of
negotiation in Southeast Asia and the Asia-Pacific region.

In 2012, ASEAN+6 countries
alone had 339 free trade agreements - many of which were bilateral.
The FTAAP is more ambitious in scope than the Doha round, which limits itself to reducing
trade restrictions. The FTAAP would create a free trade zone that would considerably expand
commerce and economic growth in the region.
[22][24]
The economic expansion and growth in
trade could exceed the expectations of other regional free trade areas such as the ASEAN
Plus Three (ASEAN + China, Japan, and South Korea). Some criticisms include that the
diversion of trade within APEC members would create trade imbalances, market conflicts
and complications with nations of other regions. The development of the FTAAP is expected
to take many years, involving essential studies, evaluations and negotiations between member
economies. It is also affected by the absence of political will and popular agitations and
lobbying against free trade in domestic politics.













27

3.4 ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN)

The Association of Southeast Asian Nations (ASEAN) a political and economic
organisation of ten countries located in Southeast Asia, which was formed on 8 August 1967
by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has
expanded to include Brunei, Cambodia, Laos, Myanmar (Burma) and Vietnam. Its aims
include accelerating economic growth, social progress, sociocultural evolution among its
members, protection of regional peace and stability, and opportunities for member countries
to discuss differences peacefully.
ASEAN covers a land area of 4.46 million km, which is 3% of the total land area of Earth,
and has a population of approximately 600 million people, which is 8.8% of the world's
population. The sea area of ASEAN is about three times larger than its land counterpart. In
2012, its combined nominal GDP had grown to more than US$2.3 trillion. If ASEAN were a
single entity, it would rank as the sixth largest economy in the world, behind the US, China,
India, Japan and Germany.

THE MEMBER STATES OF ASEAN

Burma (Myanmar), Thailand, Malaysia, Singapore, Indonesia.
ASEAN was existing before by an organisation called the Association of Southeast
Asia (ASA), a group consisting of the Philippines, Malaysia and Thailand that was formed in
1961. The bloc itself, however, was inaugurated on 8 August 1967, when foreign ministers of
five countries Indonesia, Malaysia, the Philippines, Singapore, and Thailand met at the
Thai Department of Foreign Affairs building in Bangkok and signed the ASEAN Declaration,
more commonly known as the Bangkok Declaration. The five foreign ministers Adam
Malik of Indonesia, Narciso Ramos of the Philippines, Abdul Razak of Malaysia, S.
Rajaratnam of Singapore, and Thanat Khoman of Thailand are considered the organisation's
Founding Fathers.
The motivations for the birth of ASEAN were so that its members governing elite could
concentrate on nation building, the common fear of communism, reduced faith in or mistrust
of external powers in the 1960s, and a desire for economic development.
28

The block grew when Brunei Darussalam became the sixth member on 8 January 1984,
barely a week after gaining independence on 1 January.

CONTINUED EXPANSION

On 28 July 1995, Vietnam became the seventh member. Laos and Myanmar (Burma) joined
two years later on 23 July 1997. Cambodia was to have joined together with Laos and Burma,
but was deferred due to the country's internal political struggle. The country later joined on
30 April 1999, following the stabilisation of its government.
During the 1990s, the bloc experienced an increase in both membership and drive for further
integration. In 1990, Malaysia proposed the creation of an East Asia Economic Caucus

comprising the then members of ASEAN as well as the People's Republic of China, Japan,
and South Korea, with the intention of counterbalancing the growing influence of the United
States in the Asia-Pacific Economic Cooperation (APEC) and in the Asian region as a
whole.This proposal failed, however, because of heavy opposition from the United States and
Japan. Despite this failure, member states continued to work for further integration
and ASEAN Plus Three was created in 1997.
In 1992, the Common Effective Preferential Tariff (CEPT) scheme was signed as a schedule
for phasing tariffs and as a goal to increase the regions competitive advantage as a
production base geared for the world market. This law would act as the framework for
the ASEAN Free Trade Area. After the East Asian Financial Crisis of 1997, a revival of the
Malaysian proposal was established in Chiang Mai, known as the Chiang Mai Initiative,
which calls for better integration between the economies of ASEAN as well as the ASEAN
Plus Three countries (China, Japan, and South Korea).
Aside from improving each member state's economies, the bloc also focused on peace and
stability in the region. On 15 December 1995, the Southeast Asian Nuclear-Weapon-Free
Zone Treaty was signed with the intention of turning Southeast Asia into a Nuclear-Weapon-
Free Zone. The treaty took effect on 28 March 1997 after all but one of the member states
have ratified it. It became fully effective on 21 June 2001, after the Philippines ratified it,
effectively banning all nuclear weapons in the region.



29

ASEAN PLUS THREE
Leaders of each country felt the need to further integrate the region. Beginning in 1997, the
bloc began creating organisations within its framework with the intention of achieving this
goal. ASEAN Plus Three was the first of these and was created to improve existing ties with
the People's Republic of China, Japan, and South Korea. This was followed by the even
larger East Asia Summit, which now includes these countries as well as India, Australia, New
Zealand, United States and Russia. This new grouping acted as a prerequisite for the
planned East Asia Community, which was supposedly patterned after the now-
defunct European Community. The ASEAN Eminent Persons Group was created to study the
possible successes and failures of this policy as well as the possibility of drafting an ASEAN
Charter.
In 2006, ASEAN was given observer status at the United Nations General Assembly. As a
response, the organisation awarded the status of "dialogue partner" to the United Nations.

ASEAN CAPITAL MARKET FORUM
ASEAN Capital Market Forum (ACMF) consist of:
ASEAN Linkage, until end of 2013 only has 3 stock exchange members: Bursa Malaysia,
Singapore Exchange and Stock Exchange of Thailand, but cover 70 percent of transaction
values of 7 ASEAN Stock Exchanges, with objective to integrate ASEAN Stock
Exchanges to compete with International Stock Exchanges
Mutual Recognigtion of Disclosure Standards, with objective to harmonise and equal of
ASEAN Standards
Mutual Recognition of Collective of Investment Scheme (CIS), with objective to
harmonise all regulations in ASEAN which related with CIS, some countries are still
categorised as Financial Action Task Force (FATF) Non-Cooperative Country which are
not maximum to do with money laundering and terrorism






30

3.5 SOUTH ASIAN ASSOCIATION FOR REGIONAL
COOPERATION (SAARC)

The South Asian Association for Regional Cooperation (SAARC) is an
economic and geopolitical organization of eight countries that are primarily located in South
Asia. The SAARC Secretariat is based in Kathmandu, Nepal.
The idea of regional political and economical cooperation in South Asia was first raised in
1980 and the first summit was held in Dhaka on 8 December 1985, when the organization
was established by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
and Sri Lanka. Since then the organization has expanded by accepting one new full member,
Afghanistan, and several observer members.
The SAARC policies aim to promote welfare economics, collective self-reliance among the
countries of South Asia, and to accelerate socio-cultural development in the region. The
SAARC has developed external relations by establishing permanent diplomatic relations with
the EU, the UN (as an observer), and other multilateral entities. The official meetings of the
leaders of each nation are held annually whilst the foreign ministers meet twice annually. The
18th SAARC Summit is scheduled to be held in Kathmandu in November 2014.

IDEA OF CO-OPERATION
The idea of co-operation in South Asia was discussed in at least three conferences: the Asian
Relations Conferenceheld in New Delhi on April 1947; the Baguio Conference in
the Philippines on May 1950; and the Colombo Powers Conference held in Sri Lanka on
April 1954.The first concrete proposal for establishing a regional cooperation in South Asia
was made by the late president of Bangladesh, Ziaur Rahman, on May 2, 1980.
In the ending years of the 1970s, the seven inner South Asian nations that
included Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka agreed upon
the creation of a trade bloc and to provide a platform for the people of South Asia to work
together in a spirit of friendship, trust and understanding. President Ziaur Rahman later
addressed official letters to the leaders of the countries of the South Asia, presenting his
vision for the future of the region and the compelling arguments for region. During his visit
to India in December 1977,President Ziaur Rahman discussed the issue of regional
31

cooperation with the Indian Prime Minister, Morarji Desai. In the inaugural speech to the
Colombo Plan Consultative Committee which met in Kathmandu also in 1977, King
Birendra of Nepal gave a call for close regional cooperation among South Asian countries in
sharing river waters. After the USSR's intervention in Afghanistan, the efforts to established
the union was accelerated in 1979 and the resulting rapid deterioration of South Asian
security situation. Responding to the President Zia Rehman and King Birendra's convention,
the officials of the foreign ministries of the seven countries met for the first time
in Colombo in April 1981.
[18]
The Bangladesh's proposal was promptly endorsed
by Nepal, Sri Lanka, Bhutanand the Maldives but India and Pakistan were skeptical
initially. The Indian concern was the proposals reference to the security matters in South
Asia and feared that President Zia Rehman's proposal for a regional organization might
provide an opportunity for new smaller neighbors to renationalized all bilateral issues and to
join with each other to gang up against India. Pakistan assumed that it might be an Indian
strategy to organize the other South Asian countries against Pakistan and ensure a regional
market for Indian products, thereby consolidating and further strengthening Indias economic
dominance in the region.
However, after a series of quiet diplomatic consultations between South Asian foreign
ministers at the UN headquarters in New York from August to September 1980, it was agreed
that Bangladesh would prepare the draft of a working paper for discussion among the foreign
secretaries of South Asian countries. The foreign secretaries of the inner seven countries
again delegated a Committee of the Whole in Colombo on September 1981, which identified
five broad areas for regional cooperation. New areas of co-operation were added in the
following years.
In 1983, the international conference held by Indian Minister of External Affairs PVN
Rao in New Delhi, the foreign ministers of the inner seven countries adopted the Declaration
on South Asian Association Regional Cooperation (SAARC) and formally launched the
Integrated Programme of Action (IPA) initially in five agreed areas of cooperation namely,
Agriculture; Rural Development; Telecommunications; Meteorology; and Health and
Population Activities.
Officially, the union was established in Dhaka with Kathmandu being union's secretariat-
general. The first SAARC summit was held in Dhaka on 78 December 1985 and hosted by
the President of Bangladesh Hussain Ershad.

The declaration signed by King of Bhutan Jigme
Singye, President of Pakistan Zia-ul-Haq, Prime Minister of India Rajiv Gandhi, King of
32

Nepal Birendra Shah, President of Sri Lanka JR Jayewardene, and President of
Maldives Maumoon Gayoom. The group was given an impetus in 2014 with the inauguration
of Indian Prime Minister Narendra Modi and the consequent foreign policy of Narendra
Modi.

SAARC was founded by seven states in 1985. In 2005, Afghanistan began negotiating their
accession to SAARC and formally applied for membership on the same year. The issue of
Afghanistan joining SAARC generated a great deal of debate in each member state, including
concerns about the definition of South Asian identity because Afghanistan is a Central Asian
country.
The SAARC member states imposed a stipulation for Afghanistan to hold a general election;
the non-partisan elections were held in late 2005. Despite initial reluctance and internal
debates, Afghanistan joined SAARC as its eighth member state in April 2007.

OBSERVERS

States with observer status include Australia, China the European Union,

Iran, Japan
Mauritius, Myanmar, South Korea and the United States.
On 2 August 2006, the foreign ministers of the SAARC countries agreed in principle to grant
observer status to three applicants; the US and South Korea (both made requests in April
2006),

as well as the European Union (requested in July 2006).

On 4 March
2008, Iran requested observer status, followed shortly by Mauritius.

POTENTIAL FUTURE MEMBERS

Myanmar has expressed interest in upgrading its status from an observer to a full member of
SAARC.

Russia has applied for observer status membership of SAARC. Turkey applied for
observer status membership of SAARC in 2012. South Africa has participated in meetings.




33

SECRETARIAT


Secretariat of the South Asian Association for Regional Cooperation in Kathmandu, Nepal
The SAARC Secretariat was established in Kathmandu on 16 January 1987 and was
inaugurated by Late King Birendra Bir Bikram Shah of Nepal.

REGIONAL CENTRES

The SAARC Secretariat is supported by following Regional Centres established in Member
States to promote regional co-operation. These Centres are managed by Governing Boards
comprising representatives from all the Member States, SAARC Secretary-General and the
Ministry of Foreign/External Affairs of the Host Government. The Director of the Centre acts
as Member Secretary to the Governing Board which reports to the Programming Committee.
SAARC Agricultural Centre (SAC), Dhaka, Bangladesh
SAARC Meteorological Research Centre (SMRC), Dhaka, Bangladesh
SAARC Tuberculosis and HIV/AIDS Centre (STAC), Kathmandu, Nepal
SAARC Documentation Centre (SDC), New Delhi, India
SAARC Human Resources Development Centre (SHRDC), Islamabad, Pakistan
SAARC Coastal Zone Management Centre (SCZMC), Maldives
SAARC Information Centre (SIC), Nepal
SAARC Energy Centre (SEC), Pakistan
SAARC Disaster Management Centre (SDMC), India
SAARC Forestry Centre (SFC), Bhutan

34

APEX AND RECOGNIZED BODIES

SAARC has six Apex Bodies namely, SAARC Chamber of Commerce & Industry (SCCI),
SAARCLAW (South Asian Association For Regional Cooperation In Law), South Asian
Federation of Accountants (SAFA), South Asia Foundation (SAF), South Asia Initiative to
End Violence Against Children (SAIEVAC), Foundation of SAARC Writers and Literature
(FOSWAL)
Hemant Batra is the current incumbent Secretary General of SAARCLAW.
SAARC also has about 17 recognised bodies.

POLITICAL ISSUES

Lasting peace and prosperity of the Indian subcontinent has been elusive due to the various
ongoing conflicts and in the region. Political dialogue is often conducted on the margins of
SAARC meetings which have refrained from interfering in the internal matters of its member
states. During the 12th and 13th SAARC summits, extreme emphasis was laid upon greater
co-operation between the SAARC members to fight terrorism.


SOUTH ASIAN FREE TRADE AREA (SAFTA)

SAFTA was envisaged primarily as the first step towards the transition to a South Asian Free
Trade Area (SAFTA) leading subsequently towards a Customs Union, Common Market and
Economic Union. In 1995, the Sixteenth session of the Council of Ministers (New Delhi, 18
19 December 1995) agreed on the need to strive for the realisation of SAFTA and to this end
an Inter-Governmental Expert Group (IGEG) was set up in 1996 to identify the necessary
steps for progressing to a free trade area. The Tenth SAARC Summit (Colombo, 2931 July
1998) decided to set up a Committee of Experts (COE) to draft a comprehensive treaty
framework for creating a free trade area within the region, taking into consideration the
asymmetries in development within the region and bearing in mind the need to fix realistic
and achievable targets. The SAFTA Agreement was signed on 6 January 2004 during Twelfth
SAARC Summit held in Islamabad, Pakistan. The Agreement entered into force on 1 January
2006, and the Trade Liberalization Programme commenced from 1 July 2006. Under this
35

agreement, SAARC members will bring their duties down to 20 per cent by 2009. Following
the Agreement coming into force the SAFTA Ministerial Council (SMC) has been
established comprising the Commerce Ministers of the Member States.

SAARC VISA EXEMPTION SCHEME

The SAARC Visa Exemption Scheme was launched in 1992. The leaders at the Fourth
Summit (Islamabad, 2931 December 1988), while realising the importance of having people
to people contacts, among the peoples of SAARC countries, decided that certain categories of
dignitaries should be entitled to a Special Travel document, which would exempt them from
visas within the region. As directed by the Summit, the Council of Ministers regularly kept
under review the list of entitled categories. Currently the list included 24 categories of
entitled persons, which include Dignitaries, Judges of higher courts, Parliamentarians, Senior
Officials, Businessmen, Journalists, Sportsmen etc. The Visa Stickers are issued by the
respective Member States to the entitled categories of that particular country. The validity of
the Visa Sticker is generally for one year. The implementation is reviewed regularly by the
Immigration Authorities of SAARC Member States.











36

5.1 CONCLUSION

I CONCLUDE THAT, The effects of regional integration on trade depend on the relative
position of each country with respect to others in terms of factor endowment ratios. Countries
with the highest capital-labour ratio in a trade bloc benefit from integration since regional
integration will divert some imports of capital-intensive goods from outside countries.
Economic integration of developing countries has been a failure owing to poverty, political
turmoil, overlapping membership and differences in economic structure of members.
Researchers have advocated for regional cooperation agreements, rather than regional trade
blocs, as better schemes for developing regions. Sub-Saharan Africa is no exception.
International trade is indeed an essential policy formulation for the growth and development
of a country. Developmental theories and Economic Adjustment Programmes have cited
trade liberalisation as one of the policy reforms necessary for the growth of developing
countries. The growing trend in world trade shows bilateral and regional agreements taking
greater precedence over global or inter-regional trade and to that effect every continental
region has at least one major integration movement. Almost all countries are members of at
least one trade bloc and now one third of world trade takes place within such agreements.
Despite these gradual developments in regional trade.









37

6.1 BIBLIOGRAPHY

Web sites
http://www.google.com/forms of economic integration
http://www.google.com/benefits from economic integration
http://www.google.com/ Levels Of Economic Integration
http://www.google.com/ Aims And Objectives Of Economic Integration
http://www.google.com/advantages of regional economic integration
http://www.wikipedia.com/NAFTA
http://www.ask.com/SAARC


BOOK
ECONOMICS OF GLOBAL TRADE AND FINANCE (MCOM).