_ (A). Ee anpmic Integration; : (B) _ Turopest Union (EU); ae (© North Amgican Free Trade Agreement (NAF TAY | (Cy The Associaton of South-East Asian Nations (ASEAN), (©) European Free Trade Association; (5) Latin American Inte2ration Association; (© South Asian Association for Regional Co-operation (SAARC); (H)_ The Economic end Social Co. mission for Asia and the Pacific (ESCAP); A. @ Asia-Pacific Economic Co-operatit” (APEC), (2) MERCOSUR; X . (®) ANDEAN; X (L) Business Centres; 9 . @) Implications of Trade Blocks For Pusiness. X After studying this chapter, you shov'd be abl io— Understard the logic underlying the formation of trade blocks; Describe che factors responsible for the successful functioning of Ei Explain the objectives and functioning of NAFTA; Discuss the activities of ASEAN; Discuss the objectives of EFTA and LAIA; ities of SAAKC; Nobody is'y for) you to turn:o* ver fo them your, jer ant 4 your esti+ Economie Union Creag & “Lead 9 Bs pec burton ls Liane: eps siting 2 sac throu cp apecociing. Laod costa ove. Staier —~ o,incstaacd ro adenice Aseusty, ~ ay Nen Common Market > Customs Union > Free Trade Area. ¢ REGIONAL APPROACH ‘As we have discussed, economic integration takes different forms like free trade area, customs: union, common market and economic union. The member countries of the group adopt a system of preferential tariffs like lower rates of duty on imports. For example, the UK and its commonwealth countries operated a system of reciprocal tariff preferences after 1919. In a free trade area, the members charge low rates of tariff or abolish them regarding the trade among themselves and different countries charge different rates to non-members. European Free Trade Association, 1s an example. As stated earlier, the members charge uniform rates of tmviffs with regard to non-member countries. The 19th century German Zollverein is au exam ple of customs union i ‘The approach towards regional integration has been increasing throughout the globe. Economic integration results in grouping up of smaller economies into a larger and single economy and Economic integration among the world economies varies indegree. The economies ore: « Free Trade Ares + Customs UmIon + Common Market « Economie Union Ina free trade area, the members charge low rates of tariff or abolish them regarding the tpode among themselves and different countries charge different rates to non-members.A itically inupey 4% market, Economic integration minimises the economic consequences of pol ly Inepe ; countries and political boundaries. " 4 ADVANTAGES OF INTEGRATION ; ater The economic integration of the countries of the same region oF fect e aia fy market, aggregate demand for products. and services, QUaNILY of production, ¢ r a Tt ‘ultimately the economic activity of the region. Further, the people of the rei gel varie products at comparatively lower prices. This factor, in tur, enhances.the purchasing Power “Tiving standards of the people. «The resources of the region are pooled. | countries are combined, The pooling increases effici large-scale economies. Further, it enables to have ecor “specialisation. «Rapid technological imovations and development and consequent are size OPEr heavy investment. Economic integration enables the group of countries 10 pool requi: ‘financial resources forthe large-scale operations. Intemal reallocation of financial Fesou, takes place based on the reallocation ‘of manufacturing facilities and consumption patter. he import duties and ther the advantage of having in other words the factors of production of ancy of output oF pro VIN dg conomies of division of labour, ations dem, + The elimination or reduction of tariffs and barriers reduces reduces the prices of the products/services. Customer gets | produet at lesser price. ¢ TRADE CREATION AND DIVERSION ‘The trade impacts of trade blocks are normally measured by weighing the benefits of tn creation against the adverse effects of trade diversion. Trade creation occurs when lowers partner ccuntry imports displace higher-priced domestic ‘production, and, thereby decrease of production and consumer prices within the country. Trade diversion happens. when lov “Cost imports from oulside the block are displaced by higher-cost imports from within the ble Generally, trade creation and welfare benefits are greater, the higher the trade barriers be reduced and the larger the reduction in barriers; the larger the partner countries; the Larges ‘ number of partners; the more diversified the economies of the partner countries; and the ¢ the partner's prices afe to world prices or the more competitive they are compared to count outside the block (Laird 1999). Benefits are also greater when the partner country is mot * stich, and has a complementary trading pattern, but is also fast growing. ‘The following example clarifies the trade diversion concept. Suppose the ome county. import a can of beer from a potential partner country at $1.20 per can and from @ non part country at $1 per can. If the tariff on both is 40 cents per can, the price paid by the he consumer would be $1.60 and $1.40 for a can from the partner and non-partner, respecttt Consumer would thus prefer to buy from the non-partner. Now suppose that due to a prefere trade agreement the duty is reduced to zero for the partner, but not for the non-partner. 7 price forthe partner now declines to $1.20 and the consumers shift from the non-partner wot partner country. While for the consumer the price is 20 cents cheaper, the government loos cents in revenue per can, The net effect on the country is 20 ~ 40 = -20 cents, ie, a loss of cents-The price harged by the partner need not fall to $1.20 - as long as the price is less th $1.40 the partner would out compete the non-parner, If say, the price fell to $1.30, the consi would gain only 10 and the loss to the country would be 30 cents, Having discussed the different types of economic integration, regional approach and advantages of economic integration, now we shall discuis different economic integrations ~iete blocks. The most important trade blocks include: BU, NAFTA, ASEAN, and SAARCblocks and Business Centres ¢ “NORTH AMERICAN: FREE.TRADE AGREEMENT (NAFTA) ‘The North American Free Trade Agreement (NAFTA) came into being on January 1, 1994. Pere ‘The most affluent nations of the world, ie., the USA and Canada along with México—a developing Trade A, “couniry joined together to form a trade block. A free trade agreement was signed by the USA and (NAFTA) come. Canada in 1989. This was extended to Mexico in 1994. NAFTA is expected to eliminate all tariffs inte being on snd trade barriers among these countries by 2009. However, intemal tariff on a large number of Jorwary 1.1994. product categories were removed already. -NAFTA has a population of 363 million and hence it is one of the significant trading areas an the globe. + OBJECTIVES ~The objectives of the NAFTA include i + To create new business opportunities particulary in Mexico. ‘+ To eniance the competitive advantage of the Sompanies operating in the USA, Canada and Mexico in wider international markets, + To reduce the prices of the products and services by enhancing the competition. + To enhance industrial development and thereby employment throughout the region. tale G + To develop industries in Mexico in order to ereate employment and to reduce migration from Mexico to the USA. + "To assist Mexico in earning additional foreign exchange to meet its foreign debt burden, Tr 2s) Or At ‘+ To provide stable and predictable political environment for the investors. To innprove and consolidate political relationship among member countries.“ ¢ MEASURES “The measures as per the agreement of NAFTA inchide: © Opening up of Government procurement markets in each member country of NAFTA. + Residents of NAFTA coun 7 can invest in any other NAFTA countries fey.” °° ‘+ ‘Protection of intellectual property rights of the NAFTA member countries. + Simplification and harmonisation of product standards in all the member countries of NAFTA. | ‘+ Free flow of employees and_business people from one member country to another. Prevention of non-Mexican firms assembling goods in Mexico. + Avoidance of re-export of the products imported by any member country from the third plicable, in case certain percentage of manufacturing costs are incurred in the importing country. This percentage is 50 incase of the USA and Canada and 80 in case of Mexico. + Pollution conti) along the USA-Mexico verder~ - S CRITICAL APPRAISAL It was felt that the emergence of NAFTA enables further development of the USA and 1ada and for the significant development of Mexico. Further, the Tree Tow of capital and nan resources enables achieving equilibrium in the regional development. From the U.S. and Canadian government's point of view, NAFTA was an opportunity to oS. and Cane ee nd to the"growing threat of the large European Union trading block. From the Mexican -mment’s point of view, the agreement was a way to secure future foreign investment.‘ , locks and Business Centres UO NEO LMNG Um LAI NOE The North ‘The North American Free Trade Agreement (NAFTA) came into being on January 1, 1994. pmerican Free ‘The most affluent nations of the world, i.e. the USA and Canada along with Mexico a developing Trade Agreement ~ ouniry joined together to form a trade block. A free trade agreement was signed by the USA and (NAFTA)come nada in 1989. This was extended to Mexico in 1994. NAFTA is expected to eliminate all riffs ‘nto beingaa “vad trade barriers among these countries by 2009. However, internal tariffs on a large number of i product categories were removed already. NAFTA has a population of 363 million and hence it is one of the significant trading areas > in the globe. | + OBJECTIVES 7 ¢ MEASURES ~ + ' 4 The objectives of the NAFTA include : \ + To create new business opportunities particularly in Mexico. 4, _* To enliance the competitive advantage of the Companies operating in the USA, Canada and Mexico in wider international markets + To reduce the prices of the + To enhance industrial development and thereby employment throughout the region. + To provide stable and predictable political environment for the investors. © Aka\¢ + To develop industries in Mexico in order to create employment and to reduce migration from Mexico to the USA. "To assist Mexico in earning additional foreign exchange to meet its foreign debt burden. To improve and consolidate political relationship among member countries. “0 iets and_services by enhancing the competition. Poettucal Wut FOS AKAM L ath ‘The measures as per the agreement of NAFTA include: + Opening up of Government procurement markets in each member country of NAFTA. ‘+ Residents of NAFTA countries can invest in any other NAFTA countries freely. + "Protection of intellectual property rights of the NAFTA member countries, ‘Simplification and harmonisation of product standards in all the member countries of NAFTA. ‘* Free flow of employees and_business people from one member country to another. Prevention of non-Mexican firms assembling goods in Mexico, i ‘+ Avoidance of re-export of the products imported by any member country from the third party. This condition is not applicable, in case certain percentage of manufacturing costs are incurred in the importing country. This percentage is 50 in case of the USA and Canada and 80 i xico ‘+ Pollution contol along the USA-Mexico borter= - CRITICAL APPRAISAL It was felt that the emergence of NAFTA enables further development of the USA and iada and for the significant development of Mexico. Further, the Tree Mow of capital and nan resources enables achieving equilibrium in the regional development. From the U.S. and Cana¢ ian government's point of view, NAFTA was an opportunity to --growing threat of the large European Union trading block. From the. Mexican rmments point of view, the agreement was a way to secure future foreign investment.« International Bu: ‘A number of companies in the automotive industry, large agribusiness, lecommunictions high technology manufacturing, and big grain import industries have benefite sonNas Ta “However, twelve years efter i went into effect, a variety of Tesearch efforts ae foun ¢ at NAFTA has not Tived up to the promises of its backers. Despite its mixed results, free traders continue to try and sell a “successful” NAFTA and present it as a model and minimum baseline for other U'S. trade agreements. * A LOOK AT NAFTA BEYOND THE SURFACE ‘ NAFTA is not responsible for all of the economic and social ills in North America, But in | Mexico, it has caused an acceleration and locking-in of es that had already failed to bring Prospefity. An’ evaluation of NAFTA’s resulls is essential as the U.S. seeke to negotiate new NAFTA-style agreements at a record pace, Impacts in the United States cit (imports exceed exports), which has eliminated 1,015,291 U.S. jobs find jobs in other sectors, such as in the service industry, where wages are much lower. Because the U.S. tends to import g00ds produced by lower-skilled wor Kers, increased openness to trade has forced employers to compete by reducing the wages of lower-skilled workers relative to other workers in the U.S. a USS. workers ieel more insecure about their economic activity are increasingly constrained by threats from Impacts in Mexico Since 1994, foreign invest exports to the U.S. have surged, and employment in the export-oriented manufactarine oe on ted manufacturing companies known as maquiladoras has - doubled. But a closer look shows @ aOtaoy, fosy Teality.~ — —— future as both wages and un‘on employers to move overseas, . . ‘estment under NAFTA has been forei ‘oncenttrated in the maquiladoras- the overwhelming majority of whi hich are U:S-owned. ~~ cent on a per capita basis (from 3,2 i isparities between the U.S. and Meise hess ave Grow: pens apy ae 2 percent a year. Saadealies ‘The agricultural sector has been decimated by the : decin 240% increase in j “ai U.S. com, causing the price of com ‘o drop more than VON imports of subsidiz 1.7 million farmers. °P om 70% which displaced an estima«+ In 1990, there were 2 million undocumented Mexicans working in the ULS., by 2004, there «wore 6 million. . A threat to national sovereignty One of the most controversial and troubling aspects of NAFTA is the “investor rights” Clause, oF Chapter 11, whigi7permits NAFTA governments to be sued directly by foreign investors who claim future profits were interrupted by public-interest laws. Three examples of cases under NAFTA’s Chapter 11 are listed below. All were tried before secret ad-hoc international tribunals, | + When California banned a gasoline additive called MTBE that had contaminated drinking + © water throughout the state, the Canadian Methanex Corporation sued the U.S. government to force citizens to pay nearly one billion dollars for its potential lost profits hs — cme! | wed Ethyl Corporation forced Canada to pay $13 million in damages and drop its ban + USA J MMT, a known toxin that the human nervous on the dangerous gasoli + US-based Metalelad Corporation successfully sued a Mexican state to allow a toxic waste disposal site, claiming that the environmental zoning law forbidding the dump constituted an effective seizure of the company’s property. (See Box 11.2) Pee aoa The USS, Treasury Office is not only determined Security, the ideo Isto make entry into Canada and to replicate and-expand the NAFTA model (see Mexico. rigorous a8 itis n the U.S. whe assuring CAFTA and U.S.-Colombia FTA) but also to the continued flow of goods across the two borders— renegotiate NAFTA sett Since March of 2005 the melding trade and securty poly priorities. BicceINAETA,iiend>|00, state Navelb=-nime-Ung]ID) Consistent with other trade agreemients, the SPP secret under what they ‘ai! the Security and 4s 5 process outside of Legislative oversight. Let G (SPP) to the Executive branch, itis belng developed with jegotiated Under, the| U.S; Department of Homelend considerable input from multinational corporations. ‘Source: www.nafa.org A\pouy of sx cui indore, aed in Jnuny Th lan. Thi plan helped to create IN) free trade ‘50 per ceht to 20 per cent begining with 15 products, SEAN. \ f ASEAN. T jobe. Their ee lies in well educat ineral resources, agricultural goods and mkdern industrial products. These countries invite and low the free-flow of foreign capital Jase Upanta, [rdoneaia a peu itiua A vs a &$ buluen aklounecl 8 hug (16% r) ot Gh land asominternational Economics aa Y Significar NAFTA is that, while most free trade agreements have provision © fibebe trade liberalisation, it ine ef ii. CONOW cludes labour standards and environmental standards| fhe inclusi nat fesbour standards resulted on from th pressure of the labour lobby witch feared thatthe US a Would lose jobs to Mexico asa result of Mexico’ Cheaper wages, poor working conditions, a ronmental enforcement, Similarly, the inclusion of the environmental standards resulted fro dij BESSU of the environmental lobby which pushed for an upgrade of environmental standards . 4 and the strengthening of complianc Moree USA CeBpRermy QOUMeD Las Nee ~ lPact of NAFTA Rationale eonomic in economic di economies, " hon and Develop \ mic co WAQ6s G6 Ue hig he & vamane of has achieved substantial trae liberaisation, The tade between the US and Canada and the U excouraging ‘FTA Mexico is substantial and has been Tising fast, The ‘Wo-way trading relationship between the Unit Second Sess ri isthe largest in the world Mexicoreplaced Japanas the second-lar economic ec “Bors, while Femaining asthe third most important supplier to the US mar international » aleve, although ti Canada-Mesico ade has bsp increasing fas after the Agresment development ont marginal trading partners with each other. é Regional : FTA has actives Doubisate, however, raised about the ‘mpact ofthe NAFTA on employment force in the b ceneaeeen s.the US.(The American companies would immensely benefit by shifting Ml about cighter Production to Mexico where labour is substantially cheap as compared to the Berry et. ¢ vas pointed out that what NAFTA would hep seh those ofadvar ()Itprovide expressed ing high pollution and are thus : €xico which has less stringent environment protection laws] without bein, [There have been divergent views on the Potential benefits and hamnful efees of NAFTA, and its "Mf the main reas pe Many feared that there would bean exodus ofjobstothe substantially Iow-nage Mexico om 810 eae USand Canada, while the other School maintained tat there would be substantat jobcreation inthe ij fF developir and Canada because ofthe huge increase in demand for US and Canadian goods and services in ais bare Yo fllowing the rade liberalisation (Many Mexiane feared that ferce competition from the US ane u sian’ Would seriously damage the Menican industry and economy, while many others maintained that ae de > etatsation and competition will inceae the ompitvenes ofthe Mean nds ace 1 ‘2linpact of NAFTA on US employment isnot cles Although there are job loses tothe us| & te NAFTA, some estimates indicate significant ga Job cretion inthe US. This is eomoborated by | industrial dex «Mest ov unemployment ean inte Sate formation ofthe fe tade area. | terefoe en i Huwsineain Mexico has ise substantially sine the Agreement. Companies from outside)" industrial ATTA have been making large investment i Mexico o guna fre entry tothe huge IAFTa market, | Prefered whe {ATTA hasbeen suing in lt of trade diversi pecans The NAFTA comprising Mi fisuties for exports ofthe developing counties) ice pr 20S and Canada as Mexion, developing oe + bY virtue of being a member of the NAFTA, | ftom a, pares 8 siderable edge over oer ants seling inthe US and Canada, brim : underemploy:A NAF TA THE REkL PicTURE : | Keauceal tonite fs . j Aa inp ation _ “of NA NAFTA ore Jan etag 1, 1994, | beep. “ta _Lnmadiote elimination Of tar $568 billion. i é 2 inucoocell form ep becouse ib ; memitan toriths « Menico uy top em-bobing — dtetination for peo, kite , soge bess , ‘ the dna Largeat $s oun, soppabeane Ord 04 NeeTA Ss: 6 pia poata ta. tanada ond Mewit® thao geousia us 2246 sn 144% 4p 30% in 2007 -| Bven’ anaoltan — noonuspoucter Aung , eoprogment aud “| Madly One Oy NAFTAS bigqeot C. eqpecta on Us- Canada Gade Aoo been to boost bitalero 4 egeueetliared _ froin - ae “tented ende Susbled a Sensises ) +p Hoa than AO 0 Us (DP. in Aemues , uth A ronal Avie Onl heal, Core Theae arent : arsportiid _, 40 pang Able _-tp_ export them’ +o _ nen h 1s Lmpowtant _ LLNAFTA booahd Us _ AANA em pOAS to Canada Onc teemico _faona $25 biltton th 1093 to $106: 8 “ tr Oo + Seyrtts _empors _ Por Ao ht LNRETA elwinotid Gade barmiero en ALLE ALTA WU OAL often si 1 nee ayia an oT pat ines. ord Gacocery Pssttt.t cM Us s Lmpoutad $187: | 8 ‘oitlion in GL from Mex 7 tid Canoola (shale ee err on OU impoma from tm Middle Bast and ae enegu elo © Sind NAFTA tbnainaléo toryps , ocL peices Oe Lower: The tame ‘wv tur , —brebovs . wath totaled — $ 28-9 bituon a ccos 4 Tuo” Dw tage pcg|| Since NpeETA Wao enacted _,US— for || Umestment | CRDID Canoda — pnd MeALD _neOA! |) than teupteal +o $ aHet biAWwon Cas of zooT_t || olote available). Canroolien ane Memican FDI tre US us 4p $219-2 bidtion vet een arin natiova —vontuibth - quound 25% } al imports _ anal 1a. % tee total exposU:S- Jobs _nscre toot, ineearing Urode bet < | Since labour ‘u cheaper in Newco tbat patinatdan inoluctaces woued past of ther “production Ww- cost Y-s Stats . Aetween 1994 anol . 8002 the Us book 14 bidtion foes Dorner = | 40100 Ome toy of. B14 ,000_ ee eda | 80% 9 the _JObr wert in | New. York _, Hida os ~anol Axo Wwe rie hand ( Derauee they bool - Lontentiahona & | inolreBues vat nioved” plente to. a Tare : . : . . ae _ terpuliia one Cludbacal applianite VS _tompancie en NATTA. wavani qo qt ne ee NAFTA weet Tel — ALS: wage Were _Susppucased a Nor ald wepene th thie iad wot 70 _ Meio be: tae Onto thet ord The Dual rene ee “dain LUNLOn gorpng ast When hen “ib became, m. _ thot _petwethn y Pry acon te | _. fouko wdvetne those the “Without ne on — tes jthe wore howl _Histle_bergouning owe €_ponith -_fhetwenn 190 Ord — Tess, 5070 oo ona ta date |a | | | / an | Uoseng fortery By 99, drat: sole bad qe || 406s oe | : | Meds formus woe Put - Out. f 2 | ; - : Hut $b _U-s {The oor Faamira siolg ec} ogee a | by as much ao 40% of nee f wide aa ALU OL tad s | vom ancl Ohta wee exported +0 Meco below vost Rural Yenrton mee coubsl nok Lvompelr 1 AE Dhe « || teme Meno reduced Us Subsrclies to farms wr 33-25% or rotab farm income. in t4ao + \ 1B:2%, th Yoo! Hest Of Urose Zudosidliceo wen 1 end aye $e amend ———— _woyersd Were. Eaploued : NACT A. enporaeor phe Maquslad ora pacino tn whit UL Ouonsol tompounted _ di Mmenreey ovens ALS “Ut bord, tO _eearp suscrabte. 4 4 — Hes aos oe _ To pus to" 26% of ewe / LNA EI8 — povceapne for Mentican | 2 Pre womens hore “no labour. [sige or huclth protection woreda it cho | jo pews OF Wd stink if yOu Dee a norman _Yy4 contd ee sforeel_ to stoke A_piegman it tert when Opletyiing for the fb Memtcan [about _bioterton wr nor MAK _£nCUg, 40 _pRovent rhoae wow 4 pom beng tmplolial es eeee a olf Senin ing fepaaigds | 4n__Aesporae to NAPA 4 bom petitive, presute, Hewiuo _Agsbbuainssd uacd — nadre pottiqus and thts treraicals Lovina $96 biition pu year -polurtion - Rural _farmmeso eubancied into nro. worginal land ) droubrin tn oiforertation ot | a sate Of 630,000 Rectares ptt 4p2Ad. -_ Ptao, thanks 40 the ae ti D | polities. ON enormone number to US tonipanies Ltnol fasto Intellectual property —all three countries pledge toprovide adequate and efficient protection and enforcement of intellectual property rights, while ersuring that enforcement measures do not themselves become barriers to legitimate trade. 6. Dispute settlement—provides a dispute settlement process that will be followed instead: of countries 7 ‘aking unilateral action against an offending party. Economic Integration 33» &a2! 4 ot 7 oe {reat advantage forthe Indian exporters, as wells for expoters from any other county fon ified! Europes that henoefoth they wll ned to dea wit only one set of res and regulations ins rational Economics Eur, Ofte ries and regulations ofeach ofthe member county to which they want export. Similarly 1A e Currency (Euro) applies to mos ofthe members of EU | ASthe, on ae __ Enlarged EU and India oyu f 5. The ie enlargement of EU by the accession of 10 new members is both a challenge and opportunity Rep 7 India, ! ¥ the EU India’s exports to these 10 nations were insignificant and imports were lower than exports we EY India’s trade with the 10 India’s main exports to the accession countries (ACS) include ge Govern, accession canes of EU has _and jewellery, drugs and pharmaceuticals, leather and leather produ themselves been negigible. textiles, plastics and linoleum products and aoicalyel commodities economic b, £4 dus te cee ne pres Ol stale(= banger ek q Ben ~ 1 efits NAFTA 1, One great advantage is the replacement ofthe different policy and regulatory environments of visa! newly joined members by the that of the uniform policy and regulatory environment ofthe Unioy The Unites and the reduction in transaction costs eich Tater wide 2. lis also likely that there would be expansion ofthe market benefiting fom the enlargement of Saree Union. EU (but ln 3. Further, the availability of new ports inthe enlarged EU could reduce transportation costs. gen nk 4, The harmonization ofthe tariff structure ofthe new members with that ofthe EU will increase hime fac, perc import duty of some countries above the pre-acession levels and reduce those of thers. On the a America whole, the average sighted tariff these countries wll sinifcantly come downto the benefit of the exporters to these markets. Features 5. Its expected that the removal of quota restrictions fr textiles and clothing from January 2005 all The NARI may also work to India’s advantage, since it will reduce the protection presently available to ACs barrersin: exports in the EU market. a TL Mae 6. The enlarged EU may also spurjoint ventures with Indian companies ooking forward to seting up , An manufacturing bases in the low cost ACs. al Challenges 3, Sei 1. Many Indian products will have to face a stiffer competition inthe EU from the new members nae 2. The low labour cost n these nation coud encourage EU firms to establish manufacturing bases 4" there or source rom thre which an aft Indian expos to EU and ive rise to new competition ae from these firms in other markets. i we 3, Tis eared tht the relative competitive advantage of many of India’s export tothe EU (15) may sk beafectedby the enlargement of EU, as countries lke Poland and Czech ot Ascomedt to ren nantes Republic compte with In in sling textiles and appre, fotyear 7 aA Sreinias compte and leather, chemical compounds, ronand sl nnn oe ofEUraisesnew 5 steel, automotive pars etc, ‘enlargement | . in the BU (15) market. According to or i ; Dist lenges fr nda. nO ar orig fo on estimate, India and Poland Lael compete in EU market for 46 ofthe top 100 exports fom India tothe | —_—_ -\d Business Centres ? UNION (EU) Evolutionary and Steel Community “Stages of EVare: 1¢ European Ce ff the European Union goes back 10 Zoli fh was formed with the then West Germany, France, lly, Belgium, Netherlands and» ewopean Cool 22 ges0) We, 1982. The sim ofthe ECSC was to eliminate impor duties and quotas on coal, ord Steet Lucente hd scrap regarding the inferational rade among the member countries. The Font | toning of ECSC stimulated the member counties to extend this facility © all" ESpnen Market/ i sce py ihe Treaty of Rome in 1987, This Treaty gave bith to Ewapean Ezonomic Euepen “oer een i eeine European Economic Community is also known as European Common Market. , Cvrapean i) Onginally sit countries, viz. France, Federal Republic of Germany, Italy, Belgium," Economie Union Netherlands and Luxembourg formed into the European Economic Community (EEC) = by ihe Treaty of Rome, 1957, It came into being on Ist January 1958, The number of lena’ t wn. Lene ‘member countries of the EEC increased from six to nine on January 1, 1973 as United of ie puto Leen Kingdom, Ireland and Denmark joined the community. Greece joined the EEC in 1981 AL occeaaens ‘and Portugal and Spain joined in 1984, Austria, Finland and Sweden joined the community 44 4 enone un Trp and fiscal policy among the member countries the EEC became European Union(EU). “J : (On May 1, 2004, 10 more countries viz., Cyprus, Czech Republic, Estonia, Greeee, Foro Pat Lance Litas Mata, Sata oven ones EU. Thae te member BETO ‘of EU as on 30® April 2005 is 25.The requirements for joining the EW as members are | the country ‘must be European country and ¥##f"it must be a democratic country. Oi ne en Opa aS etme yay 2013 i + OBJECTIVES Cnr oer || EU consists of three organisations, viz., the European Coal and Steel Community (ECSC), q the European Economic Community (EEC) and the European Atomic Energy Community (Euratom). ECSC functions for $0 years and the EEC and Euratom function for an unlimited time “uration. The main objective of the EEC according to Article 2 of the Rome Treaty of 1957 “The community shall have its task, by setting up a common market, to promote throughout tie community a harmonious development by economic activities, « continuous and balanced and accelerated raising of the standard of living and closer arcall @ rect Ave ‘expansion, an increase in sta relations between the Member States belonging (0 it.” Exhibit 11.1 presents the developments of the European Union in a chronological order. DEVELOPMENTS OF THE EUROPEAN UNION IN A CHRONOLOGICAL ORDER Six countries - Belgium, France, the Federal Republic of Germany, Italy, Luxembourg and the t Netherlands - create the European Coal and Steel Community (ECSC)’ by pooling their coal ‘and steel resources in a common market controlled by an independent supranational authority. The ome Treaties set up the European Economic Community (EEC) and the European Atomic Energy Community (Euratom), extending the common market for coal and steel to all ecopomic sectors in the member countries. The Merger Treaty is signed in Brussels on April 8. It provides for a Single Commission and a Single Council of the then three European Communities. The Merger Treaty enters into force on July 1. 1973 The United Kingdom, Ireland, and Denmark join the European Community (EC). The European Parliament is elected, forthe frst time, by direct universal suffrage and the / European Monetary System (EMS) becomes operative. Greece becomes the 10th member state.1985 1986 1987 1989 1990 1991 1992 1993 1994 1995 1997 1999 2001 2002 2003 2004 2005 2007 2008 Internation. guy, The program to complete the Single Market by 1992 Is launched. ‘Spain and Portugal become the 11th and 12th member states. seats The Single European Act (SEA) introduces majority voting on Single Market legislation and ine... the power of the European Parliament. The Madrid European Council launches the plan for achievement of Economic and Monetary (emu). “y East and West Germany are reunited after the fall of the Berlin Wall T° parallel inter-governmental conferences produce the Treaty on European Union (Maastricht) yy EU leaders approve at the Maastricht European Council. ! Treaty on European Union signed in Maastricht and sent to member states for ratification ¢, referendum in Denmark rejects the Treaty. The Single Market enters into force on January 1. In May, Maastricht Treaty, which takes effect in November. The EU and the 7-member European Free Trade Association (EFTA) form the European Econo, | Area, 2 single market of 19 countries. The EU completes membership negotiations with EFTA mem Austria, Finland, Norway and Sweden. Austria, Finland and Sweden join the EU on January 1. Norway fails to ratify its accession treaty, y, EU prepares the 1996 Inter-governmental Conference on institutional reform. The Treaty of Amsterdam, resulting from the 1996 Inter-governmental Conference, is signeg , October 2. - The Euro is introduced on January 1 electronically in 12 participating member states, with com, introduction to occur in 2002. The Amsterdam Treaty enters into force on May 1. The Treaty of Nice results from the 2000 Inter-governmental Conference. The Euro is fully launched on January 1. The European Convention begins, as part of the deby on the future of Europe, to propose a new framework and structures for the European Unio Seared to changes in the world situation, the needs of the citizens of Europe and the future developme: of the European Union. On October 9, the European Commission recommends that candidate counte Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Repu: and Slovenia be the first to join the EU under the latest enlargement process, possibly in time for' elections to the European Parliament scheduled for June 2004, The Treaty of Nice enters into force on February 1 Ten countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia) join the European Union on May 1. (Bulgarian and Romanian access are anticipated for 2007. At the summit on December 16 and 17, the European Council deci whether Turkey is ready to begin accession negotiations. On June 18, the European Council accep Croatia as @ candidate country. On March 22, the Former Yugoslav Republic of Macedonia [FYRC applied for EU membership.) A new European Parliament is elected on June-10 to 13. An European Commission takes office on November 22. - France and Netherlands voted against EU constitution. Tony Blair argues for a fresh constitution. Bulgaria and Romania joined EU on January 1,2007. The membership of EU increased to 27 as ¢ 31 st Jauary 2008. Provided humanitarian aid of Eur 5.5 million to Kenyan Post-election victims. a second Danish referendum ratitie , ‘Source : Adapted fram European Union, Websie Obyer tres & Furcuere ¢ ACTIVIFIES OF THE EUROPEAN UNION The activities of the EEC based on the objectives are: + Elimination of customs duties, quantitative restrictions with regard to exports and im? goods among member countri + Estsblishment/formulation of a common customs tariff and common commercit! with regard to non-member countries.blocks and Business Centres Abolition of all obstacles for movement of persons, services and capital among member countries. - Formulation of common policy in the area of agriculture. "Formulation of a common policy in the area of transport, - Establishment of « system which would ensure competition among member countri | Application of programmes in order to coordinate the economic policies of the member countries. . Application of the procedures and programmes to control the disequilibrium in the balance of payments of member countries, , Approximation of legislation of the member governments to the extent required for the ~ proper functioning of the common market. } Establishment of European Social Fund with @ view to enhance the employment opportunities for workers and to improve their living standards, | Establishment of European Investment Bank for mobilisation of fresh resources and to contribute to the economic development of the community. | Development of association with foreign countries to promote jointly the economic and social development of the EU. 5 an vee GANISATION OF EU paccts “otee Cueray & MO wropean Council is the main administrative body of the EU, Eaet) member country is ented by a minister in this council. Eacl iber country holds the presidency of the | for six-monthly period by rotation. A co of permanent representatives acts as the iat of the council. This committee is also called, “Corper.” The Corper makes all-important ns. The Corper is the link between the EU and member Governments. (See Figure 11.1). European Council “ (Secretariat: Committee of Permanent Representatives) C pe tf Justice Court of Auditors European European ‘Advisory Committees vicates Disputes) EEC Budget Commiss Parliament @ ‘Economic and Social view Monitoring (Commissioners © Consultation © Monetary Security Expenditure and Assistants) © Approvals Coal & Stel mpeition Policy \ bss Industry {| inh ° OPEAN COUNCIL 2 nae le ‘wopean Council acts as the exeoutive-agent of the BU in: laking routine decisions. ‘ ¢ Formulating rules of conduct, Preparing new legislations. 2 Enabling members to carry out the provisions of the Treaty. Taropean Commission: The European Commission assists the Council. This is the executive body of the EU. The members of this commission are appointed for a period of four years pttich can be renewed. One or more EU policies are entrusted to each commissioner. Each Commissioner is assisted by a chief of cabinet of his country. These assistants take decisions ce behalf of their commissioners, FIGURE 11.1 Organisation structure of the European Economic Community ecb Faank Baurrels uu furtInternation: ating to adit disputes re " ice to adjudicn fcompetition poli % Court of Justice: There is a court of justice to arts an aeelcomal social security for migrants among the member cOWnenes Ta py also adjudicates disputes between the member count” the council or commission reported by a person rene % Court of Auditors: Court of auditors was appoiniee Wo ti Treaty of Rome. The activities of the court of a\ \—* Auditing the EEC budget \+ Monitoring the EEC’s expenditure. jes and levies. *Laying down improved procedures for collection of duties the Parliament European Parliament: The European Commission seue an final decision is taken. The Parliament acts through the Parliamentary of the European Parliament include: + Provide consultations and information to the Commission. * Approve or reject the draft budget prepared by the Commission. f the EU by * Dismiss the Commission, if necessary. ; Advisory Committees: There are several advisory committees to advise the E Commission. These committees include: * Economic and Social Committee. * Monetary Committee. * Consultative Committee on Coal and Steel Industry. Economic and Social Committee: This committee represents the activities like empl employee unions, farmers, retail traders, liberal professions and public. European Comm @ppoints the members on this committe his committee examines the monetary problems, problems id suggests measures to overcome them, » Consultative Committee on Coal and Steel Industry: This committee studies the pr of coal and steel industries and offers suggestions, It would be appropriate for us to discuss the functi i i ioning of EI poe 8 of EU, having studi ¢ FUNCTIONING OF THE EU Complete customs ers, » Monetary Committee: balance of payments ani Policy, and Common transport policy, Different member counties of the BU wer i € followi i the formation of EU. For example, the thes West Germany | nd et pre Policies bef Mga Support Prices fo the inefficiency of their 4gricultural sector. The vice versa’ wi ‘4S true in vase of F, rance Common Agricultural Policy (CAP) Under the common agricultural Policy, there is arbton Price is convened into the national vice the » much as they can, © Breen rate, Farm, * Agricultural products are free to countries. ove from one member ¢+ * jocks and Business Centres Blo ae Te ports are allowed only when the demand for Varable import levy is used to offSet any price adva ifthe community supply is more than the demand, g encourage additional consumption among the mers EEC reformed its CAP by introducing ‘cuts’ in subsidi ‘ . make its agriculture more competitive globally." July 1992 with a view to Product is ‘more than its supply. ntage the ve importers. ubsidies are allowed to export or to er countries, FEC has achieved self-sufficiency in agriculture some of the farmers of the member count could not motivate them to seek alternative employmene The reforms enabled the rich farmers to becor tosses. © become richer, but the poor farmers incurred Since the support prices are set at higher levels, 7 s Consumers are deprived of the benefit lower prices. ers are deprived of the benefit of + The policy led to the surplus production of certai and butter and beef mountains n products like milk lakes, wine lakes Common Fisheries Policy EEC member countries agreed for a co come into force in February 1971. Features ‘mon fisheries policy in October 1970. This policy of this policy include: + Market for fresh frozen and preserved fish Common market standards and facilities for trading among members, Equal access to fishing areas to all the nationals of the EU countries, This policy failed in the reality as it was member countries. based on ad hoc compromises and concessions to European Monetary Union European Monetary Union was started in March 1979 with the following features: » Exchange Rate Mechanism (ERM): Exchange Rate Mechanism helps the member countries {o regulate inflation and interest rates, The member countries work to prevent wide shifts in the value of their currencies. » European Currency Unit: European Currency Unit is the means for settlements between the central banks of the member countries. The European currency unit is the- weighted basket of all the currencies of member countries. The official rate of the ECU is calculated on “daily-basis.” » European Monetary Co-operation Fund: European Monetary Co-operation Fund acts as the ‘clearing house’ of the central banks of the member countries. » Factor Mobility: One of the objectives oF EU is to allow free movement of. ‘persons, services and capital among the member countries. The formal restrictions on the movement of labour were abolished by July 1968. Now the workers and their family members can move freely from one member country to the another without any permit. They have similar rights and obligations as the nationals have like right to work, social security and taxation. But the EU could not achieve its objectives with regard to capital mobility as it is hindered by the international monetary disturbances. » Regional Development Policy: The objective of the regional development policy of the EU is to promote balanced development of the member countries by reducing regional disparities and by developing rapidly the backward regions. To achieve this objective, the EU provides financial assistance for the development of the backward regions of the member counties The financial assistance is provided through.te qn" - ~ ‘ Tnternations, » European Investment Bank: This bank was fuelates balises bY BU. tgp e countries for the devel, Vid tees for the loans raised by the member Bel Spdne te anes | loans for modernisation, conversion and development pre : beyond the financial abilities of the member governments. It also proyiqe 8 wa projects in which member governments have common interest an European Social Fund: Some of the workers lost jobs due to the Ey 0 workers are assisted to get employment by the European social fund. The Financia, nal taining, job creation, income maintenance ang, i, is meant for voc programmes. European Regional Development Fund: This fund was established in 195 It loans for the backward areas development of the EU. It also grants loans for the deve of industrial service and infrastructure. ly Common Transport Policy The objectives of the policy are: + Removal of obstacles for having a common transport policy with View haye gg market place. : + Integration of transport facilities of the entire community. * Organisation and control of the transport system within the community. The BEC could not achieve these objectives completely dué t0 the issues invoty infrastructure pricing, entry controls for the transportation goods by rail and road, One Market: The EU has emerged as one market from January 1, 1995. The poj national boundaries are erased for the business and economic activities — ; and capital can move freel}’ from one country to another of the EU.-Now, the member eon do not impose any import tariffs. Import tariffS of the member countries are replaced ty community tariffs system. This factor provides easy access of total EU to the exporters Retrospect: Thus, the EU could create the largest, single market by removing the obs: for the free movement of goods, services, persons ad capital among the member countia the EEC. The single market enlarged the production, trade, income, investment aed emplo in all the member countries. The balance of payments position of all the member custnies“itas become strong. Howei formation and successful functioning of EEC created a trade block for the emergence of! frontier free global trade. ¢ EURO CURRENCY : FROM 15T JANUARY 2002 increasing economic prosperity and contributing to, “an ever closer Union among the peoples Europe”. This objective was the basis for enacting the single European Act in 1986 a4 since January 1999. Greece joined on I* January 2001 introduced the new Euro bank notes and coins from | January 2002Centres » cexs and Business ge BIOs ~ corre ry 2002 when the Euro banknotes and coins were i 1 Janu " introduced, the single currenc since 14000 graties prepared and signed by the members of the European Council The gn an se member states together created and developed ihe “bay fied GOT pe name “Euro" in December 1995 in Madrid Fpancil 39F of 7 a fou ig) member countries of the European Union participating inthe Common currency, ar pei ue pore mark, Sweden and United Kingdom are members of the European Union but are not benmaricipatng inthe single currency, orl Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Austria, and Finland. “pnese members introduced the single currency ive., Euro from 1 January 2002. Euro sunotes and coins arrived for residents of 12 European nations that were at war with each banling years ago. The 50 billion coins and 15 bi sre ion residents of the euro countries jon banknotes replaced national currencies for Purpose: The successful development of the Euro is central to the realization of a Europe in wich people, services, capital and goods can more freely. Its purpose is to create a unified market nd eliminate currency risk. Euro members hope to become more competitive and encourage sade, travel and investment. Political leaders of the member countries hope that Euro would iiminate inflation and currency crisis of the past. + THE EUROPEAN SYSTEM OF CENTRAL BANK ‘The European Central Bank was established on | January 1998 in order to maintain price stability and conduct a single monetary policy across the Euro area. The national central banks of ‘he European Union along with the European Central Bank make up the European System of the Central Bank, The national central banks of Governments not participating in the Euro area i.e., Denmark, Sweden and the United Kingdom, have a special status, which allows them to conduct their own national monetary policies, but not to take part in deciding and implementing monetary policy of the Euro area, 7 The Euro System ‘The national central banks of the euro area together with the European Central Bank are known as the Euro system, The Euro system's primary objective is the maintenance of price stability. It meets its objectives through: ‘+ Deciding and implementing monetary policy, * Conducting foreign exchange operations, and * Operating payment system. The National Central Banks of the participating Member States played a key role in the smooth trahsition’ 76 tive euro. Their responsibilities include: + Introducing the euro in their respective countries, + Managing the changeover from national currencies to the euro, + Creating the necessary systems to effectively circulate the curo banknotes and coins, + Withdrawing national currencies, and + Providing advice about and promoting the use of the euro. ‘ ENLARGED EU MULLS FUTURE CHALLENGE The President of the European Commission, described the enlarged anniversary as “a forceful "winder that openness towards others - and not isolationism - is what drives the European Since 1 Jenuary 2002 when the Euro bankrotes "The European ond coins were 1 January, 1998.Union and yields re democracy and hu: sults. EU enlargement, had helped consolidate political and economic stability, e man rights, and had strengthened the EU's international position. But he admitted The tals Prompted questions about the EU's identitirits borders and how it should function in ~~ y the future. Six of the 10 newcomers have already taken decisive steps towards adopting the exro as their currency in the next few years. democratic changes in Ukraine and other parts of the former Soviet empire. Poland and Lithuania want the EU to go further, by offering Ukraine a clear prospect of membership. However, few Western Europeans share their appetite for more expansion. One year since the “Big Bang”, the Politically, the newcomers have firmed up the EU's stance towards Russia and championed | EU is suffering from what some call “enlargement blues”. (See Box 1/-1) | Further expansion, especially to Turkey, but also to Croatia and other Balkan nations, could take much longer than expected. The accession of Bulgaria and Romania, planned for 2007, could also be delayed by a year. But both countries hold an insurance policy - they signed an accession treaty - so they are virtually certain of joining the block regardiess of what happens to the European Constitution. Once they do, though, the EU may close its door for years to come, Getebnctaythckoaicie nace maonmai The most likely scenario for the future of the EU over the next decade and a half will be slow but steady progress towards integration, held back by is great resentment’ for example. In France: there is 91 3 about the dominance of the English language and it: is illegal to play too many English songs on the radio. J the rich diversity of cultures and economic situations. A Greater Europe cannot be built without strong EU governance and visionary leadership, yet these are the two issues which are notably missing at present. expansion to the East, doubiing the number. of countries and embracing nations that are,extremely The European model is changing forever with rapid - poor in comparison. Governance will be complex It is hard to imagine such a profound division’| between different States of America. an Bosnia, and Kosovo are both part of old] ‘Yugoslavia, yet another part of the same old nation’ | is entéring the FU:,Sloveniz. So here we havel,| nations rushing to. become one, who cannot, even: ‘stop people in the same street butchering each others because they, want to beso different... So.expect: < growth, extension, vast economic trading areas,, and. with It growing tensions, xeniophobie and resentment | ¢ EU CONSTITUTION t ‘The constitution brings together for the first time the many treaties and agreements on which the EU is based. It defines the powers of the EU, stating where it can act and where the member states retain their right of veto. It also defines the role of the EU institutions. The EU constitution provides details in the following areas. France and Netherlands voted against constitution and as such the future of the EU constitution is at stake. Powers of the EU yu) Foreign and defence policy _ Division of responsibilities” Reform of the Commission Decision-making European Parliament Qualified majority Voti © President (38 Foreign Minister Furidamental Rights « |Legal Supieinacy * Leaving the EU" Now, we shall discuss another important trade block, ie., The North American Free T'80” ‘Agreement, §pe Cultunat dibtyreneen be \ a A ty = oat in rt ar 3 ages > bp TROIKA « Geton, 2 fra Auguicitin L p 0 Ro Dhoaverh , Rah Shasoda i —Shagce 1at Summi tt 201 Nepal Rath manda dons ! Acktiavemsnls ?@RICS > eatabtished in O01 BRC. unt 201IG ( ny be —— _ Opec. 12. mwnkine orig > OeFeqine PM ASE OPEC. producers a _ opec. has 77 Jo ef world petretoucr Arment Crooce'g Guero. ; , ofr 407. _tepat Bye tne Awe rent Deke 13:6 “fo. Degt to cmevialin patio. «1507. svoshod 148" : =a ver s Gras tucdency = Denthena — Se eeFo fo Sateen ty fi : Crain i SA apce Cie) i \ a millan Ops. _—_+ “ 2 Papel GDP _4a®? fon.gent G = - Pot 9ah a ; 1, \ a et _ fou _ 2 308 tilien ¢ _GpP | a P . 1,308 4 sa b SIP CL, - - - wget, member cut of 28 mambo counluas EY men SD te debt > instalment + iiterest $a + . y NAR ores ECR cd bility ak chabo So SS neo unl “hor, 2201, loans— SRARC AChievernants —_—_———_—— IRE 11. oe _ anisati Crenerul. 0-6 “Gs Americ at —y Abien (som Waud Bank, ——tsora Coopin dition from. Se ‘an Vous a a . ; aa ah i tm co UNCTAD, ee 4 pte Seuth Paian Destlepmant Fund SADE)\ © read ,e Blocks and Business Centres + OBJECTIVES Theabjectives of LATA are: ‘nate restrictions on trade among.the mewber countries, and LAIA is managed ssent their respective 4 which makes decisions on issues requiring » Secretariat Technical and Administrative Functions) a Council of Ministers. Foreign Minister of the member.countries ters is assisted by @ joint resolution of ice Implements the treaty. ad High cost Contentment’ is on which they consider duty reductions. plete exemption of tariffs and decide the cts eligible for complete exemption of tanX{s. In fact, they include all the products {ransportation. Forces of nationylism. ied in the region in the list. More favourable rms are granted for the less developed the members with the sheltered markets. Now, we shall discuss another important trade block, i., South Asian Association for Regional SAARC). Co-operatioy The successful performance of EEC, NAFTA and other trade blocks in the economic development of the member countries and in improving the employment opportunities, incomes ‘and living standards of the people of the region gave impetus for the formation of South Asian Association for Regional Co-operation (SAARC), oa O56 ar fualdis 2 nepal & Bhuton- land Lec kod k Arthipels TF UII AT SS 10 FIGURE 11.3 Organisation Structure of Latin American Integration Association (Lala) Indio, Bangladesh Bhutan, Pakistan, the Maldives Nepal, Sri Lanka ‘ond Afghanistan ‘re members of SAARC., on December 8,1985.Afghanistan joined SAARC in April 2007. 016 eA ehenistnn joined 20 1 t ¢ OBJECTIVES 3 n ¢ The objectives of the SAARC are: ears SAARC member countries Pope y 77 to improve the quality of life and welfare of the neal of eS ’ sow \e+To develop the region economically, socially and cultural a in digiy and exploit he a LyCeLLe #46 provide the opportunity to the people of the region to li i a ve Le potentiates _ ! +o enhance the self-reliance of the member countries join iB 1 rst, understanding and \ ‘ 11 +46 provide conducive climate for creating and enhancing mutual : ‘ . S~ application of one another's issues. pees \ * £6 enhance the mutual assistance among member countries in the area } ~ social, cultural, scientific and technical fields. ca \-+7 to enhance the co-operation with other developing economies. sors in {© have unity among the member countries regarding the issues of common 7 international forums : 2/10 extend co-operation to other trade blocks. 4 + ORGANISATION STRUCTURE a ‘The Council of the SAARC is the highest policy making body. pt ; k ‘ The Council is represented by the heads of the Government of he member countries. The Council meets once in wo years. This council is assisted by the “Council of Mi The Council of Ministers is represented by ihe foreign ministers of member goveroments formulates policies, reviews the functioning and decides the new areas of co-operation, ie dditional. mechanism, decides the issues of general interests to the SAARC member countr The Council meets twice a year and more times, if necessary. The Council of Minister assisted by the standing committee. ae Oe, - Standing Committee consists of foreign secretaries of member governments. The functiou! ev of the standing committer inclu: * Monitoring and co-ordinating the programmes. + Determining inter-sectoral priorities. 4 Mobilising co-operation within and outside the region, + Formulating the modalities of financing. 8 Standing committee is expected to meet as and when necessary and submits the the Council of Ministers. This committee sets up action committee for the project implemer The standing committee is assisted by the programming committee. Programming committee includes the senior officials of the member governments31B --- functions of the programming committee are: «+-Scrutinising the budget of the secretariat, ~*-Finalising the annual-schedule of the secretariat. * Carrying out the activities assigned by the standing ‘committee, 1 malysing the reports ofthe technical committees and SAARC regional centres and ~ them to the standing committee along with its comments | Y Technical committees comprise the representatives of all member countries. Their include Rasbwsany«Trade Blocks and Business Centres .* Formulating projects and programmes in their respective areas. + Monitoring and implementing the projects. + Submitting the reports to the standing committee through the programme committee, The technical committees of the SAARC include: Spent, Meda & + Agriculture * Communications **f 7 ‘+ Environment © Health and Population Activities a we Rural Development * Science and. Technology Lares Sy + Tourism and Transport * Meteorology . De, Alll the secretarial work is done by the SAARC secretariat, which is located in Nepal. The aie activities of the secretariat include: a * Co-ordinating, monitoring and implementing SAARC activi «+ Servicing the meetings of the SAARC. ~-+" Serving as communication link between SAARC and other international forums. The Secretary-General is the chief of the secretariat. He/she is appointed by the Council of Ministers on rotation basis among members for a period of three years. He is assisted by seven Directors (one from each member country) and general service staff. (See Figure 11.4 for organisational structure of SAARC). a FIGURE 11 os The Councit Organisation ighest Policy-Making Body Structure of ; L 1. SAARC Council of Ministers {Represented by the Foreign Ministers of the Member Governments) Formulates Policies, Reviews the Functioning of SAARC (Consists of Secretariat, Secretary-General, Directors and General Staff) + Standing Committee (Represented by Foreign Secretaries of the Member Governments) Monitors and Co-ordinates the Programmes L Programming Committee (Represented by the Senior Officials of the Member Governments) | Scrutinises Budget and Anhual Schedule , L Freee de Pursor Technical Committees (Comprises the Representatives of All Countries) Quan Marth = Formulates, Implements and Monitors Projects ¢ SAARC PREFERENTIAL TRADING ARRANGEMENT (SAPTA) ~ The Council of Ministers have signed the SAARC Preferential Trading Arrangemen( agreement on April 11, 1993. ore ints fenen Dee, 1995 Objectives of SAPTA : The objectives of SAPTA are: + To gradually liberalise the trade among member countries of SAARC. + To eliminate trade barriers among SAARC countries and reduce or eliminate tariffs. + To promote and sustain mutual trade and economic co-operation among member countries.Internationa: Business ; . ‘ement agreement Would be | ‘Administration of SAPTA: SAARC Preferential Trading Arran’ administered on the following lines: The benefits to the member ¢ and mutuality. \* The Agreement would be impr: * The Agreement has taken the speci®! Product Areas: All raw materials, semi-f for mutual concessions. suitable basis of reciprocity corded on €4! fountries would be ac negotiations. prough mutual count hed products are included h . wed step by step tl is derat mis as ofthe less developed tries into consideration, ne shed products and finis) on-tariffs and trade measures, ed in the following ways: ultural projects in order vould be given in tariffs, para-toriffs, J countries would be Pro ‘rishment of industrial and 8r16 Tariffs: Concessions W Special treatment for the least develope = Providing technical assistance, esta! to boost up their exports. \ «Enhancing their exports by eliminating non-tariff free access, ete © Establishing training faciliti + Providing export credit insurance an and para-tariff barriers, providing duty es in the areas of export wade f d market information. «Entering into long-term contracts. ¢ BALANCE OF PAYMENTS ¢ of payments problem, the If the concessions enhance the imports resulting in serious balanc importing country can suspend the concessions. is “| e ided. & w» Provisions for information, consultation =a dispute settlement are provides / 8 Jed to all member countries (expect € wy Extension of concessions: The concessions would be extend those meant for least developed countries). vm Committee of participants: Committee of participants would review the implementation of this agreement and distribution of the benefits among member countries equitably. 4 » Non-application of the provisions: If the benefits similar to those stated in the provisions of thicagteoment are already granted by one member county o another through any other arrangement, the provisions in this agreement are not applicable ‘0 the same ease distribution of benefits among member countries equitably. » Modification and withdrawal of concessions: be withdrawn or modified through the mutual co concerned afier three years. However, Committee on these aspects. Withdrawal from SAPTA: Member countries by giving six months’ notice to SAARC Secretaria and committee on Economic Co-operation can withdraw from the SAPTA. 4 Concessions provided under this agreement can nnsultations and agreement of the countries Economic Co-operation (CEC) will moniter # SAARC It was hoped at the 13th South Asian Regional Associ i iation for Regional Co-operation, (SAARC) summit held at on 12" and 13” November, 2005 in Dhaka ar conseneus on thé. remaining isues to implement the South Asian Free Trade Agreement (SAFTA) from January 1 2006, it is envisaged a region where people, investments and trade in goods and woul have unhindered mobility across national boundaries, opening up physical ei the well-being and prosperity of South Asians. a eee The 14" SAARC summit was held durin, i : 3-4, April 2007 at agreed to root-out terrorism and turn around the under performing ae 2 ed) joc. (See Box IIge Blocks and Business Centres 1a 4 “VISION” -Our vision looks beyond regional cooperation in trade under SAFTA, towards a future of || economic integration in the region. This will include a mutually supportive process of ening the physical, legal and technical infrastructure and overall connectivity in the region,” It is hoped that SAARC would become fully integrated into a future global. architecture consisting of major trading blocs. An Asian economic community, which will include the SAARC jon, for example, will constitute the largest consumer conglomerate in the world. eventual bisaster Mitigation Another important initiative that will be taken up at the summit will be ways and means of csoperating in the area of disaster preparedness and mitigation, Ifthe leaders endorse the proposal, the next SAARC summit, to be held in India, may grant Azhanistan the membership. Future membership of SAARC The People’s Republic of China has shown its interest in joining SAARC.While Pakistan and Bangladesh support China’s candidature, India is more reluctant about the prospect of Chinese membership, while Bhutan does not even have diplomatic relations with China, However, during the 2005 Dhaka summit, India agreed on granting observer status to the PRC along with Japan. During the 14th summit, Nepal announced its support for the membership of China.Pakistan, Bangladesh, and Nepal gave strong support for the membership of China, The Islamic Republic of Iran, a state with borders to two SAARC members, has traditionally enioyed strong cultural, cconomié-and politica! relationship with Afghanistan, India and Pakistan nd has expressed its desire to become a member of the South Asian organisation. On 22 February 2005, the Foreign Minister of Iran, Kamal Kharrazi, indicated Iran’s interest in joining SAARC by saying that his country could provide the region with “East-West connectivity”.On 3 March 2007, Iran asked to join the SAARC as an observer. SAARC Secretary-General Lyonpo Chenkyab Dorji responded by saying that Iran's request for observer status would be taken up during a | meeting of ministers of foreign affairs of SAARC member countries. Poti ake Uk ucie rare The SAARC Finance and Planning Ministers meet on ‘poverty alleviation’ has endorsed an action plan | for full operationalisation of the South Asia Preferential Trade Agreement (SAPTA) and move faster towards the South Asia Free Trade | Agreement. The plan enhances the potential for increased trade and commerce between India and Pakistan notwithstanding the ups and downs in their political ties. India has accorded the Most Favoured Nation (MFN) status to Pakistan and has been urging Islamabad for reciprocity. The full operationalisation of SAPTA and a faster movement towards SAFTA will automatically open up markets for both India and Pakistan on a large number of commodities. At the moment, under its export-import policy, Pakistan permits import of only 600 and so items from India. Four rounds of negotiations have already been completed on SAFTA. The fourth round was held and it was decided to include-in the basket items highly traded and potential items. The Ministers have agreed to seek increased market access in developed countries through joint Positions to address the biases against developing countries in WTO-related issues, removal of tariff and non-tariff barriers, joint positions against creeping protectionism against the exports of developing countries and flexibility for developing countries in Intellectual Property Rights. Source: The Hindu, 11 April, 2002sole es- a Wy - a e South-South Cooperation long felt desire for cooperation among the countries of South Asia began to receive ee our the early 1980s and the South Asian Association for Regional Cooperation (SAARC) ar z Nepal, Sri Lanka, Bhutan and the i sladesh, ven countries, narcely, India, Pakistan. Bangladesh, a es wa mall Tannched in December 1985. Late Rajiv Gundhi the then Prime Minister of » ofthe SAARC Suramit as an important cay in the history of resurgent ie ae ee asl ee Togeterinan act of faith, He called upon the developing counties Aare consins fot to remain ontside the vortex of tensions and conflicts which posed a serious treat totheir progress and prosperity. The participants of the Summit afirmed that thebirth of SAARC suas a logical response tothe problem facing retariat of SAARC is at Kathmandu, Nepal gion. The ‘Objectives and Principles f fundamental goal of SAARC is to economic and social development through optimum utilisation of the collective human and material resources. ™ secording to Aticle lof the Charter of the SAARC, the Objectives ofthe Association are: _Je-To promote the welfare of the people of South Asia and to improve their quality of life “2, Jo accelerate economic growth, social progress and cultural development in the region and co provide all individuals the opportunity to live in dignity and to realise their full potentials. \GeTo promote and strengthen collective self-reliance among the countries of South Asia, 4-Fo contribute to mutual trust, understanding and appreciation of each other’s problems. 5-To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields. & To strengthen cooperation with other developing countries. 2 To strengthen cooperation among themselves in international forums on matters of common interest. ‘8° To cooperate with international and regional organisations with similar aims and purposes. Article If of the Charter Lays Down the Following Principles |. 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 intemal affairs of other States and mutual benefit. 2. Such cooperation shall not be substitute for bilateral and multilateral cooperation but shall ‘complement them. 43. Such cooperation shall not be inconsistent with bilateral and multilateral obligations. lerate Profile of the SAARC Countries 1 With over 1353 million inhabitants (in 2001), the SAARC accounts for over 01 roa 1353 million i , ne-fifth (2% per cent 2 vorld population: aa ; ey Fy of population in the SAARC counties WHE ave a e world’s land area, is very high—nearly double the average dens taken as a whole, The density of population in Sage easy in elon Some of the countries, Bangladesh and Maldives, are among the SAARC counties ate characesed highest in the world. The population in the SAARcrregion has been _,°/ 8 BE capa inca, high growing very fast as is evident from Table 14.1 nr a a ad dee primary sector, eet Wold GOP us SAARCs GDP 2015 2-Fealon US $eSieeeee International Econo” Filions of Per capi dollars 2005 dollars 2604 f Milions aerage on" 2005 growl g-2005___* poe ann f ok 2 Bi wd Tid Development Report 2007 and Manoraina Yearbook 2003 Source’ Wor s_ All these are Ic —— ein Seen Ce countries, On the other extreme is the ‘inhabited by about 3 lakh people. Bhutan also is me economies, A major share of the world’s poor liv India has about three-fourths of the pee Ae tiny country of Maldives with a land area of 298 sq km, 2 comparatively small country, with a total population of abput 8 lakh el — : [il Sri ae a ae ‘and Maldives Ris lag, pala jhutan are fendi locked countries for whom the easiest entry to the sea routes is via the ports of India and Bangladesh. } , ‘Among the SAARC nem dive as the highest and Nepal the lowest per capita income. In spite of the growing importance of service and industrial sectors in these countries, a majority of population is still dependent on agriculture. Somme of the member countries, like Pakistan, Bangladesh and India, have been receiving large amounts of reimittances from the nationals working abroad, particularly in the Middle East, The share of tis region in the world trade is only-about one per cent, All the major countries of the region have trade deficit. ‘ ~ Intra-regional trade’is an important means of ing regi I promoting regional economic’ coo, erat ion. In South Asia, however, such trade has bs ata sey low level. Statistics forrecent years show that India accounts ‘or a very large share of th, i i 7 total intra-1 fi ae igusce share of India’s intra-r nea Binal expr. coeds bwice the : fice the aggregate exports of al other members of the Association, Tests adaarnalies * “ie share of intra-regional trade in the total world trade of Nepalis exceptionail, 1, Xceptionally high bec m export te SAARC counts ine maga large Volume of trade with India, India’ Pet cent j ; 2000-01, as against the increase fro a " m i with whom Ina drs 7 a than | et cent i 1990-91 to 4.6 of the total in SARRC crept up from 05 t0 1.1 per goss © See, Dur «Asian developing countries from 13.50 nearly 17 pet cen, tt Whereas from other 4 ia Peto nda’ ae from I. S1aN develop}, ; Ping countries it increaseda South-South Cooperation 345 Structure of Production (alue added as percentage of GDP) culture naa "Services __ a 2005. 1965 7005 _ 1965 2005 965, 44 419 Fae Stee 8h 5A 40 2 40 53 3 6 58 65 40 ay de B 8 28 a Wee 26 54 5 Source: World Development Report 1993 and 2007. Merchandise trade Mjufachred High technology FDI ODA Fk S billions (2005) ex sagt. exports as % Smillions $ per a of total §— $((2004)._.. capita a3 bifters Bxports Imports: © manufactured (200) "=z exports (2004) = _ 8 ss 1 159 ye ngiadesh 9.2 _o 10 ee 08 0 6 ‘Silanke.. 63 2 a Source: World Development Report 2007. \ [As Table 14.3 shows, manufactured exports account for a very large share of the exports of SAARC. However, the share of high technology exports in their total manufactured exports is either nil or very negligible. Although manufactured products predominate the export sector, primary products also contribute significantly to their exports. Among the SAARC countries, India’s exports are relatively diversifigd. tential Areas of Cooperation of cooperation. Having started with some non-economic areas such as There are many potential areas cooperation inthe SAARC has moved to economic areas. Broad sports, arts and culture, the process of areas identified are: 1, Agriculture 2, Rural development 3, Meteorologynational Economics — Telecommunications Scientific and technological cooperation Health and population activites Transport Postal service Sports, ats and culture Control of drug trafficking 1 Women in development id base neds suchas shelter edueatiog . A regional plan called SAARC-2000 Integrated Plan to provi ‘ofthe 2h entry 38 80 operat and literacy to over one billion people of the region by the tum sup. Tomake the ea of e000 Tdentifying the broad areas of cooperation i just aerial shouldbe takenup. Implemen ls Practical and useful projects which are viable, feasible and bene! nd organisations and also individuals ’ also involves identification of suitable firms, private or public, an economies of ope Preval 35 Several cases. Panchamukhi observes: “It is now being recognised t indenting such activi More significant aspect than the economies of scale Tr ee cost-effective approach 04g and facilitating the prospective entrepreneurs to undertake them the institutions which are alread: using the region is through fostering sustained networking Te merce of the region could be sags the counties ofthe region. newer ofthe chanbes of omer king out the cooperatia ‘good starting point for bringing the trade and industry circle face ae é oe ee in select fields." Process, The most fruitful networking would be in terms of linking the R and D centres __ Problems There are a number of problems which confront the SAARC. I 4 5. 6. ea 8 9. 0. 1, Border disputes, ethnic issues and religious, political outlook and affiliations, ete cause mutual distrust among some of the members of the Association and these r and, as a consequence, adversely affect the pursuit of cooperation. 2. One important problem that limits the scope of economic cooperation Is that the economies of SAARCisboset the member countries are similar rather than dissimilar. In other words, ‘with peoblems. complementarity, an important contributor to the Success of economic integration, is limited, 33 x the member oer been emphasising very much on the Promotion of exports othe Currency areas, intra-regional trade has been relatively neglected, 4. Some of the member countries are Important exporters of, Same type of pro, competitors in the international market. For Cxample, this is true of | "oducts and are, therefore, respect ote, and India and ri Lanka with respect greg Similarly toy,or4 24 Bangladesh with important export items of some of the members, Textiles and clothing are very 5. Due to the differences in the levels of development and economii ‘ omic stre the relatively advanced member counties would be the TRth, there i ; the k pec not bene not beneficians” there 1S feeling that the least developed among them may not benef IMUCH AS a mater eS oft © Cooperation and members could enormously benefit from others Pettcular er act th ‘ion cooperation are pursued esERNY From Indig. ;,'N® least developed *" Proper schemes of cnt eiiouenal closeness