Regional Economic

Integration

Levels of regional economic integration

Regional integration – pros & cons
Major trade blocks of the world
Implications for business
Definition :
Regional trade blocks are intergovernmental
associations that manage and promote trade
activities for specific regions of the world

They have political as well as political

implications for example the European union ,
the worlds largest trading block has harbored
political ambitions. The Maastricht treaty which
gave birth to EU calls for joint policies in regard
to military , defense, and citizenship
DEBATE ON TRADING BLOCKS
 THERE ARE TWO VIEWS :
 1)ANALYST ARGUE THAT TRADE BLOCS
ARE DESIRABLE BECAUSE THEY
COMPLIMENT GLOBAL TRADE.
 2)OTHER ANALYST ARGUE THAT TRADE
BLOCS ARE NOT DESIRABLE BECAUSE
THEY ARE THREAT TO FREE TRADE AND
NEED TO PROTECTIONISM
WHY TRADE BLOCS ARE DESIRABLE

 TRADE BLOCS COMPLIMENT GLOBAL

TRADE
 THEY PROTECT INTRA REGIONAL
TRADE FORM OUTSIDE FORCES.
 THEY ESTABLISH REGIONAL
SECURITY.
Why Trade Block are undesirable

 IMPORT QUOTAS(LIMITING THE AMOUNT OF

IMPORTS INTO THE COUNTRY SO THAT
DOMESTIC CONSUMERS BUY PRODUCTS MADE
BY THEIR COUNTRIES IN THEIR REGION).
 CUSTOM DELAYS (ESTABLISHING
BUREAUCRATIC FORMALITIES THAT SLOW
DOWN TRADE FROM THE OTHER REGION)
 SUBSIDIES BARRIER (GIVING HEAVY
SUBSIDIES TO PROTECT REGIONAL TRADE )
 VOLUNTRY BOYCOTTS AND TECHNICAL
BARRIERS.
Economic Case for Integration
 Unrestricted free trade will allow countries to specialize in
the production of goods/services that they can produce
most efficiently

 Greater world production than is possible with restrictions

 Stimulates economic growth creating dynamic gains from

trade

 FDI can transfer technological, marketing & managerial

know-how to host nations

 Positive-sum game
Case for Regional Integration
Political case for integration

 Linking economies & making them

increasingly dependent on each other
creates incentives for political
cooperation & reduces potential for
violent conflict

 By grouping economies, countries can

enhance their political weight in the
world
 Levels of Economic Integration
 Free trade area
 All barriers to trade of goods/services are removed
 Each country allowed to determine non-member policy

 Customs Union
 Eliminates trade barriers between member countries
 Adopts common external trade policy

 Common Market
 No barriers to trade among member countries
 Common external trade policy
 Allows factors of production to mover freely among
members
Level of economic integration
 Economic Union
 Free flow of products & factors of production
 Adoption of common external trade policy
 Requires common currency, harmonization
of tax rates, common monetary & fiscal
policy

 Political Union
 Central political apparatus coordinates
economic, social & foreign policy of
members (US)
 • Regional Economic Trading Blocs
Economic Union
 Free Trade Area (FTA)
Common Market
Economic Union  Customs Union (CU)
Customs Union  Common Markets
 Economic Union
Free trade area
 Political Union
Free trade
among members

Common External Trade Policy

Factor Mobility
Harmonization of Economic Policies
 • Major Regional Trading Blocs
 NAFTA (North American Free Trade Agreement) : Canada, Mexico, US
 EU ( European Union) : Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden
United Kingdom
 EFTA ( European Free Trade) : Iceland, Liechtenstein, Norway, Sweden
 LAIA (Latin American Integration Association) : Argentina, Bolivia,
Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay,
Venezuela

 CARICOM (Caribbean Community) : Anguilla, Antigua, Bahamas,

Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat
Jamaica, St. Kitts-Nevis, St. Vincent and the Grenadines, Trinidad
 CACM (Central American Common Market) : Costa Rica, El Salvador
Guatemala, Honduras, Nicaragua
 MERCOSUR (Southern Common Market) : Argentina, Bolivia,
Brazil, Chili, Paraguay, Uruguay
 (Continue)
• Major Regional Trading Blocs
 APEC (Asia Pacific Economic Cooperation) : Austria, Brunei,
Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia,
Mexico, New Zealand, Papua New Guinea, Philippines, Singapore,
South Korea, Taiwan, Thailand, United States
 SAARC (South Asian Association for Regional Cooperation)
: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka
 ANCOM (Andean Common Market) : Bolivia, Colombia,
Ecuador, Peru, Venezuela
 ECOWAS (Economic Community of West African States)
: Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Mali,
Guinea-Bissau, Ivory Coast, Liberia, Mauritania, Niger, Nigeria, Togo,
Senegal, Sierra Leone
 GCC (Gulf Cooperation Council) : Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia, United Arab Emirates
The Organization of the Petroleum
Exporting Countries (OPEC)
 History:
 The Organization of the Petroleum
Exporting Countries (OPEC) is a
permanent, intergovernmental
Organization, created at the Baghdad
Conference on September 10–14,
1960.

 Functions:
 The OPEC MCs coordinate their oil
production policies in order to help
stabilise the oil market and to help oil
producers achieve a reasonable rate of
return on their investments. This policy
is also designed to ensure that oil
consumers continue to receive stable
supplies of oil.
 OPEC FUND: The OPEC Fund for
International Development is a
multilateral development finance
institution. It was established in
January 1976, by the member
countries of the Organization of
the Petroleum Exporting
Countries.
OPEC Secretariat
 The Secretariat carries out the executive
functions of the Organization in
accordance with the provisions of the
OPEC Statute and under the direction of
the Board of Governors
 Members: Algeria, Angola, Indonesia,
Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, UAE, Venezuela.
The Organization of the Petroleum
Exporting Countries (OPEC)
 IT’S A PERMANENT ORGANIZATION ESTABLISHED IN
1960 AT THE BAGHDAD CONFERENCE BY IRAN IRAQ,
KUWAIT, SAUDI ARABIA, AND VENEZUELA.
 IT WAS LATER JOINED 8 OTHER MEMBERS.
 ITS HEAD QUARTER IS IN VIENNA.
 ITS OBJECTIVE IS TO COORDINATE AND UNIFY
PETROLEUM POLICIES AMONGS THE MEMBER
COUNTRIES
 TO SECURE FAIR AND STABLE PRICES FOR
PETROLEUM PRODUCERS.
 PROPER PRICE AND REGULAR SUPPLY OF PETROLEUM
FOR CONSUMING NATIONS.
 ASEAN
www.aseansec.org
 ESTABLISHED IN 1967 .
 5 FOUNDING MEMBERS : INDONESIA , MALAYASIA,
PHILLIPINES, SINGAPORE AND THILAND.
 LATER ON JOINED BY BRUNEI, MYANMAR,VIETNAM
ETC.
 ASEAN FREE TRADE AREA (AFTA) .
 ASEAN BEYOND TRADE HAS POLITICAL ROLE AS
VISIBLE BY THE FORMATION OF ASEAN REGIONAL
FORUM OF WHICH CHINA, INDIA AND USA ARE
MEMBERS.
 ASEAN AS A TRADING BLOC HAS BEEN A HUGE
SUCCESS LEADING TO PROSPERITY AND
ELIMINATION OF POVERTY IN THE MEMBER COUNTRY
The SAARC Secretariat
 The SAARC Secretariat was established in Kathmandu
on 16 January 1987. Its role is to coordinate and
monitor the implementation of SAARC activities,
service the meetings of the Association and serve as
the channel of communication between SAARC and
other international organisations. The Secretariat has
also been increasingly utilised as the venue for SAARC
meetings.
 The Secretariat comprises the Secretary General,
seven Directors and the General Services Staff. The
details of its officials and working divisions responsible
for areas of work can be viewed under respective
links.
The SAARC Secretariat
 Established Centres

 1.
SAARC Agricultural Information Centre (SAIC), Dhaka
 2.
SAARC Meteorological Research Centre (SMRC), Dhak
a
 3.SAARC Tuberculosis Centre (STC), Kathmandu
 4.SAARC Documentation Centre (SDC), New Delhi
 5.
SAARC Human Resources Development Centre (SHRD
C), Islamabad

 6.SAARC Coastal Zone Management Centre, Maldives

 7.SAARC Information Centre, Nepal
 8.SAARC Energy Centre, Pakistan
 9.SAARC Disaster Management Centre, India 
SAARC
 BORN IN 1985
 7 MEMBERS COUNTRIES :BANGLADESH, BHUTAN,
INDIA,MALDIVES,NEPAL,PAKISTAN AND SRI LANKA
 IT HAS 1.3 BILLION INHABITANTS
 REPRESENTS 22% OF THE WORLD POPULATION BUT
ONLY 1.9% OF THE WORLD GNP.
 SAARC HAS BEEN A SHEER FAILURE.
 THE TOTAL EXTERNAL TRADE OF THE REGION – 0.8%
OF WORLD EXPORTS AND 1.3% OF WORLD IMPORTS
 THE REASON BEING POLITICAL DISPUTE BETWEEN
MEMBER COUNTRIES
SAARC CONTD…….

 STILL SOME PROGRESS HAS BEEN

ACHIEVED
 SAPTA (SOUTH ASIAN
PREFERENTIALTRADING AGREEMENT)
HAS COME INTO FORCE IN 1995
 CONSENSUS ON SAFTA(SOUTH ASIAN
FREE TRADE AREA)HAS BEEN
REACHED
NAFTA Initialing Ceremony, October 1992. From left to right: (Standing)
Mexican President Salinas, US President Bush, Canadian Prime Minister

Mulroney (Seated) Jaime Serra Puche, Carla Hills, Michael Wilson.

 NAFTA
 BORN IN JANUARY 1994.
 MEMBER NATIONS:US,CANADA AND
MEXICO.
 it’s the WORLD LARGEST FREE TRADE
AREA.
 UNDER NAFTA, ALL NON TARIFF BARRIERS
TO AGRICULTURE WERE ELIMINATED.
 MANY TARRIFFS ARE BEING ELIMINATED
OVER A PEROID OF 5-15 YRS.
NAFTA
 TWO WAY TRADE BETWEEN US & MEXICO
HAS INCREASED BY MORE THAN 55%.
($11.6 BILLION).
 TWO WAY TRADE BETWEEN US &CANADA
INCREASED MORE THAN 50%(16.3
BILLION.)
 HUGE BENEFITS HAVE ACCRUED TO THE
NAFTA MEMBER COUNTRIES.
 NAFTA HAS BEEN A ROARING SUCCESSS.
Regional Economic Integration
Americas
NAFTA
 Remove tariffs on 99% of goods in 10 years
 Removal of barriers to cross-border flow of services
 Protection of intellectual property rights
 Removal of most restrictions on FDI
 Application of national environmental standards
(scientific basis)
 Establishment of 2 commissions
 Monitor environmental standards & health/safety, minimum
wage or child labor laws
 Impose fines & remove trade privileges for violations
Regional Economic Integration
Americas
For NAFTA
 Opportunity to create an
enlarged & efficient production
base for region
 Mexico would benefit from
inwards FDI
 US & Canada benefit
 increased Mexican incomes –
importing
 consumers benefit – lower
prices
 Competitiveness of firms that
move production to Mexico
Against NAFTA
 Mass exodus of jobs from US &
Canada to Mexico
 Mexico’s lower wage & less
strict environmental laws
Impact
 Expose Mexico to more
competitive US & Canadian
firms – ST - Economic
restructuring & unemployment
in Mexico
 Trade grew by 109%
 Increase in productivity growth
 Increase in political stability in
Mexico
Regional Economic Integration
Americas
Andean Community
 1969 & 1997 – Customs Union of Bolivia, Chile,
Ecuador, Colombia, Peru
 Internal tariff reduction, common external tariff,
transportation policy, common industrial policy
 Political (radical/socialist) & economic (hyperinflation,
unemployment & debt) problems

MERCOSUR
 1988 – Brazil & Argentina; 1990 Paraguay & Uruguay
 Aim for free trade area then common market
 200 million people
 Critics – trade diversion effects greater than trade
creation – fastest growing sectors most inefficient
Regional Economic Integration
Americas
Central American Common Market
 1960’s – Costa Rica, El Salvador, Guatemala,
Honduras & Nicaragua
 Collapse 1969 – war after soccer game

CARICOM
 1973 Caribbean Community
 Failure to meet 3rd deadline 1991

FTAA – Free Trade Area of the Americas

 Proposed at 1994 Summit of the Americas
 2003 – 34 countries sign blueprint agreement
 Brazil & US disagreements prevent progress
Regional Economic Integration
ASEAN
 1967 – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Phillipines, Singapore, Thailand & Vietnam
 500 million people & GDP $740 B
 Foster freer trade & cooperate in industrial policies

APEC Asia-Pacific Economic Cooperation

 1990 -21 Members (US, Japan, China, Australia)
 > 50% GDP & 41% of world trade
 Increase multilateral cooperation in light of interdependence of Pacific
nations

Regional Trade Blocs in Africa

 9 trade blocs on continent
 Hard to establish free trade areas because “are less developed &
diversified – need to be protected by tariff barriers from unfair
competition”
 Potential of EAC (Kenya, Uganda & Tanzania) – no free trade yet
 EU
 IT IS A FAMILY OF DEMOCRATRIC
EUROPEAN COUNTRIES.
 COMMITED TO WORKING TOGETHER FOR
PEACE AND PROSPERITY.
 ITS HISTORICAL ROOTSLIE IN THE
SECOND WORLD WAR.
 IDEA OF EUROPEAN INTEGRATION WAS
CONCEIVED TO PREVENT SUCH KILLING
AND DESTRUCTION FROM EVER
HAPPENING AGAIN.
EU
 Member states of the EU:
 Austria, Belgium, Bulgaria, Cyprus,
Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania
, Luxembourg, Malta, Netherlands,
Poland, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, United
Kingdom
The Euro: Our Currency
 The euro is the currency of 13 European
Union countries: Belgium, Germany,
Greece, Spain, France, Ireland, Italy,
Luxembourg, the Netherlands, Austria,
Portugal, Slovenia and Finland.
 Euro banknotes and coins have been in
circulation since 1 January 2002 and are
now a part of daily life for 315 million
Europeans living in the euro area
 The Eurosystem, which consist of
the  European Central Bank (ECB)
and the national central banks of
the 13 countries belonging to the
euro area, has the exclusive right to
issue euro banknotes. All decisions on
the designs, the denominations, etc.
of the euro banknotes are taken by
the ECB.
The conduct of monetary policy
 The Eurosystem is in charge of defining
and implementing the monetary policy of
the euro area. Its primary objective in this
respect is to maintain price stability in the
euro area. It furthermore conducts foreign-
exchange operations (consistent with the
exchange-rate policy defined by the
Council), holds and manages the official
foreign reserves of the euro-area Member
States and promotes the smooth operation
of payment systems
Origins of the euro: Early days of the European Union

 19 September 1950: European

Payments Union (EPU)
 18 April 1951: European Coal and
Steel Community established
 25 March 1957: Treaty of Rome
 29 December 1958: European
Monetary Agreement
 FIVE EU INSTITUTIONS
 EUROPEAN PARLIAMENT.(ELECTED BY
PEOPLES OF MEMBER STATES)
 COUNCIL OF EUROPEAN
UNION(REPRESENTING THE
GOVERNMENTS OF MEMBER STATES).
 EUROPEAN COMMISION(DRIVING FORCE
AND THE EXECUTIVE BODY).
 COURT OF JUSTICE.
 COURT OF AUDITORS.
 ACHIEVEMENTS
 IT HAS ENSURE FREEDOM,SECURITY & JUSTICE.
 JOB CREATION.
 REGIONAL DEVELOPMENT & ENVIRONMENTAL
PROTECTION.
 IT HAS HELPED RAISED LIVING STANDARDS,BUILT A
SINGLE EUROPE WIDE MARKET.
 LAUNCHED THE SINGLE EUROPEAN CURRENCY- THE
EURO.
 IT HAS STRENGTHNED EUROPES VOICE IN THE
WORLD.
 CASE STUDY
WHY ASEAN IS SUCCESSFUL AND SAARC HAS BEEN
UNSUCCESSFUL.
o ASEAN IS ONE OF THE MAJOR TRADING BLOCS IN
THE WORLD
o IT REPRESENTS 420 MILLION PEOPLE.
o It's a LARGER TRADE BLOCK THAN NORTH AMERICA
AND WESTERN EUROPE.
o SAARC REPRESENTS 22% OF HUMANITY.
o THERE IS A CONTRADICTION, AN IRONY BETWEEN
ASEAN & SAARC.
o WHILE ASEAN HAS BEEN A ROARING SUCCESS &
CALLED ASIAN TIGERS ,SAARC HAS BEEN A SHEER
FAILURE.
 REASONS
 IN ASEAN ALL COUNTRIES ARE OF EQUAL
GEOGRAPHIC SIZE.
 LEVEL OF ECONOMIC DEVELOPMENT IS THE SAME IN
ALL COUNTRIES.
 COMMON FEAR OF COMMUNIST CHINA
 ALL OF THEM HAD SIMILAR ECONOMIC
POLICIES.THEY ALL INTRODUCED ECONOMIC
LIBERALIZATION IN 1960s WHICH FURTHER
ACCLERATED ECONOMIC GROWTH.
 WAY OF FUNCTIONING OF ASEAN BASED ON TWO
PRINCIPLES:
1.MUSYAURARAH(CONSENSUS).
2.MUFAKAT(CONSULATATIONS).
 INDIAs TRADE WITH ASEAN IS MORE THAN 20 TIMES THAN
IN CASE OF SAARC.
 IN SOUTH ASIA INDIA IS THE LARGEST COUNTRY.IT
OCCUPIES MORE THAN 70% OF GEOGRAPHICAL AREA.
 SO OTHER NATIONS FEEL THAT STRENGTHENING SAARC
MEANS EMPOWERING INDIA.
 SERIOUS BILATERAL DISPUTES BETWEEN TWO MAJOR
SOUTH ASIAN POWERS i.e INDIA & PAKISTAN.
BILATERAL DISPUTES AND DIFFERENCES BETWEEN OTHER
MEMBER COUNTRIES.
 INDIA,BANGLADESH DISPUTE.
 INDIA ,NEPAL DISPUTE.
 NEPAL MYNMAR DISPUTE.
 PAKISTAN BANGLADESH DISPUTE.
 VAST DIFFERENCE IN ECONOMIC
DEVELOPMENT..
 INDIA IS A DEVELOPED ECONOMY OF
SOUTH ASIA .OTHER CONTRIES ARE
LESS DEVELOPED.
 PURCHASING POWER OF T HESE
COUNTRIES IS VERY LOW.THEY
CANNOT ACT EVEN AS A MARKET OF
INDIAN GOODS.