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We Have A Great Pleasure In Presenting This Project on Relevance of Trade Bloc. We Have Made A Sincere Attempt To Deal With The Subject Given To Us. Hope All Of You Reading This Project Will Like It.

We are thankful to our faculty Mr. KAILASH.CHITNIS for his valuable guidance and providing insight to the subject.

Lastly, we would thank each of our group members because we believe that Each one makes a difference! Thank You is a very gratifying word. Every project is incomplete without expressing grateful acknowledgements to the people who gave guidance and help throughout the project.




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What are Trade Blocs?

A trade bloc is a large free trade zone or near-free trade zone formed by one or more tax, tariff and trade agreements. Typically trade pacts that define such a bloc specify formal adjudication bodies, e.g. NAFTA trade panels. This may include even a more democratic and participative system, as the EU and its parliament.

Need for Trade Blocs

The above explained trade barriers create the need for the formation of a Trade Bloc. Trading blocs are created because according to the theory of comparative advantage, countries should specialize in producing those goods in which they have a comparative advantage; that is, those goods that they have a lower opportunity cost of production than other nations. By specializing in the production of these goods, a group of nations as a whole can produce, and therefore consume, a greater quantity of each product. However, as countries become more specialized in the production of goods, it becomes necessary to trade with countries that need these goods or that have resources that are not available in that nation. Due to this factor, as nations become more specialized, they also become increasingly dependent on their trading partners. Furthermore, since

smaller countries with fewer resources and land are generally less powerful than larger nations, the need arises to develop economic alliances to gain buying and selling power. Hence, trading blocs arise.

The Role & Function of Regional trade blocs:

Regional trade blocs are intergovernmental associations that manage and promote trade activities for specific regions of the world. Trade bloc activities have political as well as economic implications. For example, the European Union, the worlds largest trading bloc, has harbored political ambitions extending far beyond the free trading arrangements sought by other multistage regional economic organizations (Gibb and Michalak 1994: 75). Indeed, the ideological foundations that gave birth to the EU were based on ensuring development and maintaining international stability, i.e., the containment of communist expansion in post World War II Europe (Hunt 1989). The Maastricht Treaty, which gave birth to the EU in 1992 included considerations for joint policies in regard to military defense and citizenship. The decisions reached by development policy makers on whether regionalism or globalized trade should be pursued may influence a countrys earnings from trade. Regionalism differs from globalization in the size and area of markets. From the perspective of developing countries skeptical of free trade, regional trade blocs offer some form of protection against an aggressive global market.

The Formation of Trading Blocs:

Organizations such the World Trade Organization aim to free up world trade from trade barriers on a global scale. On a regional scale groups of countries or trade blocs have also been trying to lower trade barriers between them and stimulate regional trade. Increasingly the trade creation effect of regional co-operation is being viewed as an important cause of economic growth. However, the impact of trading blocs also has a trade diversion effect. There are a number of types of trade blocs:

Free Trade Areas Customs Unions Common Market Economic Union

Free Trade Area

Sovereign countries belonging to the free trade area, trade freely amongst them but have individual trade barriers with countries outside the

free trade area. All members have most favored nation status, which means that they are all treated equally. Examples include North American Free Trade Area (NAFTA) between the USA, Canada and Mexico; Asia Pacific Economic Cooperation (APEC) and COMESA.

Customs Union
The countries are no longer fully sovereign over trade policy. There will be some degree of unification of custom or trade policies. They will have a common external tariff (CET), which is applied, to all countries outside the customs union. The countries will be represented at trade negotiations with organizations such as the World Trade Organisation by supra-national organizations e.g. the European Union.

Common Market
This trading bloc is a customs union, which has in addition the free movement of factors of production such as labour and capital between the member countries without restriction. MERCOSUR is an example of a common market comprising of a number of South American nations.

An Economic Union
This is a common market where the level of integration is more developed. The member states may adopt common economic policies e.g. the Common Agricultural Policy (CAP) of the European Union. They may have a fixed exchange rate regime such as the ERM of the EMU. Indeed, they may have integrated further and have a single common currency. This will involve common monetary policy. The ultimate act of integration is likely to be some form of political integration where the national sovereignty is replaced by some form of over-arching political authority.






Trade Barriers
A trade barrier is general term that describes any government policy or regulation that restricts international trade, the barriers can take many forms, including: Import duties Import licenses Export licenses Quotas Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Tariffs Subsidies Non-tariff barriers to trade

Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage.

In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel.

Examples of free trade areas are: North American Free Trade Agreement (NAFTA), European Free Trade Association, European Union (EU), and South American Community of Nations among many others.

Effects of Trade Blocs on India

The last decade and a half has seen the proliferation of regional trading arrangements in different parts of the world. The major trading blocks that have emerged over the years include the European Union, NAFTA, MERCOSUR, AFTA, COMESA, among others. Besides, these free trade and common market agreements, a number of other countries have become integrated with the trading blocks through a variety of preferential or free trade arrangements. For instance, European Union has extended free trade agreement treatment to a number of Central Eastern European Union and Mediterranean countries in anticipation of full membership to these countries in the EU. These arrangements could also act to divert trade away from India especially in the labour intensive goods, such as textiles and clothing.

India has taken several steps to liberalize trade with her trading partners in the South Asia region on regional as well as bilateral basis. These steps include participation to SAARC Preferential Trading Arrangements (SAPTA) that came into being in December 1995. Under this Agreement, India has exchanged trade concessions with the SAARC member countries for nearly 3000 commodities in the first three rounds of negotiations. The fourth round of these negotiations is in the process. It is expected that the process of trade liberalization in the framework of SAARC will culminate into a South Asia Free Trade Agreement (SAFTA), although, it may take some time to take shape given the current impasse in the SAARC process.


Besides SAPTA, India has recently signed a bilateral free trade agreement with Sri Lanka. India already has bilateral free trade agreement with Nepal and Bhutan. A bilateral free trade agreement is being contemplated with Bangladesh as well. There are other attempts of regional/sub-regional economic integration, which may also come into being in the coming decade; for instance, BIMST-EC (Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation) which has been formed recently may adopt a preferential trading arrangement between the member countries. Although India is also a founder member of the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), a preferential trading arrangement is not contemplated as the Association has adopted the concept of open regionalism on the lines of APEC. All these attempts at free trade with the regional partners may open the markets for Indian goods further in the countries concerned. It is evident that the share of South Asian countries in India's exports has increased from 2.73 to 4.9 over the period 1990 to 1999. The recent initiatives in regional/ bilateral trade liberalization may help to divert some trade of the countries concerned from their other trading partners in favour of India given the supply capabilities.


List of international trade blocs; 1. Andean Community (CAN) : that comprises the South American countries of Bolivia, Colombia, Ecuador, Peru and Venezuela. This trade bloc was formerly called the Andean Pact and was started with signing of the Cartagena Agreement in 1969. 2. Asia-Pacific Economic Cooperation (APEC) : is a group of Pacific Rim countries who meet with the purpose of improving economic and political ties. The first meeting was held in Canberra, Australia in 1989. 3. Association of Southeast Asian Nations Free Trade Area (AFTA) : is a political, economic, and cultural organization of countries located in Southeast Asia. Founded in 1967 The current member countries of ASEAN are (north to south): Myanmar (Burma), Laos, Thailand, Cambodia, Vietnam - Philippines - Malaysia, Brunei Darussalam, Singapore - and Indonesia. 4. Caribbean Community and Common Market (CARICOM) : was established by the Treaty of Chaquaramas which came into effect on August 1, 1973, Currently CARICOM has 15 members: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada,Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis 5. Central European Free Trade Agreement (CEFTA) : is a trade agreement between Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria and Croatia. CEFTA was established by Poland, Hungary and former Czechoslovakia on 21 December, 1992 in Krakow, Poland. 6. Economic Community of West African States (ECOWAS) : Benin, formerly

Dahomey (France), The Gambia; along the Gambia River, enclosed in Senegal (United Kingdom), Ghana (United Kingdom), Guinea (France), Guinea-Bissau (Portugal),Liberia, Mauritania (France),Nigeria (United Kingdom),Senegal (France),Sierra Leone (United Kingdom), Togo (Germany, France). 7. European Economic Area (EEA) : came into being on 1 January 1, 1994 following an agreement between the European Free Trade Association (EFTA) and the European Union (EU). It was designed to allow EFTA countries to participate in the European Single Market without having to join the EU.


8. European free trade agreement (EFTA) : was established on May 3, 1960 as an alternative for European states that did not wish to join the European Community (now the European Union). The treaty was signed on January 4, 1960 in Stockholm and is known as the Stockholm Convention. Today only Iceland, Norway, Switzerland and Liechtenstein remain members of EFTA. 9. European Union (EU): formerly the European Community : is an international organisation of 25 European states, established with that name by the Treaty on European Union (commonly known as the Maastricht treaty) in 1992, The European Union has many activities, the most important being a common single market, consisting of a customs union, a single currency (adopted by 12 out of 25 member states), a Common Agricultural Policy and a Common Fisheries Policy. The European Union also has various initiatives to co-ordinate activities of the member states. 10. Mercado Comun del Sur (MERCOSUR or MERCOSUL) : is a trading zone among Brazil, Argentina, Uruguay and Paraguay, founded in 1991. Its purpose is to promote free trade and movement of goods and peoples, skills and money, between these countries. Bolivia, Chile, Peru, Venezuela and Mexico have associate member status 11. North American Free Trade Agreement (NAFTA): known usually as NAFTA, is a comprehensive trade agreement linking Canada, the U.S., and Mexico in a "free trade" sphere. NAFTA went into effect on January 1, 1994. The agreement immediately ended tariffs on some goods, and on other goods tariffs were scheduled to be eliminated over a period of time. The agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. 12. South Asian Association for Regional Cooperation (SAARC) : (established December 8, 1985) is an association of 7 countries of South Asia namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The Association provides a platform for the peoples of South Asia to work together in a spirit of friendship, trust and understanding. It aims to promote the welfare of the peoples of South Asia and to improve their quality of life through accelerated economic growth, social progress and cultural development in the region.


European Union
The European Union (EU) is a supranational and intergovernmental union of 27 independent, democratic member states. The European Union is the world's largest confederation of independent states, established under that name in 1992 by the Treaty on European Union (the Maastricht Treaty). However, many aspects of the Union existed before that date through a series of predecessor relationships, dating back to 1951.

Goals and Objectives of EU:

1. Creation of customs union Eliminate internal tariff barriers on intra-community trade. Establish a common external tariff on imports that is the same customs duties, quotas, preferences and so forth applied to all goods entering the area, regardless of which country within the area they are entering. Allow free movement of factors of production within the community.

2. Single market In creating the single market, major steps were taken towards ensuring that all EU countries take a broadly similar approach to company law, business accounting rules and intellectual property rules. This makes it easier for companies to operate throughout the EU and to run their businesses as efficiently as possible. A start was made on introducing competition into what were traditionally monopoly sectors, such as telecommunications, airlines,


the railways, postal services, gas and electricity this process has continued since then. Keen competition and room to expand within the single market helps keep European companies among the world leaders. Of the worlds 100 largest companies, 32 are from the EU. So are 39 of the worlds 100 largest commercial banks and 27 of the 100 most valuable brands.

3. Economic and monetary union (EMU):All EU member states are part of economic and monetary union (EMU), whose purpose is to integrate the economies of EU countries more effectively. Integration promotes growth and prosperity. It requires closely coordinated economic policy. Member states are then free to achieve the common objectives through the tax and social welfare policy mix of their own choice. All EMU members can introduce the euro if they meet certain economic criteria one of which is that their deficits must not exceed 3% of their gross domestic product (GDP) which is in accordance with the Stability and Growth Pact. Denmark, Sweden and the United Kingdom chose to remain outside the euro for the time being. In June 2004, three new member countries Estonia, Lithuania and Slovenia took what is likely to be a first step towards eventually joining the euro by linking their currencies to the euro through the so-called Exchange Rate Mechanism. This will provide the currency stability required of euro candidates, but only when they comply with the other four criteria will they actually be able to adopt the euro.


European Union and India

The EU is Indias largest trading partner accounting for 23 per cent of Indian export and 16 per cent of total imports in 2004-05. Although Indo-EU trade has increased at a healthy rate over the last couple of years still there are few areas in which the two partners hold different views and in some cases have taken rigid stand. Indian industry feels that while the Indian economy has opened itself through market reforms thereby opening a huge market for international trade, reciprocal initiative from the developed world is still not very encouraging. Due to stringent standards, cumbersome rules and procedures it is becoming increasingly difficult for the Indian business community to make a foothold in the European market. Use of trade defense instruments acts as another barrier in enhancing trade they feel. The European Union (EU) wants India to open up it to agro products market like wine, whereas India wants EU to ease rules for import of Indian marine products like shrimps. EU wants more access to Indian markets and wants to bring down further the high tariffs.


EU and India
The EU is already Indias largest trading partner, accounting for nearly 25% of her exports and imports and is the largest foreign investor in the sub-continent. Business and policymakers agree that there is still a large, untapped potential for bilateral business

relationships, particularly in areas such as software

development, pharmaceuticals and India biotechnology has cutting where edge

companies and in textiles, automobiles and agrifood

where it has the potential to be a major player. There is an urgent need for investment in infrastructure, energy and power.

EU in the news
Tariffs, reforms in the spotlight at India-EU summit India could achieve considerable economic progress only by liberalizing more, Mandelson said India could attract adequate levels of foreign direct

Interesting Facts: EU-India trade has grown impressively over the years, from 4,4 billion in 1980 to 33 billion in 2004. Trade with the EU represents almost a quarter of Indian's exports and import. The EU is also India's largest source of foreign direct investment. However, India accounts for just 1.7% of total EU trade. India attracts only 0.3 % of the EU's worldwide investments.


investment and increase its exports through greater openness. Indian Commerce Minister Kamal Nath pointed out that while tariffs may be low in the developed world, markets are becoming increasingly difficult to penetrate due to mounting stringency of standards, cumbersome and complex rules and procedures and frequent use of trade defense instruments. The EUs anti-dumping actions against Indian products were another major concern for India, the Indian commerce minister said. A disproportionately large number of products in textiles, electronics, chemicals, pharmaceuticals, herbal remedies and steel sectors face such actions. India seeks greater access to European markets India urged the European Union (EU) to provide greater access to its markets for its products at the start of a summit which aims to strengthen ties between Europe and the emerging economic power. Non-tariff barriers are increasingly hampering market access and the potential growth of exports from India and addressing these issues has become absolutely essential, Dr. Manmohan Singh, the Prime Minster of India said. Many of Indias products find some form of discrimination and trade protection, which needs positive resolution by the EU. These are export products which help sustain Indias small farmers, said the Indian Prime Minister. Further elaborating the issues of concern affecting Indian exports, Dr. Singh said, "One such is an imminent EC directive on Traditional and Herbal Medicines that would affect access of Ayurvedic Products."

India rejects EU proposal India and Brazil have stressed that single coefficient for tariff reduction could not be accepted and there must be different coefficients for the developed and developing countries with flexibilities for their policy space as provided in the July Framewrok.

Commerce minister Kamal Nath termed European Commissions trade commissioner Peter Mandelsons fresh offer from the EU in the WTO negotiations as a mixed bag. The EU offered to reduce average agricultural tariffs by 46 per cent and to cut its highest agricultural tariff by 60 per cent, in the market access negotiations.

India-EU investment, trade pact in the offing

Despite being at odds with each other in WTO fora, New Delhi and Brussels are embracing a freer bilateral investment and trade regime. While the 5th India-EU Summit held in The Hague in November merely vowed to address bilateral investment and issues, the sixth summit in New Delhi on September 7 is likely to be marked by a more definite move towards clinching an investment/trade agreement with the 25-member bloc. We will set up a joint study group this time. The idea is to explore the possibility of a bilateral agreement that encompasses investment and trade, said a senior commerce department official. He added that an agreement similar to a comprehensive economic cooperation agreement (Ceca) could well be on the horizon, although it was premature to speak of the finer aspects of the upcoming pact. The study group will decide all that, he said.

Industry leaders have demanded the two countries enter into specialised free trade agreement (FT) in services, considering that Indian IT companies find it lucrative to cater to the West European markets from bases in countries that acceded to the EU bloc lately. (Over 20% of Indias software exports are to the EU at present). The official, however, refused to comment on this proposal.


The EU is Indias largest trading partner and the biggest source of FDI. From 1991 to 2003, the total FDI approvals for the EU (15) had been $15 billion, with inflows of 6.2 billion euros ($5.6 billion). FDI flows in mainly from UK, Germany, and the Netherlands, followed by France, Italy and Belgium. EU investment in India has mainly taken place in the power/energy, telecommunications and transport sectors.

During 2004, EU-India trade jumped to 33 billion euros, registering an increase of 17%. Although, EU is Indias largest trading partner, India accounts for just 1.7% of total EU trade.


South Asian Association for Regional Cooperation (SAARC)

South Asian Association for Regional Cooperation (SAARC) is the largest regional organization in the world by population, covering approximately 1.47 billion people. SAARC is an economic and political organization of seven countries in Southern Asia. The organization was established on December 8, 1985 by India, Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives, and Bhutan.

The Association provides a platform for the peoples of South Asia to work together in a spirit of friendship, trust and understanding. It aims to promote the welfare of the peoples of South Asia and to improve their quality of life through accelerated economic growth, social progress and cultural development in the region.


Cooperation in the SAARC is based on respect for the principles of sovereign equality, territorial integrity, political independence, noninterference in internal affairs of the Member States and mutual benefit. Regional cooperation is seen as a complement to the bilateral and multilateral relations of SAARC Member States. Decisions are taken on the basis of unanimity. Bilateral and contentious issues are excluded from the deliberations of SAARC.

Preparatory meetings were held prior to the First Summit in Dhaka. The Foreign Secretaries in 1981 in Colombo and the Foreign Ministers in 1983 in New Delhi identified areas to promote regional cooperation. The areas of cooperation under the reconstituted Regional Integrated Programme of Action which is pursued through the Technical Committees now cover: Agriculture and Rural Development; Health and Population Activities; Women, Youth and Children; Environment and Forestry, Science and Technology and Meteorology; Transport; and Human Resource Development.

The objectives of SAARC are: 1. to promote the welfare of the peoples of SOUTH ASIA and to improve their quality of life; 2. to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realise their full potentials; 3. to promote and strengthen collective self-reliance among the countries of SOUTH ASIA;


4. to contribute to mutual trust, understanding and appreciation of one another's problems; 5. to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; 6. to strengthen cooperation with other developing countries; 7. to strengthen cooperation among themselves in international forums on matters of common interests; and 8. to cooperate with international and regional organisations with similar aims and purposes.

Fundamental Principles
1. Cooperation within the framework of the ASSOCIATION shall be based on respect for the principles of sovereign equality, territorial integrity, political independence, non-interference in the internal affairs of other States and mutual benefit. 2. Such cooperation shall not be a substitute for bilateral and multilateral cooperation but shall complement them. 3. Such cooperation shall not be inconsistent with bilateral and multilateral obligations.



SAARC Summits held since 1985

1st SAARC Summit 2nd SAARC Summit 3rd SAARC Summit 4th SAARC Summit 5th SAARC Summit 6th SAARC Summit 7th SAARC Summit 8th SAARC Summit 9th SAARC Summit 10th SAARC Summit 11th SAARC Summit 12th SAARC Summit 13th SAARC Summit 7 - 8 December 1985 16 - 17 November 1986 2 - 4 November 1987 29 - 31 December 1988 21 - 23 November 1990 21 December 1991 10 - 11 April 1993 2 - 4 May 1995 12 - 14 May 1997 29 - 31 July 1998 4 - 6 January 2002 2 - 6 January 2004 12-13 November 2005 Dhaka Bangalore Katmandu Islamabad Male' Colombo Dhaka New Delhi Male' Colombo Katmandu Islamabad Bangladesh

How it Operates?
Working Groups have also been established in the areas of: Information and Communications Technology (ICT); Biotechnology; Intellectual Property Rights (IPR); Tourism; and Energy. Summits, which are the highest authority in SAARC, are to be held annually. The country hosting the Summit holds the Chair of the Association. Pakistan which hosted the Twelfth Summit in January 2004 is the current Chairperson of the Association. The Thirteenth Summit took place in Bangladesh in January 2005. The Standing Committee comprising Foreign Secretaries, monitors and coordinates SAARC programmes of cooperation, approves projects including their

financing and mobilizes regional and external resources. It meets as often as necessary and reports to the Council of Ministers. The Governors of the Central Banks of Member States under the auspices of SAARCFINANCE meet regularly to consider cooperation in financial matters. The Association also convenes meetings at Ministerial Level on specialized themes. The Committee on Economic Cooperation consisting of Secretaries of Commerce oversees regional cooperation in the economic field. The Association has carried out Regional Studies on trade, manufactures and services, environment and poverty alleviation, SAFTA and Customs matters. For strengthening cooperation in information and media related activities of the Association, the Heads of National Television and Radio Organizations of Member Countries meet annually. Similarly, the SAARC Audio-Visual Exchange (SAVE) Committee disseminates information both on SAARC and its Member States through regular Radio and TV Programmes. In the field of education, the Member States cooperate through the forums of SACODiL (SAARC Consortium on Open and Distance Learning), and Heads of Universities Grants Commission/Equivalent Bodies.

Council of Ministers
The Heads of State or Government during the Ninth SAARC Summit agreed for the first time that a process of informal political consultations would prove useful in promoting peace, stability and amity and accelerated socio-economic cooperation in the region. The Leaders reiterated this intent during their Tenth and Eleventh Summits in Colombo and Katmandu respectively. The Council of Ministers comprising Foreign Ministers, meets at least twice a year. Its functions include formulating policy, reviewing progress of regional cooperation, identifying new areas of cooperation and establishing additional mechanisms that may be necessary. The Council of Ministers has held twenty-four Regular

Sessions up to January 2004. It has also held a Commemorative Session to mark the First Decade of SAARC in New Delhi on 18 December 1995.The Standing Committee has held twenty-nine Regular Sessions and four Special Sessions up to January 2004.

South Asian Regional Cooperation

The idea of regional cooperation in South Asia was first mooted in May 1980. The Foreign Secretaries of the seven countries met for the first time in Colombo in April 1981. The Committee of the Whole, which met in Colombo in August 1981, identified five broad areas for regional cooperation. New areas of cooperation were added in the following years. The Objectives of the Association as defined in the Charter are:
To promote the welfare of the peoples of South Asia and to improve their quality of life. To accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential; To promote and strengthen collective self-reliance among the countries of South Asia; To contribute to mutual trust, understand and appreciation of one another's problem; To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; To strengthen cooperation with other developing countries; To strengthen cooperation among themselves in international forums on matters of common interest; and To cooperate with international and regional organizations with similar aims and purposes.


The Declaration on South Asian Regional Cooperation was adopted by the Foreign Ministers in 1983 in New Delhi. During the meeting, the Ministers also launched the Integrated Programme of Action (IPA) in nine agreed areas, namely, Agriculture; Rural Development; Telecommunications; Meteorology; Health and Population Activities; Transport; Postal Services; Science and Technology; and Sports, Arts and Culture.

SAARC Preferential Trading Arrangement (SAPTA)

In December 1991, the Sixth Summit held in Colombo approved the establishment of an Inter-Governmental Group (IGG) to formulate an agreement to establish a SAARC Preferential Arrangement (SAPTA) by 1997. Given the consensus within SAARC, the Agreement on SAPTA was signed on 11 April 1993 and entered into force on 7 December 1995 well in advance of the date stipulated by the Colombo Summit. The Agreement reflected the desire of the Member States to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions. The basic principles underlying SAPTA are given as follows.
Overall reciprocity and mutuality of advantages so as to benefit equitably all Contracting States, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems. Negotiation of tariff reform step by step, improved and extended in successive stages through periodic reviews. Recognition of the special needs of the Least Developed Contracting States and agreement on concrete preferential measures in their favour; and nclusion of all products, manufactures and commodities in their raw, semi-processed and processed forms.


So far, four rounds of trade negotiations have been concluded under SAPTA covering over 5000 commodities. Each Round contributed to an incremental trend in the product coverage and the deepening of tariff concessions over previous Rounds. The Member States are in the process of completing the necessary procedural formalities to give effect to the concessions extended in the Fourth Round.

Agreement on South Asian Free Trade Area (SAFTA)

SAPTA 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) agreed on the need to strive for the realization 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, 29-31 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 Agreement on South Asian Free Trade Area (SAFTA), drafted by the COE, was signed on 6 January 2004 during the Twelfth SAARC Summit in Islamabad. The Agreement is to enter into force on 1 January 2006. Currently, the Sensitive Lists of products, Rules of Origin, Technical Assistance as well as a Mechanism for Compensation of Revenue Loss for Least Developed Member States are under negotiation. Under the Trade Liberalization Programme scheduled for completion in ten years by 2016, the customs duties on products from the region will be progressively reduced. However, under an early harvest Programme for the Least Developed Member States, India, Pakistan and Sri Lanka are to bring down their customs duties to 0-5 % by 1 January 2009 for the products from such Member States. The Least Developed Member States are expected to benefit from additional measures under the special and differential treatment accorded to them under the Agreement.

Custom Action Plan

SAARC has also initiated action on a series of practical measures to facilitate the process of economic integration. In 1996, a Group on Customs Cooperation was set up and entrusted with a mandate, inter-alia, to harmonize customs rules and regulations; to simplify documentation and procedural requirements; to upgrade infrastructure facilities; and to provide training facilities. has also been drawn up. Four meetings of the Group have been held. A Customs Action Plan has been agreed upon. The Fourth Meeting of the Group on Customs Cooperation (Faridabad India, 12-13 August 2004) considered the Report of the Customs Consultant engaged to study and make recommendations on measures to be taken for simplification of procedures and standardization of customs documents and declarations.

The SAARC Process and its Future

What are the challenges facing SAARC today? What is the future of regional cooperation in South Asia? Three important factors need to be taken into account in analyzing these two questions. They include the charter of SAARC, need for unanimity in taking decisions and the decision to avoid bilateral contentious issues. SAARC as a regional forum has been focusing more on the non-traditional aspects of security and has deliberately excluded conventional security issues. The nontraditional aspects of security are more vital both at national and regional levels. SAARC as a regional mechanism assumes importance, especially in this context, as the security discourse has been focussing more on non-traditional aspects in the recent years. SAARC also has a crucial role to play in the regional economic security. Poverty being the facilitator of evils results in the trafficking of drugs and children, which has ramification at the domestic and regional levels. Inequality and deprivation exist in the region, which have political implications at these levels. Only a regional cooperation at economic level would be able to address this crucial aspect. Though the SAARC charter on social issues have taken up these issues and progress has been made, SAARC has to go a long way to achieve its economic and social objectives. SAPTA and SAFTA have not triggered the expected economic growth in South Asian region. Though some progress has been made on SAPTA, it has not been effective. Besides, SAARC has also been weak in dealing with the WTO issues.



The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. There are a number of ways of looking at the WTO. Its an organization for liberalizing trade. Its a forum for governments to negotiate trade agreements. Its a place for them to settle trade disputes. It operates a system of trade rules. The W.T.O is a negotiating forum. Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other. The first step is to talk. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO's current work comes from the 1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the Doha Development Agenda launched in 2001. The WTO is not just about liberalizing trade, and in some circumstances its rules support maintaining trade barriers for example to protect consumers or prevent the spread of disease.
Fact File:
Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986-94) Membership: 148 countries (on 13 October 2004) Budget: 169 million Swiss francs for 2005 Secretariat staff: 630 Head: Pascal Lamy (Director-General) Functions: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations

Set of rules:
At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations. These documents provide the legal ground-rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives. The systems overriding purpose is to help trade flow as freely as possible so long as there are no undesirable side-effects. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy.



The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership. Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTOs predecessor, GATT. The WTOs agreements have been ratified in all members parliaments. The WTOs top level decision-making body is the Ministerial Conference which meets at least once every two years. The Fifth WTO Ministerial Conference will be held in Cancn, Mexico from 10 to 14 September 2003.Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council. Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.


Functions: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations


It is not possible for a country to produce every thing that it needs or desires to consume. Different countries produce different goods and services then they exchange this goods and services among themselves through international trade.

Trading blocks are manifestation of the regional approach of trading relations. Formation of trade blocks at global level is important for international trade

EU and SAARC have played a very important role in the development of trade. EU is Indias largest single trading partner. Eu is a veru potential and growing market for export promotion

The most prominent policy goal of the European Union is the development and maintenance of an effective single market. Significant efforts have been made to create harmonised standards designed to bring economic benefits through creating larger, more efficient markets Regional trade blocs resume its rapid growth despite the uncertain global economic outlook and emerge as the center of gravity in the world economy. Regional trade liberalization accompanied by freer movements of investment, technology and skills among the countries would generate substantial efficiency gains by enabling the participants to exploit their complementarities to mutual advantage. Cooperation in finance and monetary policy has the potential to help the region recover hundreds of billions of dollars of potential output lost due to underutilization of capacity and pull the major economies. And the point is that the more developing countries maintain high barriers to trade with other developing


countries, the more they cut themselves out of participating in the development of these global production chains.

The existence of regional trade pacts could seriously affect global trade prospects of countries which are not members of any major trade bloc. With all large trading nations of the world belonging to one bloc or the other, India is left out, with its membership restricted to the South Asian Association for Regional Cooperation (SAARC). However, SAARC countries are not only economically weak, they are also confronted with political problems which hamper further progress. India should take the initiatives to enter into trade pacts based on South-South collaboration as well as with major trading nations in the Asian region such as China, Japan, Singapore and South Korea.

Countries are poor primarily because their human resources are uneducated, poorly nourished and underemployed. To complicate the problem, population growth in poor countries is far greater than the rest of the world. These countries have poor infrastructures and frequently are governed by unsophisticated and corrupt leaders. The modern efforts of the Regional trade blocs, World Bank and the WTO unquestionably seek to change this cycle and create conditions where human resources are far better utilized and internal "markets" develop. There has been substantial progress in certain countries. Even at very low wages, the introduction of industry and an infrastructure in these countries have employed human resources far more productively. Some economists believe that developing countries need to rely on protective trade barriers in order to develop industry.


But while the justice of the developing countries' demands can't be denied, it would be wrong to think that increased trade with the rich countries is the only way the poor countries can make a quid out of globalisation. No, the developing countries have a lot to gain by increasing the trade between themselves These reductions would help to explain why, over the 20 years the

developing countries have increased their share of global trade from about a quarter to a third. The more developing countries maintain high barriers to trade with other developing countries, the more they cut themselves out of participating in the development of these global production chains. Trade blocs helps the poor countries protect against getting directly exposed to the culture of globalization. That does not mean that globalization is bad. But in the initial stages the poor countries do not have a better purchasing power or negotiating power they have to adhere to certain extent according to the whims and fancies of stronger economies. Even USA had got the benefit of regional trade bloc in the nineteenth century, before now emerging as a strongest economy. When some of the developing or less developed countries come together they have a better negotiating power they ensure that they are not exploited and these regional blocs help them attain the same.

Every country is endowed with different natural resources and capacities. Not all resources can be fully utilized by any of the nations. And the resources have to be shared amongst them to attain the desired development. So by forming these trade blocs it is possible for the developing and underdeveloped nations to get the required support of all the developed nations and thereby attaining a state of global equilibrium.


Relevance of regional trade block is limited not only to trade. The increasing international pressure to combat terrorism and resolve regional conflicts and regional security concerns have contributed to making regionalism not an option, but a necessity especially, among developing countries with a burgeoning growth potential. When it comes to security & terrorism, regional blocs like SAARC can be a better & effective tool to fight it.




Export Management By Prof. Kale.

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