Trade Blocs / Regional Trade

Agreements(RTAs)
TOPIC-4
 SUB TOPICS

• Economic Integration,
• European Union,
• ASEAN, SAARC, APEC, MERCOSUR,
IBSA, ANDEAN
• Implications of trade Blocs for Business
REGIONAL ECONOMIC GROUPINGS
 MAJOR ASPECTS OF RTAs
• 1. TRADE CREATION : ie. GENERATION OF NEW MARKETS
FOR NEWER PRODUCTS & INCREASED TRADE FLOWS IN THE
EXISTING PRODUCT LINES

• 2. TRADE DIVERSION: SHIFT OF TRADE FROM THE MEMBER

PARTNER COUNTRIES TO MORE EFFICIENT NON-MEMBER
COUNTRIES
 RTAs- DEVELOPMENT
• - DURING 1948-94, GATT RECEIVED 124 NOTIFICATIONS OF
RTAs, RELATING TO TRADE IN GOODS
• - WTO IN 1995- RECEIVED OVER 130 ADDITIONAL
AGREEMENTS COVERING TRADE IN GOODS & SERVICES

• IMPORTANT: WTO MEMBERS HAVE TO INFORM , TO WHICH

RTA THEY ARE PARTICIPATING

• RTAs- ARE EXCEPTION TO WTO ARTICLE 14, WHERE TARIFF

AND OTHER TECHNICAL BARRIERS CAN BE REDUCED ON A
PREFERENTIAL BASIS BY THE COUNTRIES UNDER A
REGIONAL AGREEMENT
 CONCEPTUAL FRAMEWORK OF
INTERNATIONAL INTEGRATION
• TWO MAIN REASONS:

• 1.COMMON HISTORY/ CULTURE SHARING

• - CONSUMER TASTES LIKELY TO BE SIMILAR/
DISTRIBUTION CHANNEL EASY TO ESTABLISH

• 2.DISTANCES ARE SHORT

 REGIONAL INTEGRATION IN GLOBALISATION

 Integration between countries - An

Important feature.

 Integration may be either Political or Economic

 Economic integration involves links between

- The economies of a group of countries, and

- are often known as Trade Blocks or Regional Economic
Groupings.

 Some regional economic groupings are well established eg. European

Union.

Proliferation of such groupings in recent years.

 Preferential Trading Agreement

- loose form of economic integration.

- regarded as merely a trading agreement

among group of countries for allowing each
others goods to b traded on preferential
terms

- lacks the more formal institutional

arrangements that tend to accompany other
forms of integration.

- designed primarily to support developing countries’

economic development, e.g., Lome Agreement
between ACP groups of countries and EU.
 Free Trade Area

- a permanent arrangement between

neighbouring countries

- complete removal of tariffs on goods traded

between the members – barring agriculture and
fishing or to services, in general

- member countries free to levy their own

external tariff on goods outside the FTA

- main difficulty – goods outside the area find

easiest point of entry where external tariff
lowest and can cross any of internal borders
without incurring further tariffs

- to overcome above, members usually resort

 to controls on the country of origin for goods
crossing their internal frontiers
- this involves extensive border checks n
procedures
- NAFTA is the best known examples, others include
EFTA and ASEAN FTA (AFTA)
 Customs Union
- to sort out problem of entry of goods from
non-member countries to FTA, a custom union
with common external tariff for each type of
product is formed
- the external tariff revenues collection
concerns the ownership and may be resolved by
treating the same as common property of
customs union
 - requires a higher degree of political
cooperation that within a free trade area

- requires agreement on the level of common

external tariff and on the administration of
the tariff revenues

 Common Market

- A common market is a customs union where

internal tariff barriers have also been removed

- Theoritically free movement of goods, services,

people and capital is allowed across internal
frontiers

- Thus removal of all tariff and non-tariff barriers

allows all firms access to the entire internal
- fiscal policy coordination include the
harmonization of tax rates, especially VAT, Excise
duties and other taxes on goods and some degree
of control over govt. budgets and budget
deficits

- also likely to be coordination of other economic

policies such as regional, industrial and agricultural
policies

- thus in terms of policy making there will be a

high degree of political integration as well
as economic integration barring defence and foreign policy
 Political Union

- political union implies more formal political

links between countries

- in its fullest form it involves unification of

previously separate nations, e.g., reunification
of east and west Germany in 1990

- another example of political union is soviet

union bringing integration among various
republics
 Major Regional Economic Groupings
 EU (European Union)

NAFTA (North American Free Trade Agreement)

 LAIA (Latin American Integration Association)

 MERCOSUR (Common Market Of South)

 CACM (Central American Common Market)

 ASEAN (Association Of South East Nations)

 APEC (Asia Pacific Economic Cooperation)

 EAC (East African Cooperation)

 EUROPEAN UNION(EU)
• MAASTRITCHT TREATY 1992

• FIRST PROPOSED BY FRENCH FOREIGN MINISTER,ROBERT

SCHUMAN ON 9 MAY 1950, ALSO KNOWN AS EUROPE’S DAY

• - INITIALLY EU CONSISTED OF JUST SIX MEMBERS-BELGIUM,

GERMANY, FRANCE, ITALY, LUXEMBOURG & THE
NETHERLANDS
• -1973- DENMARK, IRELAND & UK JOINED
• 1981-GREECE
• 1986-SPAIN & PORTUGAL
• 1995- AUSTRIA, FINLAND& SWEEDEN JINED
• 2004- 10 NEW COUNTRIES JOINED
 EU
• -ISSUES- NOT ONLY TRADE & ECONOMY BUT ALSO,
• CITIZEN’S RIGHTS- ENSURING FREEDOM, SECURITY & JUSTICE;
• REGIONAL DEVELOPMENT; ENVIRONMENTAL PROTECTION; &
PROMOTING GLOBALIZATION
• FIVE EU INSTITUTIONS:
• -EUROPEAN PARLIAMENT( ELECTED BY THE PEOPLES OF THE
MEMBER STATES)
• COUNCIL OF EUROPEAN UNION;( REPRESENTING GOVT OF
MEMBER STATES).
• EUROPEAN COMMISSION;
• COURT OF JUSTICE;
• COURT OF AUDITORS
 PRESENTATION ON
ASEAN
(ASSOCIATION OF SOUTH EAST ASIAN NATIONS)
 ASSOCIATION OF SOUTHEAST
ASIAN NATIONS (ASEAN)

• "Today, ASEAN is not only a well-

functioning, indispensable reality in the
region. It is a real force to be reckoned
with far beyond the region. It is also a
trusted partner of the United Nations in
the field of development”
 ESTABLISHMENT
• The Association of Southeast Asian Nations or
ASEAN was established on 8 August 1967 in
Bangkok by the five original Member Countries,
namely, Indonesia, Malaysia, Philippines,
Singapore, and Thailand. 
• Brunei Darussalam joined on 8 January 1984,
Vietnam on 28 July 1995, Lao PDR and
Myanmar on 23 July 1997, and Cambodia on 30
April 1999.
• The ASEAN region has a population of about
500 million, a total area of 4.5 million square
kilometers, a combined gross domestic product
of almost US$ 700 billion, and a total trade of
about US$ 850 billion.
 OBJECTIVE
The ASEAN Declaration states that the aims and
purposes of the Association are:
• To accelerate economic growth, social progress
and cultural development in the region and
• To promote regional peace and stability through
abiding respect for justice and the rule of law in
the relationship among countries in the region
and adherence to the principles of the United
Nations Charter.
 ASEAN VISION 2020
• Adopted by the ASEAN Leaders on the 30th Anniversary
of ASEAN.
• Agreed on a shared vision of ASEAN as a concert of
Southeast Asian nations, outward looking, living in
peace, stability and prosperity, bonded together in
partnership in dynamic development and in a community
of caring societies
• In 2003, the ASEAN Leaders resolved that an ASEAN
Community shall be established comprising three pillars,
namely, ASEAN Security Community, ASEAN Economic
Community and ASEAN Socio-Cultural Community.
 FUNDAMENTAL PRINCIPLES
• Mutual respect for the independence,
sovereignty, equality, territorial integrity, and
national identity of all nations;
• The right of every State to lead its national
existence free from external interference,
subversion or coercion;
• Non-interference in the internal affairs of one
another;
• Settlement of differences or disputes by peaceful
manner;
• Renunciation of the threat or use of force; and
• Effective cooperation among themselves.
 MEMBER COUNTRIES
• Brunei Darussalam
• Cambodia
• Indonesia
• Laos
• Malaysia
• Myanmar
• Philippines
• Singapore
• Thailand
• Vietnam
 ASEAN COMMUNITIES

1. ASEAN SECURITY COMMUNITY

 It aims to ensure that countries in the region
live at peace with one another and with the
world in a just, democratic and harmonious
environment. 
 Committee members pledge to rely on
peaceful processes in the settlement of
intra-regional differences and regard their
security as fundamentally linked to one
another and bound by geographic location,
common vision and objectives. 
 CONTD….
 It has the following components:
1. political development;
2. shaping and sharing of norms;
3. conflict prevention & conflict resolution;
4. post-conflict peace building; and
5. implementing mechanism
 CONTD….
2. ASEAN ECONOMIC COMMUNITY
 It’s the end-goal of economic integration
measures as outlined in the ASEAN Vision
2020. 
 Its goal is to create a stable, prosperous and
highly competitive ASEAN economic region.
 Free flow of goods, services, investment and a
free flow of capital, equitable economic
development, and
 Reduced poverty and socio-economic
disparities by the year 2020.
 CONTD….
 To establish ASEAN as a single market and
production base, turning the diversity that
characterizes the region into opportunities for
business complementation.
 Making the ASEAN a more dynamic and
stronger segment of the global supply chain.
 The strategy will consist of the integration of
ASEAN and enhancing ASEAN’s economic
competitiveness.
ASEAN Has Agreed The Following Terms:
• Institute new mechanisms and measures to
strengthen the implementation of its existing economic
initiatives including the ASEAN Free Trade Area
(AFTA), ASEAN Framework Agreement on Services
(AFAS) and ASEAN Investment Area (AIA);
• Accelerate regional integration in the following priority
sectors by 2010: air travel, agro-based products,
automotives, e-commerce, electronics, fisheries,
healthcare, rubber-based products, textiles and
apparels, tourism, and wood-based products.
• Facilitate movement of business persons, skilled
labour and talents; and
• Strengthen the institutional mechanisms of ASEAN,
including the improvement of the existing ASEAN
Dispute Settlement Mechanism to ensure expeditious
and legally-binding resolution of any economic
disputes.
3. ASEAN SOCIO-CULTURAL COMMUNITY 

 The ASEAN Socio-Cultural Community, in

consonance with the goal set by ASEAN Vision 2020,
envisages a Southeast Asia bonded together in
partnership as a community of caring societies and
founded on a common regional identity.
 To foster cooperation in social development aimed at
raising the standard of living of disadvantaged groups
and the rural population, and shall seek the active
involvement of all sectors of society, in particular
women, youth, and local communities.
 It ensures that its work force shall be prepared
for, and benefit from, economic integration by
investing more resources for basic and higher
education, training, science and technology
development, job creation, and social protection.
 It also intensify cooperation in the area of public
health, including in the prevention and control of
infectious and communicable diseases.
 The development and enhancement of human
resources is a key strategy for employment
generation, alleviating poverty and socio-
economic disparities, and ensuring economic
growth with equity.
Among the on-going activities of ASEAN in this
area, it also includes the following:
• ASEAN Work Programme for Social Welfare,
Family, and Population;
• ASEAN Work Programme on HIV/AIDS;
• ASEAN Work Programme on Community-Based
Care for the Elderly;
• ASEAN Occupational Safety and Health
Network;
• ASEAN Work Programme on Preparing ASEAN
Youth for Sustainable Employment and Other
Challenges of Globalisation;
• ASEAN University Network (AUN)
promoting collaboration among seventeen
member universities ASEAN;
• ASEAN Students Exchange Programme,
Youth Cultural Forum, and the ASEAN
Young Speakers Forum;
• The Annual ASEAN Culture Week,
ASEAN Youth Camp and ASEAN Quiz;
• ASEAN Media Exchange Programmed;
and
 The ASEAN Free Trade Area
(AFTA)
• ASEAN Member Countries have made
significant progress in the lowering of intra-
regional tariffs through the Common Effective
Preferential Tariff (CEPT) Scheme for AFTA.
• More than 99 percent of the products in the
CEPT Inclusion List (IL) of ASEAN-6, comprising
Brunei Darussalam, Indonesia, Malaysia, the
Philippines, Singapore and Thailand, have been
brought down to the 0-5 percent tariff range.
• The signing of the Protocol to Amend the CEPT-
AFTA Agreement for the Elimination of Import
Duties on 30 January 2003, ASEAN-6 has
committed to eliminate tariffs on 60 percent of
their products in the IL by the year 2003.
 CONTD….
• ASEAN’s exports had regained its upward trend
in the two years following the financial crisis of
1997- 1998 reaching its peak in 2000 when total
exports was valued at US$ 408 billion.
• After declining to US$ 366.8 billion in 2001, as a
result of the economic slowdown in the United
States and Europe and the recession in Japan,
ASEAN exports recovered in 2002 when it was
valued at US$ 380.2 billion.
• The upward trend for ASEAN-6 continued up to
the first two quarters of 2003. Intra-ASEAN trade
for the first two quarters of 2003 registered an
increase of 4.2 and 1.6 percent for exports and
imports respectively.
 CONTD….
• To improve and strengthen the rules the CEPT Rules of
Origin and its Operational Certification Procedures have
been revised and implemented since 1 January 2004.
• Among the features of the revised CEPT Rules of Origin
and Operational Certification Procedures include:
(a) a standardized method of calculating
local/ASEAN content;
(b) a set of principles for determining the cost of
ASEAN origin and the guidelines for costing
methodologies;
(c) treatment of locally-procured materials; and
(d) improved verification process, including
on-site verification.
 EXTERNAL RELATIONS
• ASEAN has develop cooperative relations with
Australia, Canada, China, the European Union, India,
Japan, the ROK, New Zealand, the Russian Federation,
the United States of America, and the United Nations
Development Programme.  ASEAN also promotes
cooperation with Pakistan in some areas of mutual
interest.
• ASEAN maintains contact with other inter-governmental
organisations, namely, the Economic Cooperation
Organisation, the Gulf Cooperation Council, the Rio
Group, the South Asian Association for Regional
Cooperation, etc. 
• Most ASEAN Member Countries also participate actively
in the activities of the Asia-Pacific Economic Cooperation
(APEC), the Asia-Europe Meeting (ASEM), and the East
Asia-Latin America Forum (EALAF).
 Introduction
• The North American Free Trade Agreement (NAFTA) is a
trilateral trade bloc in North America created by the
governments of the United States, Canada, and Mexico. It
superseded the Canada-United States Free Trade
Agreement between the US and Canada.
• Following diplomatic negotiations dating back to 1990
between the three nations, the leaders gathered together
in San Antonio Texas on December 17, 1992 to officially
sign NAFTA. U.S. President George H.W. Bush,
Canadian Prime Minister Brian Mulroney and Mexico's
President Carlos Salinas, each responsible for
spearheading and promoting the agreement, made history
that day when they ceremoniously signed the agreement.
 Contd…
• The agreement was signed into law in the U.S. on
December 8, 1993 by President Bill Clinton and went into
effect on January 1, 1994.
• In terms of combined purchasing power parity GDP of its
members, as of 2007 the trade block is the largest in the
world and second largest by nominal GDP comparison. It
also is one of the most powerful, wide-reaching treaties
in the world.
• The North American Free Trade Agreement (NAFTA)
has two supplements, the North American Agreement on
Environmental Cooperation (NAAEC) and the North
American Agreement on Labour Cooperation (NAALC).
 Impact
• Trade- According to Isaac (2005), NAFTA has not caused
trade diversion, aside from a few select industries such as
textiles and apparel, in which rules of origin negotiated in the
agreement were specifically designed to make U.S. firms
prefer Mexican manufacturers. The World Bank also showed
that the collected NAFTA imports' percentage growth was
accompanied by an almost similar increase of non-NAFTA
exports.
• Industry- Maquiladoras (Mexican factories which take in
imported raw materials and produce goods for export) have
become the landmark of trade in Mexico. These are plants
that moved to this region from the United States, hence the
debate over the loss of American jobs. Hufbauer's (2005)
book shows that income in the maquiladora sector has
increased 15.5% since the implementation of NAFTA in 1994
 Contd…
Environment- The Commission for Environmental
Cooperation created a framework for conducting
environmental analysis of NAFTA, one of the first ex post
frameworks for the environmental assessment of trade
liberalization. The framework was designed to produce a
focused and systematic body of evidence with respect to
the initial hypotheses about NAFTA and the
environment, such as the concern that NAFTA would
create a “race to the bottom” in environmental regulation
among the three countries, or the hope that NAFTA
would pressure governments to increase their
environmental protection mechanisms.
 Contd..
Agriculture- From the earliest negotiation, agriculture was
(and still remains) a controversial topic within NAFTA, as
it has been with almost all free trade agreements that
have been signed within the WTO framework.
Agriculture is the only section that was not negotiated
trilaterally; instead, three separate agreements were
signed between each pair of parties. The Canada-U.S.
agreement contains significant restrictions and tariff
quotas on agricultural products (mainly sugar, dairy, and
poultry products), whereas the Mexico-U.S. pact allows
for a wider liberalization within a framework of phase-out
periods.
 Contd..
Mobility of persons- According to the Department of
Homeland Security Yearbook of Immigration Statistics,
during fiscal year 2006 (i.e., October 2005 through
September 2006), 74,098 foreign professionals (64,633
Canadians and 9,247 Mexicans) were admitted into the
United States for temporary employment under NAFTA .
Additionally, 17,321 of their family members (13,136
Canadians, 2,904 Mexicans, as well as a number of
third-country nationals married to Canadians and
Mexicans) entered the U.S. in the treaty national's
dependent (TD) status.
South Asian Association for
Regional Cooperation
SAARC
Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, Sri Lanka
 South Asian Association for
Regional Cooperation
• formally came into existence in 1985 with
the adoption of its Charter at the first Summit
in Dhaka (7- 8 December 1985).
• seven South Asian countries Bangladesh,
Bhutan, India, the Maldives, Nepal, Pakistan
and Sri Lanka
• Other regional experiences highly successful
• strengthen their competitive position
 Areas of Cooperation
(21 - 23 April, 1981)
• first meeting of Foreign Secretaries in Colombo
• pursue cooperation in five broad areas
• Agriculture
• rural development
• Telecommunications
• meteorology, and
• health and population services
• identify other areas of possible cooperation
 Objective
• acceleration of economic growth,
• social progress and cultural development
in the region,
• promotion of active collaboration and
mutual assistance in the economic, social,
cultural, technical and scientific fields and
• strengthening of cooperation among the
Member States in international forum on
matters of common interest
 The SAARC Secretariat
• established in Kathmandu on 16 January
1987.
• coordinate and monitor the implementation
of SAARC activities, service the meetings of
the Association and serve as the channel of
communication between SAARC and other
international organisations
• comprises the Secretary General, seven
Directors and the General Services Staff.
 Administrative setup
• Summits held annually, represented by head of the states
• The Council of Ministers comprising Foreign Ministers,
meets at least twice a year
• formulating policy, reviewing progress of regional
cooperation, identifying new areas of cooperation
• The Standing Committee comprising Foreign Secretaries,
monitors and coordinates SAARC programmes of
cooperation, approves projects including their financing and
mobilizes regional and external resources. It meets as often
as necessary and reports to the Council of Ministers
• The Committee on Economic Cooperation consisting of
Secretaries of Commerce oversees regional cooperation in
the economic field
 DIVISIONS OF SAARC
• Agriculture and Rural Development Division
• Environment and Science and Technology
Division
• Economic, Trade and Finance Division
• Social Affairs Division
• Information and Publications Division
• Energy, Tourism Division
• Human Resource Development, Transport
and Treaty Division
 Committee on Economic
Cooperation (CEC)
• implementation of specific measures, policies and
programmes to strengthen and enhance intra-
regional cooperation in the fields of trade and
economic relations.
• Its specific functions include
• analysing inter-regional and global developments
• evolving joint strategies and common approaches
at international forums;
• and recommending policies and measures for
promoting intra-regional trade,
• joint ventures, industrial complementarity and
investments.
 SAPTA
• South Asian Preferential Trade Arrangement
• Deals with Tariffs, Non-Tariff Measures and
Direct Trade Measures
• In December 1991, the Sixth Summit held in
Colombo member countires agreed to
formulate an agreement to establish a
SAARC Preferential Arrangement (SAPTA)
by 1997.
• Agreement on SAPTA was signed on 11
April 1993 and entered into force on 7
December 1995
 SAPTA
• The basic principles underlying SAPTA are:
• overall reciprocity and mutuality of advantages so as to
benefit equitably all Contracting States, taking into account
their respective level of economic and industrial
development, the pattern of their external trade, and trade
and tariff policies and systems;
• negotiation of tariff reform step by step, improved and
extended in successive stages through periodic reviews;
• recognition of the special needs of the Least Developed
Contracting States and agreement on concrete preferential
measures in their favour; and
• inclusion of all products, manufactures and commodities in
their raw, semi-processed and processed forms.
Trade Concessions Number of Products covered and the Depth of Preferential Tariff
Concessions agreed to by SAARC Member States in the first three rounds of trade
negotiations under SAPTA
Country # Products Depth of
concessions
Bangladesh 572 10% -15%
Bhutan 266 10-20%
India 2402 10-100%
Maldives 390 5-15%
Nepal 425 10-15%
Pakistan 685 10-30%
Sri Lanka 211` 10-75%
TOTAL 4951
 South Asian Free Trade Area
(SAFTA)
• SAPTA first step towards the transition to a South Asian Free
Trade Area (SAFTA) leading subsequently towards a Customs
Union, Common Market and Economic Union.
• The Agreement on South Asian Free Trade Area (SAFTA) was
signed on 6 January 2004 during the Twelfth SAARC Summit in
Islamabad.
• The Agreement into force from 1 January 2006
• Trade Liberalisation Programme scheduled for completion in ten
years by 2016,
• the customs duties on products from the region will be
progressively reduced.
• under an early harvest programme for the Least Developed
Member States, India, Pakistan and Sri Lanka are to bring down
their customs duties to 0-5 % by 1 January 2009 for the products
from such Member States.
• The Least Developed Member States are expected to benefit
from additional measures under the special and differential
treatment accorded to them under the Agreement.
 South Asian Economic Union
• Eleventh Summit (Kathmandu, 4-6
January 2002) - economic cooperation
• Leaders agreed to accelerate cooperation
in the core areas of trade, finance and
investment to realise the goal of an
integrated South Asian economy in a step-
by-step manner.
 Current Issues
• Working toward creation of SAFTA
• Leading subsequently, towards a Customs
Union, Common Market and Economic Union.
• Technical Committee on Transport
• Agreement on Investment
• Agreement on avoidance of double taxation
• Standards, quality and control group