INTERNATIONAL BUSINESS

SEM-IV
B.COM (HONS)
Unit 4: Regional Economic Integration and International Economic Organisations
Forms of regional economic integration; Integration efforts amongst countries in Europe, North
America and Asia: EU, USMCA, SAARC and ASEAN; Cost and benefits of regional economic
integration. International Economic Organisations: WTO- functions, structure and scope; World Bank
and IMF.
INTRODUCTION
Regional economic integration refers to a way where neighbouring nations work to merge their thrifts
by falling barriers to trade, investment, and mobility of labour and capital within the region. The goal
is for the region to become more useful and roaring through alliance and mutual support. Regional
economic integration begins with free trade areas that remove tariffs and quotas on member nations'
trade. The next stage is a typical market that allows for the free move of labour, capital, and goods
within the region. It is also defined as nations within the same geographic region work jointly to reduce
barriers to trade, asset, and labour mobility between them. The goal is for the region to become more
fruitful and thriving through integration and alliance.
FORMS OF REGIONAL ECONOMIC INTEGRATION
There are five main types of regional economic integration.
i. Free trade area: Tariffs (a tax imposed on imported goods) between member countries are
significantly reduced, and some are abolished altogether. Each member country keeps its tariffs
regarding third countries, including its economic policy. The general goal of free trade
agreements is to develop economies of scale and comparative advantages, promoting economic
efficiency. A challenge concerns resolving disputes as free trade agreements tend to offer limited
arrangements and dispute resolution mechanisms. Therefore, they are prone to the respective
influence and leverage of the involved nations, which can lead to different outcomes depending
on their economic size. A large and complex economy having a free trade agreement with smaller
economies is better positioned to negotiate advantageous clauses and dispute resolution. An
example is the North American Free Trade Agreement (NAFTA), now USMCA.
ii. Customs union: Sets common external tariffs among member countries, implying that the same
tariffs are applied to third countries; a common trade regime is achieved. Custom unions are
particularly useful to level the competitive playing field and address the problem of re-exports
where importers can be using preferential tariffs in one country to enter (re-export) another
country with which it has preferential tariffs. Movements of capital and labour remain restricted.
The primary difference from the free trade area is that members agree to treat trade with non-
member countries in a similar manner.
iii. Common market: This type allows for the creation of economically integrated markets between
member countries. Trade barriers are removed, as are any restrictions on the movement of labour
and capital between member countries. Like customs unions, there is a common trade policy for
trade with non-member nations. The primary advantage to workers is that they no longer need a
visa or work permit to work in another member country of a common market. An example is the
Common Market for Eastern and Southern Africa (COMESA).
iv. Economic union: All tariffs are removed for trade between member countries, creating a uniform
market. There are also free movements of labour, enabling workers in a member country to move
and work in another member country. Monetary and fiscal policies between member countries

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 are harmonized, which implies a level of political integration. A further step concerns a monetary
union where a common currency is used, such as the European Union (Euro).
v. Political union: Represents the potentially most advanced form of integration with a common
government and where the sovereignty of a member country is significantly reduced. Only found
within nation-states, such as federations where a central government and regions (provinces,
states, etc.) have a level of autonomy over well-defined matters such as education.

FORMS OF REGIONAL ECONOMIC INTEGRATION

COST AND BENEFITS OF REGIONAL ECONOMIC INTEGRATION
In the past decade, there has been an increase in these trading blocs with more than one hundred
agreements in place and more in discussion. A trade bloc is basically a free-trade zone, or near-free-
trade zone, formed by one or more tax, tariff, and trade agreements between two or more countries.
Some trading blocs have resulted in agreements that have been more substantive than others in creating
economic cooperation. Of course, there are pros and cons for creating regional agreements.
Pros
The pros of creating regional agreements include the following:
i. Trade creation. These agreements create more opportunities for countries to trade with one
another by removing the barriers to trade and investment. Due to a reduction or removal of
tariffs, cooperation results in cheaper prices for consumers in the bloc countries. Studies
indicate that regional economic integration significantly contributes to the relatively high
growth rates in the less-developed countries.
ii. Employment opportunities. By removing restrictions on labour movement, economic
integration can help expand job opportunities.
iii. Consensus and cooperation. Member nations may find it easier to agree with smaller numbers
of countries. Regional understanding and similarities may also facilitate closer political
cooperation.

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Cons
The cons involved in creating regional agreements include the following:
i. Trade diversion. The flip side to trade creation is trade diversion. Member countries may trade
more with each other than with non-member nations. This may mean increased trade with a less
efficient or more expensive producer because it is in a member country. In this sense, weaker
companies can be protected inadvertently with the bloc agreement acting as a trade barrier. In
essence, regional agreements have formed new trade barriers with countries outside of the
trading bloc.
ii. Employment shifts and reductions. Countries may move production to cheaper labour markets
in member countries. Similarly, workers may move to gain access to better jobs and wages.
Sudden shifts in employment can tax the resources of member countries.
iii. Loss of national sovereignty. With each new round of discussions and agreements within a
regional bloc, nations may find that they have to give up more of their political and economic
rights. In the opening case study, you learned how the economic crisis in Greece is threatening
not only the EU in general but also the rights of Greece and other member nations to determine
their own domestic economic policies.

INTEGRATION EFFORTS AMONGST COUNTRIES IN EUROPE, NORTH AMERICA AND

ASIA: EU, USMCA, SAARC AND ASEAN

EUROPEAN UNION
What Is the European Union (EU)?
The European Union (EU) is a political and economic alliance of 27 countries. It promotes democratic
values in its member nations and is one of the world's most powerful trade blocs. Nineteen of the
countries share the euro as their official currency. The EU grew out of a desire to strengthen economic
and political cooperation throughout the continent of Europe in the wake of World War II. Its gross
domestic product (GDP) totalled 14.45 trillion euros in 2021. That's about US $15.49 trillion. The GDP
of the U.S. for the same period was about US $23 trillion.
History of the European Union
The EU traces its roots to the European Coal and Steel Community, which was founded in 1950 and
had just six members: Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. It became
the European Economic Community in 1957 under the Treaty of Rome and subsequently was renamed
the European Community (EC). This served to deepen the integration of the member nations' foreign,
security, and internal affairs policies. The EU established a common market the same year to promote
the free movement of goods, services, people, and capital across its internal borders. The EC initially
focused on a common agricultural policy and the elimination of customs barriers. Denmark, Ireland,
and the U.K. joined in 1973 in the first wave of expansion. Direct elections to the European Parliament
began in 1979.

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Why Was the European Union
Created?
The overarching purpose of the
European Union, in the years
after World War II, was to put an
end to the devastating wars that
had wracked Europe for
centuries. At the same time, it
became increasingly clear that a
united Europe would have far
greater economic and political
power than the individual
nations in the post-war world.
Creation of a Common Market
In 1986, the Single European Act
embarked on a six-year plan to
create a common European
market by harmonizing national
regulations. The Maastricht
Treaty took effect in 1993, replacing the EC with the EU. The euro debuted as a common single currency
for participating EU members on January 1, 1999. Denmark and the U.K. negotiated "opt-out"
provisions that permitted countries to retain their own currencies if they chose. Several newer members
of the EU have also either not yet met the criteria for adopting the euro or chosen to opt out.
The European Debt Crisis
In the wake of the 2007-2008 global financial crisis, the EU and the European Central Bank struggled
to deal with high sovereign debt and sluggish growth in Italy, Spain, Portugal, Ireland, and Greece.
Greece and Ireland received financial bailouts from the EU in 2010 conditioned on the implementation
of fiscal austerity measures. Portugal followed in 2011. A second Greek bailout was needed in 2012.
The crisis abated after the EU and the European Central Bank adopted a series of measures to support
the sovereign and banking-sector debt of the affected countries.
Long-Term Measures
These included the establishment in October 2012 of the European Stability Mechanism (ESM),
established to assist EU members experiencing severe financial problems, including an inability to
access the bond markets. The ESM supplanted the temporary European Financial Stability Facility
backstop in place since 2010. The European Central Bank conducted a series of "targeted longer-term
refinancing operations" in 2014, 2016, and 2019 to provide financing on favourable terms for EU
financial institutions. In 2015, the EU loosened the provisions of the 2011 Stability and Growth Act
requiring member states to target public debt of below 60% of gross domestic product and annual
government budget deficits below 3% of GDP over the medium term. The same year, a new EU agency,
the Single Resolution Board, assumed responsibility for resolving bank failures in the euro area.

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EU's North-South Issues
While the relief measures addressed the crisis, they haven't tackled one of its principal causes—the wide
disparity in wealth and economic growth between the EU's heavily industrialized north and its poorer
southern periphery, which remains less urbanized and more dependent on agriculture. Because the
industrialized north and the more rural south share a common currency, struggling southern economies
can't take advantage of currency depreciation to improve their international competitiveness. Without
currency depreciation, southern exporters ultimately struggle to compete with their northern rivals,
which benefit from faster productivity growth.

The Brexit Bomb

After rejecting earlier calls for a popular referendum on the U.K.'s EU membership, Conservative Prime
Minister David Cameron promised a vote in 2013 and scheduled it in 2016. It was a time of growing
popularity for the U.K. Independence Party, which opposed EU membership. After trailing in late polls,
the Leave option won with nearly 52% of the vote on June 23, 2016. Cameron resigned the next day.
The U.K. officially left the EU on January 31, 2020.
In July 2020, a report by the Intelligence and Security Committee of the U.K. Parliament noted
widespread media reports of Russian efforts on behalf of the Leave option and faulted the government
for failing to investigate Russian involvement in British politics.
How Is the European Union Changing in the 21st Century?
The original members of the European Union were the nations of Western Europe. In the 21st century,
the EU has expanded membership to the Eastern European nations that emerged after the collapse of
the Soviet Union. Its current member nations include Bulgaria, Croatia, the Czech Republic, Estonia,
Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

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USMCA- UNITED STATES–MEXICO–CANADA AGREEMENT
The USMCA is a trade deal between the United States, Mexico, and Canada. Known formally as the
United States-Mexico-Canada Agreement, it was signed on Nov. 30, 2018.
The USMCA replaced the North American Free Trade Agreement (NAFTA), which was in effect since
January 1994. Under NAFTA, tariffs on many goods passing between North America's three major
economic powers were gradually phased out. By 2008, tariffs on various agricultural and textile
products, automobiles, and other goods were reduced or eliminated.
Understanding the USMCA
The USMCA is a free trade agreement between the United States, Mexico, and Canada. The deal, which
was proposed by the Trump administration and signed on Nov. 30, 2018, went into effect on July 1,
2020. It replaced NAFTA, which was also a free trade agreement between the three nations. It is meant
to be mutually beneficial for North American workers, farmers, ranchers, and businesses.
There are 34 chapters to the USMCA as well as a dozen side letters. The majority of NAFTA's chapters
remain, with certain exceptions.
As part of the deal, the three nations also agreed to changes to the original text. These amendments
included revisions to the following:
i. Protection for intellectual property rights
ii. Labor and environmental concerns
iii. Dispute settlement
iv. Rules of origin for the automotive industry
The agreement has a life span of 16 years. All three countries must review the USMCA in July 2026 to
decide whether they plan on renewing it for another 16-year term.

USMCA Timeline
Although the USMCA was negotiated under the Trump Administration, the idea to replace NAFTA
dates back to before President Trump's presidential term. During his 2008 presidential campaign,
Barack Obama pledged to renegotiate NAFTA in the interests of American workers but later declined
to do so during his administration. As a candidate in the 2016 election, Trump campaigned to renegotiate

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 NAFTA and get more favourable terms for the U.S. The USMCA began to officially take shape when
the Trump administration sent the required 90-day notice to Congress that he would begin talks to
renegotiate the agreement. The talks officially began on Aug. 16, 2017, and ended on Sept. 30, 2018.
The Mexican Senate ratified the deal on June 19, 2019, and approved the amendments on Dec. 12, 2019.
Seven days later, the U.S. House of Representatives passed legislation to approve the USMCA. The
legislation passed the Senate on Jan. 16, 2020, and on Jan. 29, Trump signed it into law. The Canadian
Parliament ratified the treaty on March 13, 2020.
USMCA Challenges
Several difficulties emerged before and after the treaty went into effect on July 1, 2020. These included:
i. Tariffs on Mexican Imports: Trump said the U.S. would impose a 5% tariff on all Mexican
imports in June 2020 unless the Mexican government took sterner measures to lower the number
of Central American asylum seekers entering the U.S. from Mexico. A deal was reached to avoid
the tariffs on June 8, 2020.
ii. Canadian Aluminium: In August 2020, Trump announced he would reinstate the 2018 tariffs on
Canadian aluminium. Canada responded with a plan for equal tariffs on U.S. aluminium products.
On Oct. 27, the same day the Canadian government was expected to unveil its retaliatory trade
measures, Trump suspended the tariffs, retroactively through Sept. 1. U.S. trade officials said the
tariffs would be reinstated if aluminium imports from Canada "exceed 105 percent of the
expected volume in any month".
USMCA Provisions
Per the Office of the United States Trade Representative, the USMCA is a "mutually beneficial win for
North American workers, farmers, ranchers, and businesses." NAFTA aimed to create a free trade zone
between the U.S., Canada, and Mexico, and the USMCA utilizes NAFTA as a basis for a new agreement.
While the USMCA has a broad impact on trade of all kinds between the three named nations, some of
the agreement's most important provisions include the categories noted below.
i. Dairy and Agriculture: The USMCA will increase U.S. farmers' access to the Canadian dairy market
by raising the amount of U.S. goods that can be exported to Canada tariff-free. This will allow the
U.S. tariff-free access to up to 3.6% of the Canadian dairy market. The number of tariff-free exports
allowed for some poultry products will also be expanded.
ii. Automobiles: One of the most significant portions of the USMCA stipulates new trade regulations
for automobiles and automotive parts. Under NAFTA, cars and trucks with at least 62.5% of their
components manufactured in one of the three participating countries could be sold free of tariffs.
The USMCA increases that minimum requirement to 75%. At the same time, the USMCA stipulates
minimum wages for workers in the automotive manufacturing process: 40-45% of the work done on
eligible vehicles must be accomplished by workers earning at least $16 (USD) per hour.
iii. Intellectual Property: The USMCA increases intellectual property protections. Among other changes
to trade policy, the new agreement extends the copyright period to 70 years beyond the life of the
creator, an increase of 20 years in some cases. The USMCA also addresses new products that weren't
around when NAFTA was written in the early 1990s. The USMCA prohibits tariffs on digital music,
e-books, and other similar digital products. The agreement also establishes copyright safe harbour
for internet companies, meaning they can't be held liable for copyright infringements of their users
if they make good faith efforts to stop infringement.
iv. Sunset Provision: Unlike NAFTA, the USMCA is set to expire after 16 years unless it is renewed.
All three nations are required to come together for a joint review every six years. The agreement is
not automatically terminated if one party refuses to renew it at one of these joint reviews. Instead,
the nations must meet every year for 10 years to resolve the issues blocking renewal. The agreement
expires if no agreement is reached in those 10 years.

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v. Labor: The USMCA sets up an independent investigatory panel that can investigate factories accused
of violating workers' rights, and stop shipments from factories found to violate lab or laws. In
addition, Mexico says it will enact a wide array of labour reforms to make it easier for workers to
unionize, and stop violence and other abuses of workers. These provisions are meant to achieve two
goals: to improve working conditions for Mexico's workers and to create a more even playing field
between U.S. and Mexican factories because Mexican wages are likely to rise.

Key Differences Between USMCA and NAFTA

NAFTA USMCA
Automotive 62.5% of vehicle parts must be made 75% of vehicle parts must be made in
in U.S., Mexico, or Canada U.S., Mexico, or Canada
Dairy No tariffs on most goods Keeps no tariff provision but also opens
up Canadian and U.S. dairy markets
Environment Environmental requirements difficult Provision to apply $600 million to tackle
to enforce environmental problems
Labor Lower wages sent jobs to Mexico Enhancements to U.S. labour laws to
make them more competitive
Technology No provisions for digital trade U.S. companies are no longer required to
store data on domestic servers

SAARC- SOUTH ASIAN ASSOCIATION FOR REGIONAL

COOPERATION
The South Asian Association for Regional Cooperation (SAARC) is the regional intergovernmental
organization and geopolitical union of states in South Asia. Its member states are Afghanistan,
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. SAARC comprises 3% of the
world's land area, 21% of the world's population and 5.21% (US$4.47 trillion) of the global economy,
as of 2021.
SAARC was founded in Dhaka on 8 December 1985. Its secretariat is based in Kathmandu, Nepal. The
organization promotes economic development and regional integration. It launched the South Asian
Free Trade Area in 2006. SAARC maintains permanent diplomatic relations at the United Nations as an
observer and has developed links with multilateral entities, including the European Union. However,
due to the geopolitical conflict between India and Pakistan and the situation in Afghanistan, the
organization has been suspended for a long time, and India currently cooperates with its eastern
neighbours through BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation).
Background of SAARC
The idea of co-operation among South Asian Countries was discussed in three conferences: the Asian
Relations Conference held in New Delhi in April 1947; the Baguio Conference in the Philippines in
May 1950; and the Colombo Powers Conference held in Sri Lanka in April 1954.
In the ending years of the 1970s, the seven inner South Asian nations that included Bangladesh, Bhutan,
India, the Maldives, Nepal, Pakistan, and Sri Lanka, agreed upon the creation of a trade bloc and to
provide a platform for the people of South Asia to work together in a spirit of friendship, trust, and
understanding. President Ziaur Rahman later addressed official letters to the leaders of the countries of
South Asia, presenting his vision for the future of the region and compelling arguments for co-operation.

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During his visit to India in December 1977, Rahman discussed the issue of regional cooperation with
the Indian Prime Minister, Morarji Desai. In the inaugural speech to the Colombo Plan Consultative
Committee which met in Kathmandu also in 1977, King Birendra of Nepal gave a call for close regional
cooperation among South Asian countries in sharing river waters.
After the USSR's intervention in Afghanistan, efforts to establish the union were accelerated in 1979
amid the resulting rapid deterioration of the South Asian security situation. Responding to Rahman and
Birendra's convention, officials of the foreign ministries of the seven countries met for the first time in
Colombo in April 1981. The Bangladeshi proposal was promptly endorsed by Nepal, Sri Lanka, Bhutan,
and Maldives; however, India and Pakistan were sceptical initially. The Indian concern was the
proposal's reference to the security matters in South Asia and feared that Rahman's proposal for a
regional organisation might provide an opportunity for new smaller neighbours to re-internationalize
all bilateral issues and to join with each other to form an opposition against India. Pakistan assumed
that it might be an Indian strategy to organize the other South Asian countries against Pakistan and
ensure a regional market for Indian products, thereby consolidating and further strengthening India's
economic dominance in the region.
However, after a series of diplomatic consultations headed by Bangladesh between South Asian UN
representatives at the UN headquarters in New York, from September 1979 to 1980, it was agreed that
Bangladesh would prepare the draft of a working paper for discussion among the foreign secretaries of
South Asian countries. The foreign secretaries of the inner seven countries again delegated a Committee
of the Whole in Colombo in September 1981, which identified five broad areas for regional cooperation.
New areas of co-operation were added in the following years.
In 1983, at the international conference held in Dhaka by its Ministry of Foreign Affairs, the foreign
ministers of the inner seven countries adopted the Declaration on South Asian Association Regional
Cooperation (SAARC) and formally launched the Integrated Programme of Action (IPA) initially in
five agreed areas of cooperation, namely, Agriculture; Rural Development; Telecommunications;
Meteorology; and Health and Population Activities.
Officially, the union was established in Dhaka with Kathmandu being the union's secretariat-general.
The first SAARC summit was held in Dhaka on 7–8 December 1985 and hosted by the President of
Bangladesh Hussain Ershad. The declaration was signed by, namely, King of Bhutan Jigme Singye
Wangchuk; President of Pakistan Zia-ul-Haq; Prime Minister of India Rajiv Gandhi; King of Nepal
Birendra Shah; President of Sri Lanka JR Jayewardene; and President of Maldives Maumoon Gayoom.
The member states are Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan,
and Sri Lanka.

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Political Issues
Lasting peace and prosperity in South Asia have been elusive because of the various ongoing conflicts
in the region. Political dialogue is often conducted on the margins of SAARC meetings which have
refrained from interfering in the internal matters of its member states. During the 12th and 13th SAARC
summits, extreme emphasis was laid upon greater cooperation between SAARC members to fight
terrorism. The 19th SAARC summit scheduled to be held in Pakistan was called off as India,
Bangladesh, Bhutan and Afghanistan decided to boycott it due to a terrorist attack on an army camp in
Uri. It was the first time that four countries boycotted a SAARC summit, leading to its cancellation.
SAARC has generally been ineffective at achieving enhanced regionalism.

ASEAN- ASSOCIATION OF SOUTHEAST ASIAN NATIONS

The Association of Southeast Asian Nations (ASEAN) is a regional grouping that aims to promote
economic and security cooperation among its ten members: Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. ASEAN countries have a total
population of 662 million people and a combined gross domestic product (GDP) of $3.2 trillion. The
group has played a central role in Asian economic integration, joining negotiations to form the world’s
largest free trade agreement and signing six free trade deals with other economies in the region. Yet
experts say ASEAN’s impact is limited by a lack of strategic vision, diverging priorities among member
states, and weak leadership. The bloc’s biggest challenges, they say, are developing a unified approach
to China, particularly in response to territorial disputes in the South China Sea, and responding to
Myanmar’s civil war.
How ASEAN Works
ASEAN is headed by a chair—a position that rotates annually among leaders of member states—and is
assisted by a secretariat based in Jakarta, Indonesia. Important decisions are usually reached through
consultation and consensus guided by the principles of noninterference in internal affairs and peaceful
resolution of conflicts. Many experts see this approach to decision-making as a drawback of the
organization.
The Bloc’s History
Formed in 1967, ASEAN united Indonesia, Malaysia, the Philippines, Singapore, and Thailand, who
sought to create a common front against the spread of communism. In 1976, the members signed the
Treaty of Amity and Cooperation in Southeast Asia, which emphasizes mutual respect and
noninterference in other countries’ affairs.
Membership doubled by the end of the 1990s. The resolution of Cambodia’s civil war in 1991, the end
of the Cold War, and the normalization of relations between the United States and Vietnam in 1995
brought relative peace to mainland Southeast Asia, paving the way for more states to join ASEAN. With
the addition of Brunei (1984), Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999), the
group started to launch initiatives to boost regional cooperation. For example, the members signed a
treaty in 1995 to refrain from developing, acquiring, or possessing nuclear weapons. Timor-Leste is the
latest country to join ASEAN: after the country applied for membership in 2011, the group granted it
observer status in 2022, and it is on track for full membership by 2025.
Faced with the 1997 Asian financial crisis, which started in Thailand, ASEAN members pushed to
further integrate their economies. For instance, the Chiang Mai Initiative was a currency swap
arrangement initiated in 2000 among ASEAN members, China, Japan, and South Korea to provide
financial support to one another and fight currency speculation.

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In 2007, the ten members adopted the ASEAN Charter, a constitutional document that provided the
grouping with legal status and an institutional framework. The charter enshrines core principles and
delineates requirements for membership. (Timor-Leste submitted an application for membership in
2011, but some members oppose its accession.) The charter laid out a blueprint for a community made
up of three branches: the ASEAN Economic Community (AEC), the ASEAN Political-Security
Community, and the ASEAN Socio-Cultural Community.

ASEAN’s Diversity
ASEAN brings together countries with significant differences. Singapore has the highest GDP per capita
in the group, at around $83,000, according to 2022 World Bank figures; Myanmar’s is the lowest, at
around $1,100. Demographics differ across the region, too, with many religious and ethnic groups
represented. For example, Singapore and Vietnam are among the world’s most religiously diverse
countries, according to a 2014 Pew Research Center report, while Buddhist-majority Cambodia and
Muslim-majority Indonesia are relatively homogeneous. ASEAN’s geography includes archipelagos
and continental land masses with low plains and mountainous terrain.
The members’ political systems include flawed democracies, authoritarian states, and hybrid regimes.
The past decade has seen previously some semi-democratic governments, like Indonesia and Cambodia,
grow increasingly authoritarian. Today, Timor-Leste remains the only fully free democracy in Southeast
Asia, according to research and advocacy group Freedom House.
Economic Progress
ASEAN has made some progress toward economic integration and free trade. In 1992, members created
the ASEAN Free Trade Area (AFTA) with the goals of creating a single market, increasing intra-
ASEAN trade and investments, and attracting foreign investment. In 1996, the average tariff rate across
the bloc was around 7 percent [PDF]; today, intra-ASEAN tariffs are effectively zero. The bloc has
prioritized eleven sectors for integration, including: electronics, automotives, rubber-based products,
textiles and apparels, agro-based products, and tourism.
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In November 2020, all ASEAN members joined Australia, China, Japan, New Zealand, and South Korea
in signing the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement in the
works since 2012. Although the RCEP doesn’t cut tariffs drastically, it covers more of the world’s
population—30 percent—than any other trade agreement and promotes economic integration between
Northeast and Southeast Asia. ASEAN is also party to six free trade agreements with countries outside
of the grouping, including India.
However, there remain major challenges to economic integration within ASEAN, such as non-tariff
barriers, government-mandated investment prohibition areas, and massive differences in GDP per
capita. Intra-ASEAN trade as a share of the bloc’s overall trade remains low, at 21 percent [PDF] in
2020. Domestic issues, such as instability and corruption in certain countries, have also hurt trade within
the bloc.
Moreover, the COVID-19 pandemic was severely disruptive to economic growth. ASEAN attempted
to coordinate a regional response in 2020 to address economic and health-care challenges, but successful
pandemic management ultimately hinged on individual states’ policy decisions. Member states agreed
to coordinate economic recovery plans and keep trade open. However, prolonged lockdowns severely
reduced industrial production, construction, and consumer spending. Additionally, travel restrictions
hampered intra-bloc trade and tourism, which contributed almost $400 billion to ASEAN member
economies in 2019.
Regional Security Challenges
ASEAN remains divided over how to address security challenges. These include China’s claims in the
South China Sea, human rights abuses, political repression by member states, narcotics trafficking,
refugee flows, natural disasters, and terrorism.
A primary challenge for ASEAN has been developing a response to the February 2021 coup in
Myanmar. The junta has violently suppressed protests, and the conflict with opposition forces has
escalated into civil war. Timor-Leste sided with Myanmar’s exiled government, leading to Myanmar’s
military junta expelling Timor-Leste’s top diplomat from Myanmar. During the 2023 ASEAN Summit
held in Jakarta, Indonesia, ASEAN nations decided to suspend Myanmar’s role as rotating chair for the
2026 summit, substituting the Philippines instead.
Another long-standing challenge has been forming a joint response to China, particularly to maritime
disputes with Beijing in the South China Sea. Brunei, Indonesia, Malaysia, the Philippines, and Vietnam
claim features in waters contested with China. For those countries, China’s moves to reclaim land and
build artificial islands are seen as violations of their national sovereignty. In response, some have
invested in modernizing their militaries. For other ASEAN members, tensions in the South China Sea
are geographically distant and not a priority. A few, such as Cambodia, even tend to support China’s
claims and block joint ASEAN statements on the South China Sea. In 2002, ASEAN and China signed
the nonbinding Declaration of Conduct of Parties in the South China Sea, though they have not yet
negotiated a legally binding code and it is unlikely they will negotiate one anytime in the near future.
The United States, which has a strong interest in preventing China from controlling access to the South
China Sea, has continued military cooperation with ASEAN members, including the Philippines,
Thailand, Singapore, Indonesia, and Vietnam, and has increased its maritime presence in regional areas
to enforce freedom of navigation in international waters.
ASEAN members are divided over their ties to China and to the United States. The region is in need of
investment, trade, and infrastructure development. Beijing has moved to meet these needs primarily
through becoming the leading trading partner of ASEAN, as well as through its sweeping Belt and Road
Initiative. Its dominant trade relationship with most Southeast Asian states, and its massive investment
in Southeast Asia, gives it enormous leverage in the region. For instance, China invested $7.3 billion in

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Indonesia’s first high-speed railway, which began construction in 2015 and is set to expand throughout
the main island of Java, despite delays, cost overruns, and anger among people whose land was
expropriated.
Most ASEAN countries now believe that China has more overall influence in the region compared to
the United States, measured by economic relationships, defense networks, and diplomatic and cultural
influence. But some member states are anxious about becoming economically dependent on China and
seek defense cooperation with the United States to hedge against China’s growing military power.

WORLD TRADE ORGANIZATION (WTO)

The World Trade Organization (WTO) is a multilateral organization headquartered in Geneva,
Switzerland. It came into existence on January 1, 1995, as a successor to the General Agreement on
Tariffs and Trade (GATT). The organization functions as a central body that facilitates global trade. The
WTO provides a common platform to negotiate trade agreements among member countries and to
resolve any trade disputes. It manages 60 global and about 300 regional trade agreements. The 60 trade
agreements are accorded the status of international law. The WTO comprises 164 member states. There
are also observer states that are not signatories to the WTO agreements, and they do not participate in
free trade.
Scope of WTO

• WTO and its agreements are permanent and ratified by the governments of member countries.
• WTO covers goods, services and intellectual property as well.
• WTO dispute settlement scheme is effective and faster than old GATT system
Functions Of The WTO
The stated objectives are clearly those of the Marrakesh package of agreements as a whole. The role of
the World Trade Organization itself is defined by Article III of the WTO Agreement, which defines five
functions for it.
i. Implementing agreements: The first, and broadest, function is to "facilitate the implementation,
administration and operation, and further the objectives, of this Agreement and of the Multilateral
Trade Agreements", and also to "provide the framework for the implementation, administration
and operation of the Plurilateral Trade Agreements" (Article III:1). The wording reflects the
difference between the multilateral agreements, to which all member governments are
committed, and the plurilateral agreements which are under the WTO umbrella but cannot expect
the same degree of support.
ii. Negotiations: The WTO's second function is to be a negotiating forum. Again, a distinction is
made between negotiations for which the WTO shall provide the forum, and those for which it
may provide a forum (Article III:2). The first category, specifically reserved to the WTO, consists
of multilateral negotiations on matters dealt with in the annexes to the agreement that is, on
the subjects already covered by the GATT and the Uruguay Round. The second category is
defined only as "further" negotiations concerning multilateral trade relations, as may be decided
by the WTO's Ministerial Conference: should such negotiations take place, the WTO can also
provide the framework for putting their results into effect.
iii. Disputes and policy reviews: The third and fourth functions of the WTO are to administer the
arrangements in Annexes 2 and 3 for the settlement of disputes that may arise between members
and for the review of trade policies. Finally, the WTO is to cooperate, as appropriate, with the

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 International Monetary Fund and the World Bank "with a view to achieving greater coherence in
global economic policymaking"
iv. Differential treatment to Developing countries: The WTO Agreement's Preamble and Article III
are buttressed by two separate texts that were adopted by Ministers on the same day that they
signed the Marrakesh agreements. One text, of particular importance because it has a bearing on
virtually every other agreement in the Uruguay Round package, is a decision on measures in
favour of least-developed countries. Its central point is that these countries, as long as they remain
in the least-developed category, will only be required to undertake commitments and concessions
under the Uruguay Round agreements "to the extent consistent with their individual development,
financial and trade needs, or their administrative and institutional capabilities". The decision gave
least-developed countries an additional year to submit their schedules of commitments on goods
and services. Developed countries are called on to be careful of the effects any import relief
measures they take may have on exports of the least-developed countries. Finally, the decision
promises the least-developed countries substantially increased technical assistance in the
development, strengthening and diversification of their production and exports, as well as
continuing review of their specific needs. Special and differential treatment for developing
countries is instead included in most of the separate agreements and arrangements reached in the
Uruguay Round, where it usually takes the form of less stringent obligations (e.g. longer
transition periods) than are imposed on developed countries.
v. Coherence in global economic policymaking: The second ministerial text bearing on the
functions of the WTO is a declaration on its role in achieving "greater coherence in global
economic policymaking". As the title of the declaration suggests, it is directly linked with the
fifth function of the WTO, already referred to.
Structure Of The WTO
The WTO Agreement provides the new organization with a clear structure, political guidance, a proper
staff, and appropriate financial arrangements.
i. The Ministerial Conference: The Ministerial Conference of the WTO meets every two years to
make important decisions about existing trade agreements. The Ministerial Conference holds the
authority to make decisions on any aspects of all multilateral agreements made under the WTO.
The Conference includes representatives from all members of the WTO. It gives equal
representation to all its members regardless of the size of their economy or share in international
trade. It can be thought of as the legislative branch of the WTO. The WTO is headed by the
Ministerial Conference, while the daily operations are carried out by three administrative bodies:
ii. General Council: The General Council comprises the representatives of all member countries and
acts as the representative of the Ministerial Conference when it comes to daily operations. Its job
is to carry out the implementation and monitoring function of the WTO. The General Council is
further divided into multiple councils and committees that focus on specific topics. Examples of
such bodies include the Council on Goods, the Councils on Services, the Committee on Textiles
under the Council on Goods, etc.
iii. The Council for Trade in Goods: The Council for Trade in Goods oversees about 11 committees,
and each one of them has separate responsibilities. All the committees consist of the existing WTO
members only. This is also led by the chairman.
iv. The Council on Trade-Related Aspects of Intellectual Property Rights: The Council on Trade-
Related Aspects of Intellectual Property Rights promotes trade aspects of the same. The news and
official records regarding the TRIPS Council and WTO collaboration with other international
organizations on intellectual property at the World Trade Organisation are provided by him.
v. The Council for Trade Services: The Council for Trade Services is directed by the General Council
which Oversees the operations of general agreements on trade in services means GATS.

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vi. Dispute Settlement Body: The Dispute Settlement Body is a part of the General Council and is
responsible for settling trade disputes between member states. There is also an Appellate Body,
where member states can appeal any decisions made against them during a dispute settlement.
vii. Trade Policy Review Body: The Trade Policy Review Body is also a part of the General Council
and is responsible for ensuring the trade policies of member states are in line with the goals of the
WTO. Member countries are required to inform the WTO about changes in their laws and trade
policies. The body undertakes regular reviews of the policies to ensure they conform to the rules
of the WTO. This is part of the monitoring function of the WTO, and it helps the WTO to adapt to
the changing economic landscape.

WORLD BANK
The World Bank is an international financial institution that provides loans and grants to the
governments of low- and middle-income countries for the purpose of pursuing capital projects.
The World Bank is the collective name for the International Bank for Reconstruction and Development
(IBRD) and International Development Association (IDA), two of five international organizations
owned by the World Bank Group.
It was established along with the International Monetary Fund at the 1944 Bretton Woods Conference.
After a slow start, its first loan was to France in 1947. In the 1970s, it focused on loans to developing
world countries, shifting away from that mission in the 1980s.
For the last 30 years, it has included NGOs and environmental groups in its loan portfolio. Its loan
strategy is influenced by the United Nations' Sustainable Development Goals, as well as environmental
and social safeguards.
The bank considers itself a unique financial institution that sets up partnerships to reduce poverty and
support economic development. The World Bank supplies qualifying governments with low-interest
loans, zero-interest credits, and grants, all to support the development of individual economies. Debt
borrowings and cash infusions help with global education, healthcare, public administration,
infrastructure, and private-sector development. The World Bank also shares information with various
entities through policy advice, research and analysis, and technical assistance. It offers advice and
training for both the public and private sectors.
Organization of World Bank
The World Bank is related to the UN, though it is not accountable either to the General Assembly or to
the Security Council. Each of the bank’s more than 180 member states are represented on the board of
governors, which meets once a year. The governors are usually their countries’ finance ministers or
central bank governors. Although the board of governors has some influence on IBRD policies, actual
decision-making power is wielded largely by the bank’s 25 executive directors. Five major countries—
the United States, Japan, Germany, the United Kingdom, and France—appoint their own executive
directors. The other countries are grouped into regions, each of which elects one executive director.
Throughout the World Bank’s history, the bank president, who serves as chairman of the Executive
Board, has been an American citizen.
Voting power is based on a country’s capital subscription, which is based in turn on its economic
resources. The wealthier and more developed countries constitute the bank’s major shareholders and
thus exercise greater power and influence. For example, in the early 21st century the United States
exercised nearly one-sixth of the votes in the IBRD, more than double that of Japan, the second largest
contributor. Because developing countries hold only a small number of votes, the system does not
provide a significant voice for these countries, which are the primary recipients of World Bank loans
and policy advice.
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The bank obtains its funds from the capital subscriptions of member countries, bond flotations on the
world’s capital markets, and net earnings accrued from interest payments on IBRD and IFC loans.
Approximately one-tenth of the subscribed capital is paid directly to the bank, with the remainder
subject to call if required to meet obligations.
The World Bank is staffed by more than 10,000 people, roughly one-fourth of whom are posted in
developing countries. The bank has more than 100 offices in member countries, and in many countries
staff members serve directly as policy advisers to the ministry of finance and other ministries. The bank
has consultative as well as informal ties with the world’s financial markets and institutions and
maintains links with nongovernmental organizations in both developed and developing countries.

INTERNATIONAL MONETARY FUND (IMF)

The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an
international financial institution funded by 190 member countries, with headquarters in Washington,
D.C. It is regarded as the global lender of last resort to national governments, and a leading supporter
of exchange-rate stability. Its stated mission is "working to foster global monetary cooperation, secure
financial stability, facilitate international trade, promote high employment and sustainable economic
growth, and reduce poverty around the world."
Established in July 1944 at the Bretton Woods Conference, primarily according to the ideas of Harry
Dexter White and John Maynard Keynes, it started with 29 member countries and the goal of
reconstructing the international monetary system after World War II. It now plays a central role in the
management of balance of payments difficulties and international financial crises. Through a quota
system, countries contribute funds to a pool from which countries can borrow if they experience balance
of payments problems.
The IMF works to stabilize and foster the economies of its member countries by its use of the fund, as
well as other activities such as gathering and analysing economic statistics and surveillance of its
members' economies. IMF funds come from two major sources: quotas and loans. Quotas, which are
pooled funds from member nations, generate most IMF funds. The size of members' quotas increases
according to their economic and financial importance in the world. The quotas are increased periodically
as a means of boosting the IMF's resources in the form of special drawing rights.
Functions
Upon the founding of the IMF, its three primary functions were:
i. To oversee the fixed exchange rate arrangements between countries, thus helping national
governments manage their exchange rates and allowing these governments to prioritize
economic growth, and
ii. To provide short-term capital to aid the balance of payments and prevent the spread of
international economic crises.
iii. To help mend the pieces of the international economy after the Great Depression and World
War II as well as to provide capital investments for economic growth and projects such as
infrastructure.
Conditionality of loans
IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial
resources. The IMF does require collateral from countries for loans but also requires the government
seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the
conditions are not met, the funds are withheld. The concept of conditionality was introduced in a 1952
executive board decision and later incorporated into the Articles of Agreement.

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