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Economic Cia Part B
Economic Cia Part B
)Customs Union
A customs union is an agreement between countries in which they eliminate the trade barriers
and impose similar tariffs on the imports from the rest of the world. Zollverein which was
founded in 1834 was the first ever customs union and was a major breakthrough in terms of both
economic unification within Germany as well as economic integration in the world. The
Zollverein consisted of the then independent and sovereign 18 German states. Under the
Zollverein, the member states removed all the trade barriers amongst themselves, established
uniform tariffs on imports from outside zollverein and distributed the revenue generated from teh
customs between its members on the basis of a predetermined and commonly agreed formula.
This was seen as one of the steps towards integration of Germany by many scholars like
Heinreich von Treitschke and it ultimately concluded with the complete political unification of
Germany in 1871. While there are several advantages and disadvantages with the system of
customs union, one cannot outrightly say that it is good or bad without comparing the pros and
cons. The removal of trade barriers within the union have enhanced the growth and development
in the region.
One of the features that was advantageous to the southern states and disadvatageous to the
northern states pointed out by Dumke was that the southern states which primarily exported
goods to the northern states now benefit from trading without paying tariffs whereas the
Northern states lost the customs revenue that they used to get from imports from the southern
states. However, this elimination of tariffs and free flow of goods promoted trade volumes and
economic activity across the German states.
As a result of elimination of Tariffs, the competition among the businesses increased which led
to good quality products and competitive pricing which benefited the consumers. Another benefit
that scholars like Ploeckl talk about is that the German states reaped the benefits of economies of
scale, that is businesses were able to reduce their costs due to large scale producing, this enabled
the Germans to competitively price their products even in the international market.
While there were benefits that were enjoyed by all the German states, it was not equal. Prussia
benefited greatly from this arrangement. Most of the states felt that they had given up control on
their trade policies.
1.)Common market:
A common market is an economic integration in which member countries apply uniform external
tariffs and eliminate trade barriers, allowing for the free movement of goods,services and
production factors such as capital and labor between them.Though this is an advanced economic
integration stage after the free trade area and the customs union, it is not more advanced than the
economic union.The southern Common market(MERCOSUR) is a trade bloc in South America
established in 1991 by the treaty of Asuncion.The founding members of MERCOSUR are
Argentina, Brazil,Paraguay and Uruguay.To achieve the goal of promoting free trade and
economic integration among the member countries, the bloc has implemented a common
external tariff on goods imported from non-member countries.Member countries also agreed to
reduce trade barriers among themselves,such as eliminating tariffs on goods traded within the
bloc.The free trade agreements with other nations, regions were formed by this bloc(includes
EU). The assumption that the common market only promotes economic integration is absolutely
true but in addition with economic integration the member nations also promote integration and
cooperation among themselves on matters such as democracy,human rights and the fight against
drug trafficking.
Increased access to larger markets for member countries is one of the leading commercial
benefits of MERCOSUR.It achieves this by eliminating tariffs on goods traded within the bloc
which leads the companies in member countries having a wider range of customers. By selling at
lower cost, the companies will experience increased exports and the nations, economic growth.A
unique feature in MERCOSUR is that it provides a framework for the member countries to sign
free trade agreements with other nations so that the member countries have wider market at the
international level which could attract foreign investment. Some of the nations have free trade
agreements with the European Union, Israel, Egypt and also Palestine.The commercial benefits
have been hindered by the lack of inconsistency among the member countries in implementing
the bloc’s agreements, as well as by the trade disputes among member countries.The negotiations
of MERCOSUR have mixed success.Trade talks with the EU for a joint MERCOSUR-EU FTA
and the western hemisphere countries for a proposed fta’s of the Americas have both come to an
impasses over the inability to reach an agricultural agreement acceptable for Brazil.South-South
trade talks have advanced only in limited form.
1.)Economic Union
An economic union is a type of trade bloc that is composed of a common market with a customs
union. The participant countries will have common policies on product regulation,freedom of
movement of goods and services, and factors of production(capital and labor) as well as a
common external trade policy.The economic union removes all trade barriers on trade among the
members to increase economic efficiency and establish closer political and cultural ties between
the member countries.The European Union(EU) as an economic union has brought significant
benefits to its member state, particularly in terms of trade, price stability and greater influence in
the global economy.The netherlands is a prime example of a country that has benefited greatly
from the EU, with long term trade gains of 3.1% of GDP.The single market, which is a key
component of the economic union, has helped to reduce trade costs and increase economic
efficiency, particularly for small open economies like netherlands.
The EU’s common external trade policy has helped to promote trade with non-EU countries and
to give the EU a more powerful voice in the global economy.The euro, which is used by 20 EU
member states, has made it easier for businesses to buy and sell within the euro area and to trade
with the rest of the world. Some of the benefits of the euro that most of the economists both sides
of the atlantic generally agree with: 1.The elimination of the need to exchange currencies
between EU members(this has estimated to save as much as $30 billion per year), 2.)A moe rapid
economic and financial integration among EU members,3.)Rather than a generally restrictive
monetary policy,implementation of a expansionary monetary policy by the European Central
Bank, 4.)The elimination of excessive volatility among the EU currencies(fluctuations will now
occur only between euro,yen,dollar and other non-EU nations),5.)The reduced cost of borrowing
in the international financial market as it has been estimated that U.S cost of borrowing on
international financial markets is about twenty-five to fifty basis points lower than it would have
been if the dollar were not used as an international currency,6.) The increased economic and
political importance that the European Union will acquire in international affairs.
The most serious unresolved problem that the establishment of a european central bank and the
euro may create involves how the member nations would react to the shocks(asymmetric demand
and supply shocks).Such asymmetric demand and supply shocks would drive the economies out
of alignment and it is inevitable that a large and diverse single-currency area like the EU would
face such shocks. The single currency in the US when facing the shocks would respond in a
greater way with a phenomena of escape hatch where the workers could move quickly towards
areas with greater employment opportunities and this “escape hatch” to the same extent is not
seen in Europe. Facing an asymmetric shock, the united kingdom and italy opened to leave the
exchange rate mechanism of the european monetary system in september 1992 and by following
their currencies to depreciate, were able to move out of the deep recession in which they found
themselves.However it would be impossible having a single currency.But a asymmetric shock in
the union would result in huge pressure because of limited labor mobility but supporters of single
currency argue that such an establishment would increase labor market flexibility leading to
greater intra-EU trade.
Many vietnamese products currently benefit from trade preferences offered unilaterally by the
EU under the General Scheme of Preferences(GSP).The agreement will allow vietnam to
maintain free access to the EU market for those products also in future, even of its economic
situation no longer justifies a referential treatment reserved for developing countries. 169
traditional European food and drinks fro a specific geographical origin will be protected against
limitation on the Vietnamese market.This includes famous european delicacies like Champagne,
Parmigiano reggiano cheese ,Feta cheese, etc. Distinctive Vietnamese products, such as Mac
Chau tea or Ma Thuot Coffee will be protected in the EU.(The agreement also makes it possible
for new products to be added in the future).Asper the FTA, European companies will have better
access to the vietnamese public procurement markets that companies from any other
country.Vietnam has committed to open up to investment in manufacturing in a number of key
sectors like the food products and beverages,tyres and tubes and ceramics and construction
materials. The agreement sets out a formal state-state dispute resolution mechanism that is faster
and more efficient than the WTO framework.This would lead to a faster, amicable solution
through voluntary mediation instead of formal dispute resolution procedures.
India’s export-import correlation coefficient with all the BIMSTEC nations is more than 0.875
indicating strong positive correlation between India’s exports and imports with all BIMSTEC
nations.To boost exports to other BIMSTEC nations,India should try to identify potential product
groups which can be pushed into export market,identify major markets which can absorb a
country’s potential products,select the right manufacturing export units which can undertake the
responsibility of entering the overseas markets, provide adequate and improved infrastructure to
exporters,bring tariff rates in line with the international level inorder to remove any bias against
production for exports,allow exporters to borrow from the international markets if rates of interest
are higher in the domestic markets,adopt strategic state intervention to promote exports
aggressively and create necessary institutions and organizations which aid and promote
exports,create special domestic financial facilities in term lending institutions for export related
investment, check the domestic consumption of commodities which have great export potential
so as to make surpluses available for exports and to make exporters cst and quality
conscious.BIMSTEC region has a wide range of products developed through the traditional
expertise prevailed in the region.These products have a high value in the international markets
provided they meet the quality standards. Thailand is the only country in the region that has
actually developed a strategy to market these products and develop the region and this can be
carried out in India,Bangladesh and other member nations since all of them have a strong
handicraft sector.
References:
https://www.jstor.org/stable/pdf/24590378.pdf?refreqid=fastly-default%3A7a2788c069c9b540c3
7c8acd405b2f84&ab_segments=0%2Fbasic_search_gsv2%2Fcontrol&origin=&initiator=&acce
ptTC=1
https://www.cfr.org/backgrounder/mercosur-south-americas-fractious-trade-bloc
Ploeckl, F. (2010). The Zollverein and the formation of a customs union. University of Oxford.
https://ora.ox.ac.uk/objects/uuid:c86da634-a7c6-4f8d-a20e-b6f1b3f675ae
https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions
/vietnam/eu-vietnam-agreement_en
https://bimstec.org/purposes#:~:text=The%20purposes%20of%20BIMSTEC%3A&text=To%20a
ccelerate%20the%20economic%20growth,social%2C%20technical%20and%20scientific%20fiel
ds.