Regional Integration

Arun Mishra
9893686820
arunjimishra@gmail.com
 Regional Integration
• Business & governments have created a range of
institutions, treaties & agreements that help to
▫ Overcome trade differences
▫ Boost the free movement of trade, investment, and
services across national boundaries
• Regional integration is concerned with:
▫ The removal of trade barriers or impediments between
at least two participating nations
▫ The establishment of cooperation & coordination
between them
• Integration creates high levels of globalization and
regionalization
Types of Trading Integrations
1. Free trade areas
2. Customs Union
3. Common Market
4. Economic Union
 1. Free Trade Areas
• If a group of countries agree to abolish all trade
restrictions & barriers among
• Simplest form of economic integration which
provides the internal free trade between
member nations.
• Each member is allowed to determined its
own commercial policy with respect to non-
members.
• Example: Latin American Free Trade
Association (LAFTA)
 2. Customs Union
• More advanced form.
• Have two basic features:
▫ Internal free trade among the member nations
and
▫ adopts a uniform commercial policy against
the non-members.

• Example: EEC – European Economic

Community
 3. Common Market
Has three basic characteristics:
• Member countries abolish all trade
restrictions
• They adopt uniform commercial policy of
barriers and restrictions jointly with the non-
members.
• They allow free movement of human
resource and capital among themselves .
▫ factors of production such as capital, labour and
technology are mobile among them.
 4.Economic Union
• Level of integration is more developed.
• Has four basic characteristics:
▫ Member countries abolish all trade restrictions
▫ They adopt a uniform commercial policy of
barriers with the non-members.
▫ They Allow free movement of HR and Capital
among.
▫ They achieve uniformity in monetary policy
and fiscal policy among member countries.
• Example: European Union has introduced a
common currency EURO.
Advantages of Integration
• Resources of the region are pooled.
• Access to larger markets leads to internal
economies of scale.
• External economies of scale due to
improved infrastructure (e.g. transport &
telecoms links)
• Greater international bargaining power.
• Increased competition between members.
• More rapid spread of technology.
Disadvantages of Integration
• Country may lose resources to more efficient
members, or to geographical center, and become
depressed region.
• Firms may co-operate, join together and merge,
leading to greater monopoly power.
• Diseconomies of scale if firms become very
large.
• High administrative costs of trading bloc.
Regional Trade Blocs
• Regional trade blocs are inter-governmental
associations that manage & promote trade activities
for specific regions of the world.
• A trade bloc is a type of intergovernmental
agreement, often part of a regional
intergovernmental organization, where
barriers to trade (tariffs & others) are reduced
or eliminated among the participating states.
• Such blocs have liberal rules for member countries
while a separate set of rules is laid for non-members.
• For example, European Union (EU), Association of
South East Asian Nations (ASEAN).
Major Trade Blocs
• EU (European Union )
• NAFTA (North American Free Trade
Agreement)
• MERCOSUR (Mercado Comun del Cono Sur,
also known as Southern Common Markets
(SCCM)
• ASEAN (Association of Southeast Asian
Nations)
• SAARC (South Asian Association for Regional
Cooperation)
European Union
• Evolutionary Stages of EU are:
▫ European Coal and Steel Community ECSC was
formed in in 1952.
▫ In 1957 the Treaty of Rome gave birth to European
Economic Community also known as European
Common Market.
▫ On January 1986 EEC became EU with the
introduction of Uniform Monetary policy, common
currency & fiscal policy.
• Requirements for joining EU are:
▫ Country must be European country
▫ It must be a democratic country.
European Union

Objectives:-
• Setting up a common market
• Continuous & balanced expansion
• Closer relations between the member states.

Members: 28
Initially founded by – Belgium, France, Italy,
Luxembourg, Netherlands & West Germany
ACTIVITIES OF EU
• Elimination of custom duties, quantitative
restrictions with regard to export & imports.
• Establishment of a common custom tariff
& commercial policy.
• Abolition of all obstacles for movement of
persons, services & capital.
• Application of programmes in order to
coordinate the economic policies.
Organisational Structure of EU
• European Council is the main administrative
body
• “Corper” is a committee of permanent
representatives acts as secretariat.

European
Council
Court of
Court of European European Advisory
Auditor
Justice Commission Parliament Committee
s
ASEAN (Association of South East Asian Nations)

• Established in 1992.
• Total six members- Singapore, Brunei,
Malaysia, Philippines, Thailand &
Indonesia.
• To establish a common effective preferential
tariffs (CEPT) plan.
• The CEPT allows for tariffs cut ranging from
0.50% to 20.00% beginning with 15 products.
• In 1994, ASEAN countries formed AFTA in order
to develop inter ASEAN trade.
Objectives of AFTA
• To encourage inflow of foreign investment
into this region.
• To establish free trade area in the member
countries.
• To reduce tariff of the products produced in
ASEAN countries (40% value addition in the
ASEAN countries to the product value is treated
as manufactured in ASEAN countries).
NAFTA (North American Free Trade
Agreement)
• Initially bilateral trade between Canada & U.S.
• NAFTA went into effect in 1994 after the joining
of Mexico.
• U.S.- Canada trade is the largest bilateral
trade in the world.
• NAFTA is a powerful trading bloc with a
combined population and GNP greater than 15
member EU.
Objectives of NAFTA
• To create new business opportunities in Maxico.
• To enhance the competitive advantage of the
companies
• To reduce the price of the products & services
• To enhance industrial development & employment
• To provide stable political environment
• To develop industries in Maxico
• To assist Maxico in earning additional foreign
exchange
• To improve conditional political relationship
Measures as per agreement of NAFTA
• Opening up of Govt. procurement markets in
each member country.
• Residents of NAFTA can invest in any other
NAFTA countries freely
• Protection to Intellectual property rights
• Simplification of product standards
• Free flow of employees & business people
• Avoidance of re-export of imported products
from third party.
• Pollution control along the USA-Maxico border
SAARC
• South Asian Association for Regional
Cooperation
• Established in August 1983.
• Members- India, Bangladesh, Bhutan,
Pakistan, Sri Lanka, The Maldives,
Nepal & Afghanistan
• Afghanistan joined in April 2007.
 Objectives of SAARC
• To improve the quality of life & welfare of the
people of the member countries.
• To develop the region economically, socially &
culturally
• To provide the opportunity to the people of the
region to live in dignity & to exploit their
potentialities.
• To enhance the mutual assistance among
member countries in the areas of economic,
social, cultural, scientific & technical field.
• To enhance cooperation to other trade blocs.
Organisational Structure of SAARC
The Council

Council of Ministers

Standing Committee

Programming Committee

Technical Committee
Organisational Structure of SAARC
The Council
• The highest Policy-Making Body
• Represented by the heads of the Government
• Council meets once in two years
• Assisted by Council of Ministers

Council of Ministers
• Represented by foreign ministers of members
• Meets twice a year or more, if necessary
• It formulates policies, reviews functioning,
decides the general interests of SAARC members
Organisational Structure of SAARC
Standing Committee
• Consists of foreign secretaries of member.
• Functions include:
▫ Monitoring & coordinating programs
▫ Determining inter-sectoral priorities
▫ Mobilizing cooperation within & outside region
▫ Formulating modalities of finance
Programming Committee
• Includes sr. officials of members, Functions are:
▫ Scrutinizing the budget of the secretariat
▫ Finalizing the annual schedule of the secretariat
▫ Carrying out activities assigned
▫ Analyzing & Submitting the reports of the technical committee
Organisational Structure of SAARC
Technical Committee
• Comprises the representative of all countries
• Functions include:
▫ Formulating projects & programmes
▫ Monitoring & implementing the projects
▫ Submitting the report to standing committee
through programming committee
SAPTA
• The council of ministers have signed the
SAARC preferential trading arrangement
agreement on April 11, 1993.
• Objectives of SAPTA
▫ To gradually liberalize the trade among
members of SAARC.
▫ To eliminate trade barriers among SAARC
countries & reduce or eliminate tariffs.
▫ To promote and sustain mutual trade &
economic cooperation among member
countries.
EFTA (European Free Trade Association)
• Formed in 1959
• Members: Austria, Norway, Portugal, Sweden &
Switzerland.
• Associate member countries: Finland & Iceland,
Great Britain and Denmark
• EFTA achieved most of its objective during 40 years of
existence.
• It does not regulate agriculture & economy of member
countries.
• It is managed by a Council, each member’s
representative represents in the council.
• Council makes policy decisions and Secretary
General implements the policies.
Objective of EFTA
• To eliminate all tariffs among members
• To abolish the trade restrictions among members
• To enhance economic development, employment,
income & living standards of people.
• To enable free trade I Western Europe
LAIA (Latin American Integration Association)
• Formed by LAFTA in 1960
• Members: Argentina, Brazil, Chile, Mexico,
Paraguay, Peru, Uruguay, Colombia, Ecuador,
Venezuela and Bolivia.
• Later LAIA replaced LAFTA.
• Objectives are:
▫ To eliminate restrictions on trade among
▫ To reduce the customs and tarrifs & eliminate
them gradually.
Organisational Structure of LAIA
OPEC (Organisation of Petroleum
Exporting Countries)
• A permanent, intergovernmental Organization, created at
the Baghdad Conference on September 10–14, 1960 ( Iraq,
Kuwait, Iran, Saudi Arabia & Venezuela ).
• Later joined by 8 more countries.
• The main objective is
▫ To coordinate and unify petroleum policies among the
member countries.
▫ To secure fair and stable price for petroleum producers.
▫ Proper price and regular supply for petroleum consuming
nations.
• Its Headquarter is in Vienna, Austria.
 IMPACT OF OPEC ON INDIA
• India Imports its crude oil largely from Saudi Arabia, Iraq,
Iran, Angola, Nigeria and many more.
• The top 5 oil exporting countries to India are members of
OPEC.
• As Indian crude oil import is the part of bulk imports in the
balance of payments (BoP), the fluctuations in international crude
oil prices tends to fluctuate the domestic economy’s current
account balance, foreign exchange reserves, inflation etc.
• According to Goldman Sachs report, a rise in global oil prices by
$10 a barrel would reduce India's economic growth by 0.2
percentage points and also affect the country's current
account deficit.
MERCOSUR
• Established in 1991 by Brazil, Argentina, Paraguay,
Uruguay.
• Chile & Bolivia became associate members in 1996
& 1997
• These four members generate 70% GNP of south
America.
• By 1996, MERCOSUR had abolished tariffs on
goods accounting for 90% of the trade between its
members countries, with remaining tariffs to be
abolished by 2000.
• MERCOSUR & EU Signed a cooperation agreement
to pave the way for a free trade accord in 2001.
Objectives of MERCOSUR
• The free transit of produced goods,
services & factors among the member states
among other things, this includes the
elimination of customs rights & lifting of
nontariff restrictions on the transit of goods or
any other measures with similar effects
• Fixing of a common external tariff (CET)
• Coordination of macro-economic &
sectorial policies of members
• Free movement of manpower & capital across
• Develop institutional groups
India and Mercosur
• A Framework Agreement had been signed
between India and MERCOSUR on 17th June
2003
• India – MERCOSUR PTA came into effect from
1st June, 2009
• Products covered in Indian offer list are meat &
meat products, organic & inorganic chemicals,
• Product covered in the offer list of
MERCOSUR are food preparations,
pharmaceuticals, essential oils
• Trade volume should reach 17 billion USD in 2012
and 30 billion USD by 2030
Implication of Trade Blocs for Business
Opportunities to business firms :
• Business is opened within the region
• More efficient business helps less efficient
business in other country to grow.
• Productivity, quality, price, & customer service
will increase in the region.
• Customers will get the best product at the lowest
price.
• Employment opportunities will increase.
Implication of Trade Blocs for Business
Threats to business firms:
• Less efficient firms may face the problem of
survival due to efficient firms.
• Market forces may kill the firms having higher
cost of production than the industry average.
• Resources of the less efficient firms may get
exploited.
• Less developed countries may become the
consumption center.
• Less developed countries may become poorer.