Regional Integrations: Regional Economic Integrations Nature and levels of integration Arguments for and against regional integration

Trading blocks European Union, ASEAN, APEC, NAFTA, SAARC, ANDEAN PACT and MERCOSUR.

Introduction
One notable trend in the global economy in recent

years has been the accelerated movement toward regional economic integration. Regional economic integration refers to agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Regional Economic Integration:

Definition:
It refers to the agreements between group of countries

in a geographic region to reduce, and ultimately remove tariff & non-tariff barriers to the free flow of goods, service and factors of production between each other.

 Some countries create business opportunities for

themselves by integrating their economies in order to avoid unnecessary competition among themselves and also from other countries. Economic integration among countries takes several forms. It covers different kinds of arrangements between or among countries by which two or more countries link their economies closer either in part of totals. They maintain the cohesiveness among or between the countries through tariffs. They discriminate against the other countries, which are not parties to the agreement, through tariffs. They also discriminate against the goods produced by other countries. Economic integration varies in degrees.

 GATT and WTO are the biggest association of more

than 150 member countries, which strive to reduce the barriers. However, more than regional, WTO has a global perspective. By entering into regional agreements, groups of countries aim to reduce trade barriers more rapidly than can be achieved under WTO. While there have been decreases in the global barriers to trade and investment, the greatest progress had been made on a regional basis.

Levels of Economic Integration:

Countries create business opportunities for themselves

by integrating their economies to avoid competition among themselves. Economic integration can be of the following kinds:
Free Trade Area Customs Union Common Market Economic Union Political Union

Free Trade Area

If a group of countries agree to abolish (eliminate or stop)

all trade restrictions and barriers among or charge low rates of tariffs in carrying out international trade, such a group is called free trade area. These countries impose trade barriers and restrictions with regard to trade with the countries other than the members of the group. Example: The North American Free Trade Agreement (NAFTA) is the best example for Free Trade Area.

Customs Union
The member countries of the customs union have 2 basic features. a) The member countries abolish (eliminate or stop) all the restrictions and barriers on trade among themselves or charge low rates of tariffs & b) They adopt a uniform commercial policy of barriers and restrictions jointly with regard to the trade with the non-member countries Example: The EU began as a customs union and has moved beyond this stage.

Common Market
It has 3 basic characteristics;
All member countries abolish all the restrictions and

barriers on trade among themselves or charge low rates of tariffs. They adopt a uniform commercial policy of barriers and restrictions jointly with regard to the trade with the non-member countries, & They allow free movement of factors of production (labour, capital and technology) across borders.

 When factors of production are freely mobile, then

capital, labour and technology may be employed in their most productive uses. Example: For years, the European Union functioned as a common market, although it has now moved beyond this stage. MERCOSUR, the South American grouping of Argentina, Brazil, Paraguay, and Uruguay, hopes to eventually establish itself as a common market.

Economic Union:
It has 4 basic characteristics;
All member countries abolish all the restrictions on

trade among themselves or charge low rates of tariffs They adopt a uniform commercial policy of barriers with regard to trade with the non-member countries They allow free moment of human resources and capital among themselves & They achieve uniformity in monetary policy and fiscal policy among the member countries.

Political Union
Apart from all the above characteristics, one central

government rule the member countries in a union. It is the highest level of integration. It implies more formal political links between countries. In the pure political union, the member countries lose their national identities and come under a single state. While a limited form of political union exists when two or more countries share common decision making bodies and have common policies. Example: The unification of East and West Germany is an example of total political union. The two nations now have one government and one set of overall economic policies.

Arguments For and Against Integration

Trade Creation
When trade barriers between countries are removed,

industries in respective countries will concentrate on the most efficient use of resources and produce those goods that they are most efficient in producing. The result is that all participants will gain from trade. In addition, when tariffs and other barriers are removed between the members of a trading area, new opportunities for trade are created. This is because exports can now be sold or imports bought at more reasonable rates inside the trading block. The efficient exporter can sell surplus goods abroad, and the importer, instead of producing the goods inefficiently at home, can reallocate resources to more efficient production.

Trade Diversion
When trade is diverted from countries outside the

trading area to countries inside. External countries will find it especially difficult to retain their export markets if the common external tariff is higher than the previous importing countrys tariff. In such a case, trade diversion may not be beneficial as trade may be diverted from a more efficient producer outside the trading area to a less efficient one inside.

Prices
The consumption effects are noticed on prices and

consumer choice. When trade barriers come down, consumers can buy goods more cheaply. This applies not just to tariffs, where price is directly affected, but also to non-tariff barriers like customs choice. Trade creation increases the availability of goods enabling the consumers to pick and choose.

Competition
By removing barriers between national markets,

trading blocks create competition. Generally speaking, the longer the trading area and the higher the level of integration, the more competition will be created. Competition benefits consumers immensely in the form of lower prices, wider choice, and better value for money. In addition, competition stimulates innovation, not only in the products themselves but also in the channels of distribution, methods of payment, customer area, and so on.

Economies of Scale
In a common market, external economies of scale may

also be present. Because a common market allows factors of production to flow freely across borders, the firm may now have access to cheaper capital, more skilled labour, or superior technology. These factors will improve the quality of the firms product or service, or will lower costs, or both.

Dynamic Effects of Integration

It describes the continuous pressure for change that is a

feature of an integrated competitive environment. Market forces act as a spur (encourage) to improvements in efficiency, increase in investment, and continual innovation. A new product or process may create a competitive advantage for a time, but before long, a competitor will introduce something better. The search for success is ongoing. The need to innovate promotes investment in new technology, new methods of production and distribution and product design.

Trading Blocks (trade bloc)

A trade bloc is the proliferation (creation, increase) of

economic integration schemes. It also referred as trading blocs, regional integration agreements (RIAs), regional trading agreements (RTAs). The purpose of the trading blocs is to create a single largest market. The single largest markets provide opportunities and pose threats.

Advantages of Regional Trade Blocks

It has in reducing tariff and non-tariff barriers to trade. It accelerated economic growth, social progress, cultural

development in the region. The liberalization of investments has been fostering (development) economic growth of a number of countries. It provides a forum for multilateral discussion for economic growth and building economic relation. It provides adequate and effective protection and enforcement of intellectual property rights in each partys territory. It promotes the conditions of fair competition in the free trade area. It increases the size of market, aggregate demand for product and services, quantity of production, employment and ultimately entire economic activities of the region.

European Union (EU) Origin

The origin of European Union goes back to the

European Coal and Steel Community (ECSC) which was formed by West Germany, France, Italy, Belgium, Netherlands and Luxembourg in 1952. The aim was to eliminate import duties and quotas on coal, iron ore and steel regarding the international trade among the member countries.

Organization structure of European Union

European Council is the main administrative body of

the EU. Each member country is represented by a minister in this council. Each member country holds the presidency of the council for six-monthly period of rotation. A committee of permanent representatives acts as the Secretariat of the council.

European Council
European Council acts as the executive agent of the EU in: Formulating rules of conduct Preparing new legislations Making decisions Enabling members to carry out the provisions of the Treaty.

European Commission
The European Commission assists the Council. This is

the executive body of the EU. The members of this commission are appointed for a period of four years which can be renewed. One or more EU policies are entrusted to each commissioner. Each commissioner is assisted by a chief of cabinet of his country. These assistants take decisions on behalf of their commissioners.

Court of Justice
There is a court of justice to adjudicate disputes relating

to agriculture, social security for migrants among the member countries and competition policy. The court also adjudicates disputes between the member countries brought by the commission against the council or commission reported by a person or a company.

Court of Auditors
Court of auditors was appointed as a part of the EU by

amending the Treaty of Rome. The activities of the court of auditors include: Auditing the EEC budget (European Economic Community) Monitoring the EECs expenditure Laying down improved procedures for collection of duties and levies.`

European Parliament
The European Commission should consult the Parliament

before a final decision is taken. The Parliament acts through the Parliamentary Committee. The activities of the European Parliament include: Provides consultation and information to the Commission. Approve or reject the draft budget prepared by the Commission. Dismiss the Commission, if necessary.

Advisory Committees
There are several advisory committees to advise the

European Commission. These committees include: Economic and Social Committee Monetary Committee Consultative Committee on Coal and Steel Industry.

Economic and Social Committee

This

committee represents the activities like employers, employee unions, farmers, retail traders, liberal professions and public. European Commission appoints the members on this committee.

 Monetary Committee: This committee examines the

monetary problems, problems of the balance of payments and suggests measures to overcome them.
Consultative

Committee on Coal and Steel Industry: This committee studies the problems of coal and steel industries and offers suggestions.

ESTABLISHMENT OF THE EURO

The euro is the currency of 13 European Union

countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Slovenia and Finland. Leaders of EC member states met in Maastricht, Netherlands. 13 members signed a treaty that committed them to adopting a common currency by Jan 1999.

 According to the Treaty, to join the euro zone member

countries had to Achieve low inflation rates, Low long-term interest rates, A stable exchange rate, Public debt limited to 60% of the countrys gross domestic product & Current budget deficits of no more 3% of GDP

Benefits of EURO
Europeans believe that business and individuals will

realize significant savings from having to handle one currency rather than many The adoption of a common currency will make it easier to compare prices across Europe. It boosts the development of a highly liquid European capital market. It will increase the range of investment options open to both individuals and institutions.

Cost of EURO Drawbacks

The national authorities have lost control over

monetary policy. Currency value decreased

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

In January 1994, Canada, the United States and Mexico

launched the North American Free Trade Agreement (NAFTA) and formed the world's largest free trade area. The Agreement has brought economic growth and rising standards of living for people in all three countries. In addition, NAFTA has established a strong foundation for future growth and has set a valuable example of the benefits of trade liberalization.

Objectives
To create new business opportunities particularly in Mexico To enhance the competitive advantage of the companies

operating USA, Canada and Mexico in wider international markets. To reduce the prices of the products and services by enhancing the competition To enhance industrial development and thereby employment throughout the region. To provide stable and predictable political environment for the investors To develop industries in Mexico in order to create employment and to reduce migration from Mexico to USA To improve and consolidate political relationship among member countries.

Arguments for NAFTA

An opportunity to create an enlarged and more efficient

productive base for the entire region Many U.S & Canadian firms will move production to Mexico to take advantage of lower labor costs Mexico benefits because it gets much-needed investment & employment Increased incomes of the Mexicans will allow them import more U.S & Canadian goods U.S & Canadian consumers will benefit from the lower prices of products produced in Mexico International competitiveness of U.S and Canadian firms will be enhanced.

Arguments against NAFTA

Mass exodus of jobs from U.S and Canada into Mexico
Environmentalists warn that Mexico could degrade

clean air and toxic waste standards across the continent. Rio Grande is the most polluted river in the US. Opposition in Mexico to NAFTA from those who fear a loss of national sovereignty.

THE ANDEAN PACT

It was formed in 1969 when Bolivia, Chile, Ecuador,

Colombia, and Peru signed the Cartagena Agreement. Objectives: Internal tariff reduction program Common external tariff, A transportation policy A common industrial policy & Special concessions for the smallest members Bolivia and Ecuador.

 By the mid 1980s the Andean Pact had collapsed and

had failed to achieve any of its stated objectives. The Member countries had to deal with low economic growth, hyperinflation, high unemployment, political unrest, and crushing debt burdens. In 1990, the members met in Galapagos Islands effectively re- launching the Andean Pact. The declarations objectives included the establishment of a free trade area by 1992, a customs union by 1994, and a common market by 1995.

MERCOSUR (Southern Common Market)

It originated in 1988 as a free trade pact between Brazil

and Argentina. Later in 1990 Paraguay and Uruguay joined. In 1995, the members agreed to a 5 year program under which they hoped to perfect their free trade area and move towards full customs union. MERCOSUR is making a positive contribution to the economic growth rates of its member states.

 Trade between member countries quadrupled between

1990 & 1998. The combined GDP grew at an annual average rate of 3.5% The development of Mercosur was arguably weakened by the collapse of the Argentine economy in 2001 and it has still seen internal conflicts over trade policy, between Brazil and Argentina, Argentina and Uruguay etc.

 They might not be able to compete globally once the

groups external trade barriers come down. In December 2004 it signed a co-operation agreement with the Andean Community trade bloc and they published a joint letter of intention for a future negotiations towards integrating all of South America.

THE ASSOCIATION OF SOUTH-EAST ASIAN NATIONS (ASEAN)

The Association of Southeast Asian Nations (ASEAN)

was established on 8 August 1967 in Bangkok, Thailand. Member countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos and Myanmar.

 Five original Member Countries of ASEAN are

Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam joined the Association on 8 January 1984. Vietnam became the seventh member of ASEAN on 28 July 1995. Laos and Myanmar were admitted into ASEAN on 23 July 1997. The ASEAN member countries have developed economically at a fast rate in the globe.

 Their strength is well educated and skilled human

resources. This enabled them to achieve faster Industrialization. Member countries are rich in oil, mineral resources, agricultural goods and modern industrial products These countries invite and allow the free-flow of foreign capital ASEAN enables the member countries to have close cohesiveness, share their economic and human resources and achieve synergy in the development of their agricultural sectors, industrial sectors and service sectors.

ASEAN FREE TRADE AREA (AFTA)

The ASEAN countries formed the AFTA in 1994 in

order to develop inter ASEAN trade. OBJECTIVES: 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

ASIA PACIFIC ECONOMIC COOPERATION (APEC)

It was founded in 1990. Members: United States Japan South Korea Philippines Taiwan Papua New Guinea Indonesia Mexico Canada Chile New Zealand China Thailand Singapore Brunei Malaysia

Objectives:
To increase multilateral cooperation in view of the

economic rise of the Pacific nations and the growing interdependence within the region. The edge of state of affect met for the first time in Nov 1993 to commit itself to the ultimate formation of a Free Trade Area. The members again met in 1994 in Jakarta, Indonesia, & agreed to commit APECs industrialised members to remove their trade and investment barriers by 2010 and for developing economies to do so by 2020. They called for a detailed blueprint charting how this might be achieved.

 Finally they met again to remove trade barriers in 15

industries from fish to toys However, APEC is not so completely integrated or successful like EU.

SOUTH ASIAN ASSOCIATION OF REGIONAL COOPERATION (SAARC):

India, Bangladesh, Bhutan, Pakistan, the Maldives

Nepal and Sri Lanka established SAARC on December 8, 1985. Afghanistan joined in April 2007

Objectives:
To improve the quality of life and welfare of the people

of the SAARC member countries. To develop the region economically, socially and culturally To provide the opportunity to the people of the region to live in dignity and to exploit their opportunities To enhance the self-reliance (dependence, confidence) of the member countries jointly.

 To provide favorable climate for creating

enhancing mutual trust, understanding application of one anothers issues. To enhance the mutual assistance among member countries in the areas of economic, social, cultural, scientific and technical fields. To enhance the co-operation with other developing economies.

and and