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.

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. .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).

marketing & managerial know-how to host nations Positive-sum game .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.

countries can enhance their political weight in the world .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.

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 .

harmonization of tax rates. common monetary & fiscal policy Political Union  Central political apparatus coordinates economic. social & foreign policy of members (US) .Level of economic integration Economic Union  Free flow of products & factors of production  Adoption of common external trade policy  Requires common currency.

Economic Union ‡ Regional Economic Trading Blocs  Free Trade Area (FTA)  Customs Union (CU)  Common Markets  Economic Union  Political Union Economic Union Customs Union Free trade area Free trade among members Common External Trade Policy Common Market Factor Mobility Harmonization of Economic Policies .

Chile. Sweden  LAIA (Latin American Integration Association) : Argentina. Chili. Nicaragua  MERCOSUR (Southern Common Market) : Argentina. Denmark. Venezuela  CARICOM (Caribbean Community) : Anguilla. Grenada. Norway. Guyana. Finland. Colombia. Brazil. St. Honduras. Spain. Barbados. Belgium. Montserrat Jamaica. Mexico. St. Luxembourg. Italy. Ireland. Greece. Portugal. Paraguay.‡ Major Regional Trading Blocs  NAFTA (North American Free Trade Agreement) : Canada. Kitts-Nevis. Ecuador. Uruguay. Vincent and the Grenadines. Liechtenstein. France. Peru. Germany. Bolivia. Uruguay . Sweden United Kingdom  EFTA ( European Free Trade) : Iceland. El Salvador Guatemala. Bolivia. Brazil. Dominica. Jamaica. Antigua. Paraguay. Belize. Bahamas. Mexico. US  EU ( European Union) : Austria. Trinidad  CACM (Central American Common Market) : Costa Rica.

Bhutan. Japan. Mali. Canada. Hong Kong. Chile. Philippines. Thailand. Sierra Leone  GCC (Gulf Cooperation Council) : Bahrain. India. Nigeria. United Arab Emirates . Togo. Colombia. Maldives. China. Indonesia. Oman. Nepal. Malaysia.(Continue) ‡ Major Regional Trading Blocs  APEC (Asia Pacific Economic Cooperation) : Austria. United States  SAARC (South Asian Association for Regional Cooperation) : Bangladesh. Liberia. Venezuela  ECOWAS (Economic Community of West African States) : Benin. Guinea. Burkina Faso. Singapore. Kuwait. Ghana. Pakistan. New Zealand. Qatar. Papua New Guinea. Ecuador. Ivory Coast. Mexico. Niger. Guinea-Bissau. Brunei. South Korea. Mauritania. Peru. Sri Lanka  ANCOM (Andean Common Market) : Bolivia. Taiwan. Cape Verde. Saudi Arabia. Senegal. Gambia.

1960. created at the Baghdad Conference on September 10±14.The Organization of the Petroleum Exporting Countries (OPEC) History:  The Organization of the Petroleum Exporting Countries (OPEC) is a permanent. 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. intergovernmental Organization. .

. by the member countries of the Organization of the Petroleum Exporting Countries. It was established in January 1976.OPEC FUND: The OPEC Fund for International Development is a multilateral development finance institution.

Angola.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. Venezuela. Nigeria. Saudi Arabia. Indonesia. . Iran. Libya. Iraq. Qatar. UAE. Kuwait.

AND VENEZUELA. . PROPER PRICE AND REGULAR SUPPLY OF PETROLEUM FOR CONSUMING NATIONS. 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. KUWAIT.The Organization of the Petroleum Exporting Countries (OPEC) IT¶S A PERMANENT ORGANIZATION ESTABLISHED IN 1960 AT THE BAGHDAD CONFERENCE BY IRAN IRAQ. SAUDI ARABIA.

aseansec. 5 FOUNDING MEMBERS : INDONESIA . ASEAN FREE TRADE AREA (AFTA) . ASEAN AS A TRADING BLOC HAS BEEN A HUGE SUCCESS LEADING TO PROSPERITY AND ELIMINATION OF POVERTY IN THE MEMBER COUNTRY . LATER ON JOINED BY BRUNEI. MYANMAR. INDIA AND USA ARE MEMBERS. MALAYASIA.org ESTABLISHED IN 1967 . PHILLIPINES. ASEAN BEYOND TRADE HAS POLITICAL ROLE AS VISIBLE BY THE FORMATION OF ASEAN REGIONAL FORUM OF WHICH CHINA. SINGAPORE AND THILAND.ASEAN www.VIETNAM ETC.

The Secretariat has also been increasingly utilised as the venue for SAARC meetings. The Secretariat comprises the Secretary General. service the meetings of the Association and serve as the channel of communication between SAARC and other international organisations. The details of its officials and working divisions responsible for areas of work can be viewed under respective links. Its role is to coordinate and monitor the implementation of SAARC activities. . seven Directors and the General Services Staff.The SAARC Secretariat The SAARC Secretariat was established in Kathmandu on 16 January 1987.

The SAARC Secretariat .

Islamabad 6. Nepal 8.SAARC Information Centre.SAARC Disaster Management Centre. Dhaka 3.SAARC Coastal Zone Management Centre.SAARC Documentation Centre (SDC). India .SAARC Agricultural Information Centre (SAIC). Maldives 7. Kathmandu 4. Pakistan 9.SAARC Energy Centre.SAARC Meteorological Research Centre (SMRC).Established Centres 1.SAARC Human Resources Development Centre (SHRDC).SAARC Tuberculosis Centre (STC). Dhaka 2. New Delhi 5.

SAARC BORN IN 1985 7 MEMBERS COUNTRIES :BANGLADESH.MALDIVES.3 BILLION INHABITANTS REPRESENTS 22% OF THE WORLD POPULATION BUT ONLY 1.9% OF THE WORLD GNP.8% OF WORLD EXPORTS AND 1.3% OF WORLD IMPORTS THE REASON BEING POLITICAL DISPUTE BETWEEN MEMBER COUNTRIES . THE TOTAL EXTERNAL TRADE OF THE REGION ± 0. SAARC HAS BEEN A SHEER FAILURE.NEPAL. INDIA. BHUTAN.PAKISTAN AND SRI LANKA IT HAS 1.

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 .

From left to right: (Standing) Mexican President Salinas. Canadian Prime Minister Mulroney (Seated) Jaime Serra Puche. October 1992. Carla Hills. . Michael Wilson.NAFTA Initialing Ceremony. US President Bush.

it¶s the WORLD LARGEST FREE TRADE AREA. .NAFTA BORN IN JANUARY 1994. MANY TARRIFFS ARE BEING ELIMINATED OVER A PEROID OF 5-15 YRS. MEMBER NATIONS:US.CANADA AND MEXICO. ALL NON TARIFF BARRIERS TO AGRICULTURE WERE ELIMINATED. UNDER NAFTA.

) HUGE BENEFITS HAVE ACCRUED TO THE NAFTA MEMBER COUNTRIES. TWO WAY TRADE BETWEEN US &CANADA INCREASED MORE THAN 50%(16. NAFTA HAS BEEN A ROARING SUCCESSS. .3 BILLION.NAFTA TWO WAY TRADE BETWEEN US & MEXICO HAS INCREASED BY MORE THAN 55%.6 BILLION).($11.

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 .

Economic restructuring & unemployment in Mexico Trade grew by 109% Increase in productivity growth Increase in political stability in Mexico .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 .

common industrial policy Political (radical/socialist) & economic (hyperinflation. Chile. Peru Internal tariff reduction. unemployment & debt) problems MERCOSUR 1988 ± Brazil & Argentina. Colombia. transportation policy. Ecuador. 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 . common external tariff.Regional Economic Integration Americas Andean Community 1969 & 1997 ± Customs Union of Bolivia.

El Salvador.Regional Economic Integration Americas Central American Common Market 1960¶s ± Costa Rica. 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 .

Malaysia. Cambodia. China. Thailand & Vietnam 500 million people & GDP $740 B Foster freer trade & cooperate in industrial policies APEC Asia-Pacific Economic Cooperation 1990 -21 Members (US. Phillipines. Singapore. Laos. Japan. Myanmar. Uganda & Tanzania) ± no free trade yet . 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 ³are less developed & diversified ± need to be protected by tariff barriers from unfair competition´ Potential of EAC (Kenya. Indonesia.Regional Economic Integration ASEAN 1967 ± Brunei.

ITS HISTORICAL ROOTSLIE IN THE SECOND WORLD WAR. .EU IT IS A FAMILY OF DEMOCRATRIC EUROPEAN COUNTRIES. COMMITED TO WORKING TOGETHER FOR PEACE AND PROSPERITY. IDEA OF EUROPEAN INTEGRATION WAS CONCEIVED TO PREVENT SUCH KILLING AND DESTRUCTION FROM EVER HAPPENING AGAIN.

Denmark. Romania. Cyprus. Spain. Luxembourg. Malta. Belgium. Sweden. France.EU Member states of the EU:  Austria. Hungary. Czech Republic. Bulgaria. Ireland. Finland. United Kingdom . Portugal. Lithuania. Germany. Estonia. Poland. Latvia. Italy. Netherlands. Slovakia. Greece. Slovenia.

Greece. Luxembourg. Portugal. Slovenia and Finland. Italy. 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 . France. Spain. Germany. the Netherlands. Ireland. Austria.The Euro: Our Currency The euro is the currency of 13 European Union countries: Belgium.

the denominations.The Eurosystem. etc. has the exclusive right to issue euro banknotes. which consist of the European Central Bank (ECB) and the national central banks of the 13 countries belonging to the euro area. . All decisions on the designs. of the euro banknotes are taken by the ECB.

holds and manages the official foreign reserves of the euro-area Member States and promotes the smooth operation of payment systems . It furthermore conducts foreignexchange operations (consistent with the exchange-rate policy defined by the Council). Its primary objective in this respect is to maintain price stability in the euro area.The conduct of monetary policy The Eurosystem is in charge of defining and implementing the monetary policy of the euro area.

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 .

COURT OF AUDITORS.FIVE EU INSTITUTIONS EUROPEAN PARLIAMENT. . COURT OF JUSTICE.(ELECTED BY PEOPLES OF MEMBER STATES) COUNCIL OF EUROPEAN UNION(REPRESENTING THE GOVERNMENTS OF MEMBER STATES). EUROPEAN COMMISION(DRIVING FORCE AND THE EXECUTIVE BODY).

REGIONAL DEVELOPMENT & ENVIRONMENTAL PROTECTION.SECURITY & JUSTICE.BUILT A SINGLE EUROPE WIDE MARKET.THE EURO.ACHIEVEMENTS IT HAS ENSURE FREEDOM. . JOB CREATION. IT HAS HELPED RAISED LIVING STANDARDS. IT HAS STRENGTHNED EUROPES VOICE IN THE WORLD. LAUNCHED THE SINGLE EUROPEAN CURRENCY.

CASE STUDY WHY ASEAN IS SUCCESSFUL AND SAARC HAS BEEN UNSUCCESSFUL. o It's a LARGER TRADE BLOCK THAN NORTH AMERICA AND WESTERN EUROPE. o THERE IS A CONTRADICTION.SAARC HAS BEEN A SHEER FAILURE. o WHILE ASEAN HAS BEEN A ROARING SUCCESS & CALLED ASIAN TIGERS . o SAARC REPRESENTS 22% OF HUMANITY. o ASEAN IS ONE OF THE MAJOR TRADING BLOCS IN THE WORLD o IT REPRESENTS 420 MILLION PEOPLE. AN IRONY BETWEEN ASEAN & SAARC. .

. LEVEL OF ECONOMIC DEVELOPMENT IS THE SAME IN ALL COUNTRIES. WAY OF FUNCTIONING OF ASEAN BASED ON TWO PRINCIPLES: 1.THEY ALL INTRODUCED ECONOMIC LIBERALIZATION IN 1960s WHICH FURTHER ACCLERATED ECONOMIC GROWTH.REASONS IN ASEAN ALL COUNTRIES ARE OF EQUAL GEOGRAPHIC SIZE. COMMON FEAR OF COMMUNIST CHINA ALL OF THEM HAD SIMILAR ECONOMIC POLICIES.MUSYAURARAH(CONSENSUS). 2.MUFAKAT(CONSULATATIONS).

INDIAs TRADE WITH ASEAN IS MORE THAN 20 TIMES THAN IN CASE OF SAARC.  NEPAL MYNMAR DISPUTE. SO OTHER NATIONS FEEL THAT STRENGTHENING SAARC MEANS EMPOWERING INDIA.e INDIA & PAKISTAN. IN SOUTH ASIA INDIA IS THE LARGEST COUNTRY.NEPAL DISPUTE.IT OCCUPIES MORE THAN 70% OF GEOGRAPHICAL AREA. BILATERAL DISPUTES AND DIFFERENCES BETWEEN OTHER MEMBER COUNTRIES.  INDIA .  PAKISTAN BANGLADESH DISPUTE. .BANGLADESH DISPUTE.  INDIA. SERIOUS BILATERAL DISPUTES BETWEEN TWO MAJOR SOUTH ASIAN POWERS i.

INDIA IS A DEVELOPED ECONOMY OF SOUTH ASIA .OTHER CONTRIES ARE LESS DEVELOPED. ..VAST DIFFERENCE IN ECONOMIC DEVELOPMENT. PURCHASING POWER OF T HESE COUNTRIES IS VERY LOW.THEY CANNOT ACT EVEN AS A MARKET OF INDIAN GOODS.

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