M. Com.

Part I ECONOMICS OF GLOBAL TRADE AND FINANCE SYLLABUS FOR SEMESTERS I AND II
Preamble: The syllabus of M. Com Part 1 is designed to acquaint the students with the various aspects of International Trade, Commercial Policy and Global Finance as well as recent trends and developments in international trade.

Semester I
Module I: Commercial Policy: Tariff and Non-tariff barriers, Miscellaneous Protection Techniques Dumping, Subsidies, Cartels and Commodity Agreements. (15 Lectures) Module II: Economics of Integration: Types of integration (EU, NAFTA, APEC, ASEAN, and SAARC): Achievements and Future prospects, Regionalism Vs. Multilateralism (15 Lectures) Module III: Trends in World Trade, WTO and Developing Countries: Recent Trends in Global Trade - Contentious issues Agriculture and Market Access, Trade and Environmental issues, Dispute Settlement Mechanism. (15 Lectures) MODULE - 1 COMMERCIAL POLICY 1. MEANING OF COMMERCIAL POLICY: 2. Commercial or trade policy followed by a country can broadly be divided into protectionist and liberal. Classical economists were strong proponents of free trade which in reality meant liberal trade. They argued their case on the basis of the positive effects of international trade. The positive aspects include larger production, employment, income, savings, investment, thus leading to enhanced world economic welfare. The above achievements are due to the specialisation in production on the basis of comparative. All types of protection are aimed at improving the position of a domestic producer relative to his foreign competitor. This can be done in following ways: 1. 2. 3. By increasing the home price of the foreign product. By decreasing the costs of domestic producers. By restricting the access of foreign producers to the home market.

Tariff and Non-tariff barriers are some of the standard ways of implementing protectionist policies. Tariff barriers are the taxes imposed on goods and services entering a country from abroad and are the most common form of protection to domestic producers. Tariffs also generate significant revenues for the government. Non-tariff barriers are trade barriers that restrict the import by using methods other than tax.
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2. TARIFFS The duties or taxes levied on goods imported or exported are called as tariffs. Generally, tariffs are a schedule of custom duties levied upon the imports. In a broader sense, however, tariffs include all customs duties: import duties, export duties and transit duties. Amongst these, as a restrictive measure, import duties are the most common. Classification of tariffs: There are different ways of classifying tariffs or customs duties. Using the levy criterion, tariffs may be classified into; i) specific duties, ii) ad valorem duties, iii) combined specific and ad valorem duties, and iv) sliding scale duties. 1. Specific duties are flat levies per physical unit (metro, kilo, ton, etc) of the commodity imported. 2. Ad valorem duties are, on the other hand, levied as fixed percentage of the value of the imported commodity. 3. Combined specific and ad valorem duties , when imposed, specify that one or the other, usually whichever involves lower charge, is payable at the customs. 4. Sliding scale duties are those which tend to vary with the price of the commodity imported. These may be either specific or ad valorem. Specific sliding scale duties are, however, common in practise. Another important classification of tariffs is based on the purpose they serve. Using the objective criterion, tariffs are distinguished as: i) Revenue Duties, and ii) Protective Duties. 5. Revenue tariffs are those whose primary purpose is to provide revenue to the state. These are generally at a lower rate and not intended to exclude imports. They are usually levied on imports of consumption goods. 6. Protective tariffs, on the other hand, are designed to curtail imports of certain goods to protect domestic production. Effects of tariffs Tariffs can affect import volume, prices, production and consumption. They also affect the terms of trade, the balance payments etc. the various effects of tariffs have been discussed in the following sections. For this purpose, we may draw a diagram of partial equilibrium framework relating to the market for a particular commodity. In the following diagram, we have assumed that demand and supply relationships of commodity X are given and remain unchanged throughout the analysis. Factors influencing demand such as income, tastes , habits of consumers are constant and prices of substitutes remain unchanged.
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Similarly, there is no change in technology, no change in factor prices, or no such other changes which may affect the supply position. Effects of Tariff Y S D

Price and Tariff P3 a P2 e P1 S O M1 M2 Quantity 1. Price Effect Assuming that the foreign price of a commodity is unchanged, we find that the price in the tariff-imposed nation would rise by the full amount of the tariff duty. Increase in the price of a commodity imported due to imposition of tariff is called the price effect. Diagrammatically, thus P1P2 price-rise is the price effect in the above figure. In this case, the incidence of tariff falls on the domestic consumers. The exact price effect thus depends upon the volume and elasticity of supply and demand in the trading countries. The elasticity of supply, however, depends upon the costs conditions-constant, increasing or decreasing-which play an important role in determining the price effect of the tariff. 2. The protective effect A tariff is a restrictive measure which seeks to control the quantity of import so that domestic industry may be protected. a tariff duty is purely protective only if it is so high as to prohibit total imports of a commodity. In practise, however, in its restrictive effect upon the quantity of imports, tariffs, no matter how high, need not prove absolutely protective. Obviously, any imports may flow in after the payment of duties, unless regulated otherwise. M3 M4 X d c f D b

The protective effect of a tariff can be seen in the expansion of domestic production of a commodity which becomes possible due to rise in prices in the domestic market. High prices enable the home producers to cover their high rising marginal costs on a larger output. In the above figure, the tariff by raising domestic price to a higher level from P 1 to P2 enables domestic producers to increase production from M1 to M2. This increased production M1M2 measures the protective effect of the tariff in terms of domestic production alone. However, the protective effect in money terms can also be seen from the producers increased receipts. Out of the total increase in receipts P 1P2 a d, the triangular areas a d e is the purely protective effect of tariff. This a d e portion of receipts enables producers to cover their marginal costs on the larger output. 3. Revenue effect Tariffs which are not totally prohibitive certainly bring some revenue to the state. Usually, the government collects customers revenue equal to the duty multiplied by the volume of imports. Increase in the total revenue of the government due to imposition of tariff is called the revenue effect. In the above figure, if import duty is fixed at P 1P3 which is extremely high and prohibits imports, it has zero revenue effect. But if it is reasonably put like P 1P2, then the imports would be M2M3. Thus, revenue effect may be measured by the rectangular area a b c d. 4. Transfer or redistribution effect After the imposition of a tariff, domestic prices will rise; hence receipts of producers will increase, while consumers surplus to that extent declines. This is called transfer effect or redistribution effect. Thus the increase in receipts which is in excess of marginal costs is an to the producers, which is derived by subtraction from consumers surplus. In the above figure, with the rise in domestic price by P 1 P2 and expansion in the sale of domestic output of X upto OM2, producers additional revenue increases by P1P2 a d, out of which the area a d e is to be deducted to meet the increase in costs of increased output. Hence, the area P1P2 a e is the net excess earnings remaining with the producers. It may be described as redistribution effect. 5. Consumption effect A tariff generally reduces the total consumption of a commodity because of the rise in its price. Decrease in the total consumption of a commodity in the importing country due to imposition of tariff is called the consumption effect.
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In the above figure, the consumption effect of the tariff is the reduction in total consumption by M3M4. Thus, there is a loss in consumers satisfaction shown by the difference between the possible total utility of larger quantity at a lower price, and the actual total quantity brought at a higher price after tariff. It is the real cost of tariff out of the gross loss in consumers satisfaction, the revenue received by the state and transferred to producer should be deducted to find the societys net loss in consumer satisfaction as a result of tariff. This net loss is represented by the area a d e and b c f in the diagram. 6. Terms of trade effect The imposition of a tariff may serve to improve a countrys terms of trade (i.e, the amount of imports it receives in exchange for a given quantity of exports). Thus the tariff can do easily when the foreign demand for the exports of the tariff imposing country is both large and inelastic. In such a situation, the effect of tariff is to reduce imports to some extent, thereby making it difficult for foreigners to earn (through their exports to this country) for their imports from the country. 7. Balance of payments effects When a tariff affects the volume of imports and prices, it also affects the countrys balance of payments position. A country having a deficit balance of payments position can restore and maintain equilibrium by means of tariff restrictions upon imports. Tariffs restrict imports through price rise and contraction in demand, and may lead to improvement in terms of trade also under appropriate circumstances, which helps in bringing about a balance of merchandise accounts. 8. Income and employment effect The imposition of tariff would lead to expansion of employment and incomes. This is called as the income and employment effect. By reducing imports, tariffs stimulate employment and output in the import-competing industries. A new flow of income will be generated with its multiplier effect. In an expanding economy, more capital goods investment will also be made which produces acceleration effect. Thus under conditions of less than full employment, the interaction of multiplier-accelerator will lead to a cumulative expansion of investment, employment, output and income in the country. Another possible impact of tariffs is that the imposition of tariff duties may attract foreign capital in the country concerned, when they find that they may lose market for their products in the country due to contraction of import demand and expansion of home industries under the protective effects of tariffs. 3. NON TARIFF BARRIERS Reduction in NTBs was one of the principles and also the objectives of the GATT. In late 1970s and during 1980s due to slowing down of economic growth of industrial economies, each country by using the loopholes in the GATT provisions restricted
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imports from other advanced countries as well as from the developing countries specially of those products which disturbed the domestic market. Policy of protectionism was adopted by many countries by imposing NTBs. They have been imposed in the form of quotas, voluntary export restraints and many other forms, which are disc used below: Quotas: These typically specify the maximum quantity of a product that can be imported from a particular country over a specific period. The most famous example of a quota system is the multi-fibre-agreement ( MFA) under which the executive council allots to each of the major textile producers( India, China, Malaysia, Korea etc.) a specific limit for each textile product. With a quota, prices in the home market are higher than they otherwise would be-so that the effect is similar to a tariff but less transparent and does not generate any revenue for the home government. Because of their lack of transparency they are likely to create more distortion than tariffs; hence the WTO has emphasized their phased but rapid dismantling. 1. Voluntary export restraints: Advanced countries have attempted to restrict imports whenever their domestic industries are threatened. Such a threat arises when the home industries fail to adjust themselves to face the competition from the industries abroad. The automobile industry agreement between the USA and Japan is an example of such a problem. The Japan announced voluntary restriction on its exports in order to avoid restrictive legislation by the USA government. Unfortunately the so called voluntary restraints are not voluntary at all. 2. Anti-dumping and countervailing duties : A number of countries both developed and developing have resorted to anti-dumping and countervailing duties whenever their domestic industries are threatened by other countries. WTO has provisions for antidumping measures which could be introduced in a more restrictive situation and with rigid tests to prove the dumping. 3. Subsidies: An alternative form of protection is to subsidize domestic producers. 2 types of subsidies may be distinguished. A). those which focus upon the industry in general (e.g. cheap credit, tax incentives and direct subsidies.). B). those which focus upon the export activity of the industry (export credit, shipment credit, loan guarantees etc.). Unlike tariffs which generate revenues for the government, subsidies involve expenditure for the exchequer. C) Regulatory Barriers: In recent years several new forms of protectionism have emerged. These can generally take 3 forms. i. Specifying standards for certain products, so that the products do not harm the health of domestic consumers' standard example pertaining to leather products and pharmaceuticals.
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ii. iii.

Specifying standards for certain products, so that the domestic environment is not damaged. For e.g. pollution standards for imported cars. Specifying conditions under which certain products are produced. For e.g. child labour in the carpets and clothing industry.

While very often these standards are levied with genuine considerations about the health of the domestic consumers or general welfare concerns, there is the very genuine possibility that some times these regulatory barriers may be intentionally used to limit imports. 4. EFFECTS OF TARIFF AND NON-TARIFF BARRIERS ON DEVELOPING COUNTRIES Trade policies under the GATT and subsequently under the WTO was tilted against the developing countries. Tariffs imposed by the advanced countries though over a period of time were reduced substantially, yet the effective tariffs remained very high. This has discouraged the industrialization of developing countries. The developing countries could not reap the benefit of their changing comparative advantage as the rich countries adopted a number of non-tariff barriers to restrict the entries of manufacturers from the developing nations. Voluntary export restraints were imposed wherever the advanced countries felt threatened with developing countries exports. Many labour intensive goods which are favourable to developing countries were restricted under the clause of social dumping. Subsidies granted to the domestic industries in developed countries made the developing countries less or noncompetitive in the international market. The highly protected European agriculture under the common agriculture policy made the developing countries non-competitive in primary and agricultural products. All the provisions of TRIMS, TRIPS, GATS make the developing countries more and more open economies and force them to compete in the global economy. Developing countries are worried about their ability to compete in the global market.

The world economic order under GATT and subsequently under WTO according to the developing countries is tilted against them. In spite of the safeguards provided, the developing countries feel their domestic industries will not have the required protection. A sudden change in international economic environment under WTO makes the developing countries feel unprepared to meet the new challenge. Earlier under GATT it was a case of not securing enough access to the markets of advanced countries. Now it is throwing them in the open to meet the challenge of competition. The developing countries are required to strike balance of safe guard their economies from the new threats and also at the same time to preparing themselves to face the challenges. 7

5.

MISCELLANEOUS PROTECTION TECHNOLOGIES A. DUMPING

Meaning of Dumping: Dumping, in economic terms, is when a country lowers the sales price of one of its exports for the express purpose of gaining unfair market share in that industry in another country. The exporter usually lowers the price below what it would sell for at home, and sometimes even below its actual cost to produce. The main advantage of dumping is being able to sell at this unfairly competitive lower price. Generally a country will have to give the exporting businesses a huge subsidy to enable them to sell the export below cost. The country is willing to take a loss on the product to increase its comparable advantage in that industry. It may do this because it wants to create jobs for its residents. It often uses dumping as an attack on the other country's industry, in the hopes of putting that country's producers out of business, and dominating that industry. The main disadvantage of dumping is that it's very expensive to maintain. It can take years for dumping to work. Meanwhile, the cost of subsidies can add to the export country's sovereign debt. The second disadvantage is retaliation by the trade partner. This can lead to trade restrictions and tariffs. The third is censure by international trade organizations, such as the World Trade Organization (WTO) or the European Union (EU). Social dumping A domestic country imports goods with lower cost from the foreign countries where there are low-standard labour legislations. The domestic country gains a competitive advantage by selling goods with lower cost in domestic market. The proliferation of social dumping over the world has made known to public long time ago. Here are two examples to illustrate facts resulted from minimizing the cost of products imported: Nike, the most famous sports shoe company in the world, sells millions of shoes and clothes every year. However, Nike does not produce products by itself. The company made contracts with manufacturing bases in almost every country in the world. Amongst these foreign countries, Indonesia, China and Vietnam are major places from where Nike products are made. The reason why Nike focuses on these countries is that these countries got poorly forced labour legislation and much cheaper labour. However, ethical problem became severe when there were a lot violation of human rights and labour legislations. The company was accused of abusing foreign employees through its contractors, the employers in its manufacturing bases. Employees strongly required the fair treatment for their dignity and lives. Facing these accusations, Nike said it was not the employer of these foreign companies, they just import products. However, Nike made contracts with foreign companies so those companies actually work for Nike. Nike is the real employer by nature. Another case of social dumping is child labour. Apart from being accuse of low wages and poor health and safe circumstance, GAP, a popular apparel company, was also accused of using child labour in many countries like Bangladesh, Indonesia and Mexico. The disclosure of the sweatshop by Observer has become a social scandal of GAP. Many young children 8

who are as young as 10 work like slaves in terrible circumstance in the factories in India. It has been released that many Indian children were bought from their families and work like 16 hours even without paid in the beginning. In terms of the working conditions, kids handcraft products with very simple tools and the working circumstance was dirty, unsafe. As for living conditions, what employers provided them was dirty and crowded dormitory. Confront with social accusation, the company was saying that it would not use childlabour to produce any more garments; all the contractors will be required not to have children in the factories. However, it is impossible for the company to give up numerous contracts in countries like India and china, where there are weak protective legislations for child labour. Impact of dumping Negative aspects of dumping From the cases above, it can be seen that social dumping is concerned with the human rights and the labour problems. The reason why there is social dumping is the difference of labour standards between the importing country and the exporting country, which causes the difference of labour costs in these two countries. For example, in Asian countries like India, the labour legislations are relatively weak; employers take it granted to make people work overtime and hire young kids. These people do not know how to struggle for their own rights and a large surplus of labour makes the labour cost lower than that in other countries. Though the lower cost makes the exporting countries products competitive in the global market, the profit has been earned at the cost of individuals wellbeing, social stability and development of the relative industries. 1. Employees in exporting countries : The unfair situation that the workers in the exporting countries are confronted with has become one of the most severe ethical issues. It is unethical for employers to take advantage of workers weak awareness of their own rights and poorly forced law. The ethical issue was mainly arisen in three aspects: 1) Low payment: Employees cannot afford the basic needs due to the low payment, not to mention the fact that they cannot afford the education for themselves and their kids. Social dumping obviously has jeopardized the benefits of the large population of the workers and their families in terms of quality of life and education. 2) Bad working conditions: The harmful chemicals and the mechanical injuries accidents make workers situation really tough. It is immoral and evil for the employers to make money at the price of employees lives and abandon the workers who lost their working capacity due to the severe health problem. It is the antipode of virtue that the company saves the money from using the old and damaged equipment and providing no welfare like health insurance and annual leave to the staff. 3) Overtime working: It is unethical to force workers to work for extra hours because when their bodies and minds are exhausted. They may have frequently faints, sudden death, and commitment of suicide or run away from work. It seems that female workers were treated even worse because they had to face the gender discrimination in work. 2. Child labour in exporting countries : Child labour caused many other ethical issues in the society. A lot unethical things like impoverished family sell its kids to factory as bonded
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labour, manager in manufacturing factories assault kids badly happened often. It is unethical for companies to abuse children for gaining competitive advantages (low cost of commodities) in global market. It is a violation of virtues that companies in importing country sell the products which are at the price of childrens chance to go to school and good health. From exporting countries point, it is also immoral for the customers in the importing countries to get the products made with children sweat and blood at a cheap price. 3. Industry and environment in exporting country : To achieve the low price of the products, companies try to minimize the cost of production through avoiding expenditure of new equipment. Though with the large population, the productive forces level is low, and the working equipment is simple in exporting countries. It is unethical for company to use poorquality equipment because it led to inefficient production. Inefficient production is one of the reasons why employees had to work overtime and got health problems. Inefficient production not only led to the waste of human resource but also the natural resource. Environment was heavily polluted and natural resources were overly consumed due to the incorrect ways of productions. 4. Government in exporting countries : With the huge amount of exporting products, the export tax rebates is huge. Though it is good for making the cost of goods lower, lower cost of products wins the bonded labour, manager in manufacturing factories assault kids badly happened often. It is unethical for companies to abuse children for gaining competitive advantages (low cost of commodities) in global market. It is a violation of virtues that companies in importing country sell the products which are at the price of childrens chance to go to school and good health. From exporting countries point, it is also immoral for the customers in the importing countries to get the products made with children sweat and blood at a cheap price. 5. Industry and environment in exporting country : To achieve the low price of the products, companies try to minimize the cost of production through avoiding expenditure of new equipment. Though with the large population, the productive forces level is low, and the working equipment is simple in exporting countries. It is unethical for company to use poorquality equipment because it led to inefficient production. Inefficient production is one of the reasons why employees had to work overtime and got health problems. Inefficient production not only led to the waste of human resource but also the natural resource. Environment was heavily polluted and natural resources were overly consumed due to the incorrect ways of productions. Therefore, people in exporting countries have to face the stress of limited resources. It is unfair for the exporting countries to export the cheap products at the huge cost of natural resource and environment. More specifically, importing countries transference of natural resource consumption and environmental pollution to exporting countries is unfair and unethical. 6. Government in exporting countries : With the huge amount of exporting products, the export tax rebates is huge. Though it is good for making the cost of goods lower, lower cost of products wins the competitive advantages for the exporting countries in the international trades.

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However, it is unethical for government to practice export tax rebates because tax is used for improve the whole countrys wellbeing by building up the public facilities, constructing loads, investing funds in national market, founding public organizations for helping kids and females. Therefore the huge outflow of tax jeopardizes citizens benefits in exporting countries. 7. Employees in importing countries : Employees in the importing countries also are facing the tough situation. It is unethical for the national company to set the manufacturing bases overseas because local people have fewer opportunities to get jobs. As the company can cost less by importing cheap products instead of manufacturing locally, foreign employees are preferred. Therefore local employees welfare goes down because the demand of local labour declines. It is unfair for the local people to lose jobs and be confronted with more stressed situation because of unfair overseas competitiveness. It is also unethical for local suppliers to decline the labour standards because other companies in the same industry got unfair competitive advantage of low cost. 8.Shareholders of the company in importing countries: Though the social dumping may bring huge profit to the company in the short run, it may lead to the end of business to company in the long run due to the terrible social reputation. A company social reputation is very important to the development of company and stands for the quality of products in certain extent. Customers do not buy the products from the company which is not reliable and criticized a lot in the public. It can be easily told that shareholders would get more dividends from long-term operation. Therefore, it is unethical for the company to only focus on short-run profit and harm the shareholders benefits from the long term. Positive aspects of dumping However, some people recognize that social dumping is beneficial to a certain group and it is just one of the business strategies. In terms of business strategy, it is unavoidable to have side effects when the main goals are achieved. It is business ethics that Companies should always obey when they set goals for the best interest of customers and shareholders. Thus, it is ethical from the standpoint of the company to maximize its shareholders and customers benefits by practicing social dumping. 1. Company in importing country: Through selling products which are with lower prices, company gains competitive advantage in the domestic market. It is obviously good for the company which practices social dumping. It can still win the huge profit and be more competitive than its competitors in terms of price. Making huge profit is in this way is ethical for the employer because employer is responsible for his company to gain the capital that is useful for the company to expand its market and increase its market shares. 2. Shareholders in importing country : As for shareholders, they are better off when the company runs well. It is ethical for them to get more dividends since they made investment in the business. What is more, it did not violate ethics when the company wins a huge profit, which encourages more customers to buy shares in that company. From staffs point, it would always be ethical for the whole company to get larger investment for its business and more customers. Apart from the different standpoints above, attracting more people to buy shares in that company also develop the economy in the local stock market, that is, it is ethical for the sake of the stock market. 11

3. Customers in importing country : There is another group would not feel guilty of social dumping. It is the group of customers in the importers country. Because there is nothing wrong for customers to get commodities with their own money. For them, it is just a normal transaction. They would definitely be very happy when getting a pair of handcrafted gloves at low price. At the same time, they might wonder how the gloves could be that cheap. However, they would not think that much about social dumping. 4. Industry in importing country : Last good point for the domestic industry might be that the fierce competition result from social dumping requires more advanced technology and human resource management. In other words, it is good for other domestic companies and employees to get more motivations from the competition and make their best effort to survive in the industry, hence make the whole industry more efficient and productive. From this point, social dumping is not unethical for the development of national industry. 5. Employment in exporting country: When considering the situation in exporters country, we might find that there is huge increase in the job positions. It should be considered ethical to help impoverished people get jobs. Another thing, for people who want experience, it is ethical for them to get more chances of work. An event should be considered ethical when it improves a group of peoples lives in certain extent and makes people motivated. 6. Government and investment in exporting country : There is a reason why many governments in exporters countries made lax legislations. Because trade goods with relatively low costs make the exporter countries have a competitive advantage in the international trade. Anti-dumping A country prevents dumping through trade agreements. If both trade partners stick to the agreement, then they can compete fairly and avoid dumping. However, violations of the dumping rules can be difficult to prove and expensive to enforce. Unfortunately, trade agreements don't prevent dumping with countries outside of the agreements. Therefore, more extreme measures must be taken. Anti-dumping duties or tariffs remove the main advantage of dumping. A country can add an extra duty, or tax, on imports of goods that it considers to be involved in dumping. However, if that country is a member of the WTO or EU, it must prove that dumping existed before slapping on the duties. These organizations want to make sure that countries don't use antidumping tariffs as a way to sneak in good old-fashioned trade protectionism. The Role of the World Trade Organization in Anti-dumping Most countries are members of the World Trade Organization. Member countries adhere to the GATT multi-lateral trade agreement. Countries agree that they won't dump, and that they won't enforce tariffs on any one industry or country. Therefore, to install an anti-dumping tariff, WTO members must prove that dumping has occurred. The WTO is very specific in its definition of dumping. First, a country must prove that its local industry has been harmed by dumping. It must also show that the price of the dumped import is much lower than the exporter's domestic price. The WTO gives three ways to calculate this price:
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1. 2. 3.

The price in the exporters domestic market. The price charged by the exporter in another country. A calculation based on the exporters production costs, other expenses and normal profit margins.

The disputing country must also be able to demonstrate what the normal price should be. When all these have been put in place, then the disputing country can institute anti-dumping tariffs without violating the GATT multi-lateral trade agreement. (Source: WTO, Antidumping, subsidies, safeguards: contingencies, etc.) The EU and Anti-Dumping The EU enforces anti-dumping measures through its economic arm, the European Commission (EC). If a member country complains about dumping by a non-member country to the EU, then the EC conducts a 15-month investigation. Like the WTO, the EC must find that material harm has occurred to the industry. Unlike the WTO, the EC doesn't specifically define dumping by using a formula to determine that the price is lower than in the exporter's market. In addition, the EC must find two other conditions must be met before it imposes duties: 1. 2. Dumping is the cause of the material harm. Sanctions don't violate the best interests of the EU as a whole.

If found guilty, the exporter can offer to remedy the situation by agreeing to sell at a minimum price. If the EC doesn't accept the offer, it can impose anti-dumping duties. These can be in the form of an ad valorem tax, a product-specific duty, or it can impose its own minimum price. Examples: China has been suspected of dumping shrimp into the U.S. market to dominate this industry. B.SUBSIDIES Meaning and definition The most basic form of a subsidy, and the one that still defines a subsidy in some dictionaries, is a cash payment or grant. Although few grants are paid out in currency any more (most are paid via cheque or bank transfer), it is still common to refer to them as "cash" grants, payments or subsidies. Normally, a grant refers to a time-limited payment, either in connection with a specific investment, or to enable an individual, company or organization to cover some or all of its general costs, or costs of undertaking a specific activity, such as research. Other direct payments may be linked to the volume of production or sales. In previous centuries, and still in Australia, these types of subsidies were called bounties.

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They are far from archaic, however. In some states of the United States, for example, companies producing liquid biofuels receive direct subsidies for every gallon of ethanol they produce. Cash payments to producers are also sometimes linked to prices. The main form is a deficiency payment, which makes up the difference between a target price for a good (typically an agricultural commodity) and the actual price received in the market. Various cash subsidies are paid to workers. Canada, for example, provides targeted wage subsidies to assist individuals to prepare for, obtain and maintain employment. Many countries provide grants in order to encourage people who are out of work to undergo training in new skills. Consumers also benefit from direct payments or vouchers, particularly for the purchase of necessities, like food, medicine or heating fuels. Alternatively, a government may regulate the consumer price for a good or service, and instead pay a subsidy to the supplier of that good or service, to cover its losses. Export subsidies are direct payments or the granting of tax relief and I subsidized loans to a nation's exporters or' low interest loans to foreign buyers I so as to stimulate the nation's exports. Export subsidies can be regarded as a form of dumping. In spite of the fact that export subsidies are illegal by international agreement, many nations provide them in disguised or undisguised forms. . . Many developed Countries give low interest loans to exporters A very obvious example of this is the low interest loans provided by the US Export Import Bank. It was found that countries like Japan, France and Germany have been extending loans at very concessional rates. This became one of the most serious trade complaints which U.S. had against the other industrialized nations. The amount of subsidy can be measured by the difference between the interest rate that would have been paid on a commercial loan and what is in fact paid at the subsidized rate the Unites States provided $1 billion by way of subsidies in 1996 and the amount given out by countries like Japan, France and Germany Amounted to 3 times more than that of U.S. A subsidy is assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributed as subventions in an industry to prevent the. decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labour (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production. Subsidy has been used by economists with different meanings and connotations in different contexts. Subsidies are often regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.

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Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals, or nongovernmental institutions. Examples of industries or sectors where' subsidies are often found include utilities, gasoline in the United States, welfare, farm subsidies, and (in some countries) certain aspects of student loans. Government helps to exporters, generally in two forms : a) Service subsidy: trade information, trade shows, feasibility studies, foreign representation, etc. b) Cash subsidy: i) rebate on imported raw materials and duty-free import of manufacturing equipment (called indirect cash subsidy); or ii) draw-back as a percentage of the value of exports (called direct cash subsidy). Although World trade Organization (WTO, formerly GATT) recognizes that subsidies hinder fair competition and distort trade practices, it has not been able to define precisely what kind of assistance constitutes a subsidy. Types of subsidies There are many different ways to classify subsidies, such as the reason behind them, the recipients of the subsidy, the source of the funds (government, consumer, general tax revenues, etc.). In economics, one of the primary ways to classify subsidies is the means of distributing the subsidy. In other cases, a subsidy may be an efficient means of correcting a market failure. For example; economic analysis may suggest that direct subsidies (cash benefits) would be more efficient than indirect subsidies (such as trade barriers); this does not necessarily imply that direct subsidies are bad, but they may be more efficient or effective than other mechanisms to achieve the same (or better) results. In so far as they are inefficient, however, subsidies would generally be considered by economists to be bad, as economics is the study of efficient use of limited resources. .Ultimately, however, the choice to enact a subsidy is a political choice. Note that subsidies are linked to the concept of economic transfers from one group to another. Another form of subsidy is due to the practice of a government guaranteeing a lender payment if a particular borrower defaults. This occurs in the United States, for example, in certain airline industry loans, in most student loans, in small business administration loans.A government guarantee of payment lowers the risk of the loan for a lender, and since interest rates are primarily based on risk, the interest rate for the borrower lowers as well Effects of subsidies In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases the production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price. Both cases result in a new economic equilibrium.
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Therefore it is essential to consider elasticity when estimating the total costs of a planned subsidy: it equals the subsidy per unit (difference between market price and subsidized price) times the new equilibrium quantity. One category of goods suffers less from this effect : Public goods are-once created-in ample supply and the total costs of subsidies remain constant regardless of the number of consumers; depending on the form of the subsidy, however, the number of producers on demanding their share of benefits may still rise and drive costs up. The recipient of the subsidy may need to be distinguished from the beneficiary of the subsidy, and this, analysis will depend on elasticity of supply and demand' as well as other factors. C.INTERNATIONAL CARTELS Meaning An international cartel is an organization of suppliers of a commodity located in different nations (or a group of governments) that agrees to restrict output and exports of the commodity with the aim of maximizing or increasing the total profits of the organization. Although domestic cartels are illegal in the United States and restricted in Europe, the power of international cartels cannot easily be countered because they do not fall under the jurisdiction of anyone nation. An international cartel is a group of producers in the same industry located in different countries which agrees to limit competition and to regulate the production and sales in order to earn high profits. According to Kind1eberger, "Cartels are international business agreements to regulate price division of markets or other aspects of enterprises . They mare agreements to restrict selling competition." The most infamous of present-'day international cartels is OPEC (Organisation of Petroleum Exporting Countries), which by restricting production and exports, succeeded in quadrupling the price of crude oil between 1973 and 1974. Another example is the International Air Transport Association, a cartel of major international airlines that meets annually to set international air fares and policies.An international cartel is more likely to be successful if there are only a few international suppliers of an essential commodity for which there are no close substitutes. Since the power of a cartel lies in its ability to restrict output and exports, there is an incentive for anyone supplier to remain outside the cartel or to "cheat" on it by unrestricted sales at slightly below the cartel price. There have been many international cartels in such goods and services as sugar, coffee, steel, bauxite, tobacco, diamond, oil, air and rail services, but it is only OPEC (Organisation of Oil Exporting Countries) which. has been successful.

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The reasons for forming an international cartel are: First, cut-throat competition among producers of a world-traded commodity Second, the fear of fall in world prices in the event of production of the commodity exceeding current demand. Third, to have monopoly control in order to earn higher profits Objectives of International Cartels International cartels aim at : (a) to fix the world price of the commodity above the competitive price; (b) to earn high monopoly profits; (c) to restrict production and supply of the commodity as per the quota allocation to each member; (d) to allocate a specific territory to each member for the supply of the commodity in order to avoid competition; (e) to decide about the quality of the commodity; (f) to control technological research and development of the commodity; and (g) to adopt other measures to limit or alleviate competitive pressure among members. Conditions for the Success of Cartels The following conditions are necessary for the success of a cartel : i) The world market for the commodity. has a few large suppliers. ii) The commodity is produced on a large scale by members so that the cartel controls a major portion of the total supply. iii) The price elasticity of world demand for the commodity is low. iv) The commodity does not have any close substitutes. v) The cartel members follow the cartel price and the output quota allotted to them. Merits of cartels: The following arguments are usually given in support of the formation of international cartels: i) Stable Prices : International cartels .encourage members to produce on a large scale and thus help in stabilizing the prices of commodities. ii) Eliminate Cut-Throat Competition : The formation of a cartel eliminates cut-throat competition an~ price-war among producers of a commodity. iii) Low Tariffs : International cartel for a commodity can force an importing country to lower or remo.ve tariffs on it. This will tend to maximize world welfare. iv) Saving in Advertisement. Expenditure : With the formation of a cartel, there is little need for advertising its product in the world markets because the purchasing countries know about the suppliers. Thus there is saving in advertisement expenses. v) No Excess Capacity: In a cartel, each producer of the commodity is allocated a fixed quota of the commodity to be produced in keeping with the world demand for it. There is no excess capacity and waste of production under a cartel. I vi) Providing Technical Knowhow : International cartels provide their members with the most up to date and cost-saving technical knowhow for the production of goods. This helps in reducing costs and improving the products.
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vii) Promote Interactional Co-operation : International cartels are based on mutual agreements among producers of goods. Thus they are instruments of economic co-operation among nations. Demerits of cartels: However, the majority of economists do not favour the formation of international cartels for the following reasons: i) Restrict Output: International cartels deliberately restrict the output of cartelized goods so as to charge higher prices from the importing countries. This, is due to the absence of competition. ii) Inferior Commodity: In the absence of competition, the cartel often produces and supplies an inferior commodity. iii) Misallocation of Resources : In view of lack of competition, international cartels lead to underutilization and misallocation of the world's resources when they restrict output and follow the system of production quotas. iv) Do not Reduce Tariffs: International cartels do not help in reducing or removing tariffs, as is generally argued. As pointed out by Haberler, "they are not a suitable instrument for demolishing tariff walls within any measurable time. Many of the present international cartels owe their own existence to tariffs. They are therefore scarcely adopted for destroying tariffs. v) Short-Lived: Cartels are usually short-lived because of the mutual distrust,' threatening attitude of large producer-member~ and bargaining resorted to by them. Thus cartels tend to be unstable. D. INTERNATIONAL COMMODITY AGREEMENTS Introduction: International commodity market has been facing problems of fluctuating prices putting either producers or suppliers at a disadvantage. Developing countries which export primary commodities usually complain about adverse tcrm of trade. However there are cases, like that of petroleum products exported by OPEC members charging high prices. To mitigate fluctuating prices, producers and at times both producers and consumers (importers) entered into agreements. Meaning: Commodity agreements are international agreements designed to stabilise commodity prices in the interest of producers and- consumers. They can include mechanisms to influence market prices by adjusting export quotas and production when market prices reach certain trigger price levels. They sometimes employ buffer stocks which release stocks of commodities onto the market when prices rise to a certain level and build them up when they fall. The term "international commodity agreement" (ICA) refers to a treaty agreement between governments of both producing and consuming countries to regulate the terms of international trade in a specified commodity. An international commodity agreement is an undertaking by a group of countries to stabilize trade, supplies, and prices of a commodity for the benefit of participating countries. An agreement usually involves a consensus on quantities traded, prices, and stock management.
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A number of international commodity agreements serve solely as forums for information exchange, analysis, and policy discussion. Following are some of the commodity agreements entered in : I. Wheat Agreement: It was signed in 1949 and was revised or extended in 1953,1956, 1959 and 1962. It was replaced in 1967 in the form of Wheat Trade Convention. Subsequently it was revived in 1971. It was an agreement signed between a wheat exporting and wheat importing country with objective of stabilising price: The International Tin Agreement, 1954 : This agreement was a mixture of a buffer stock and export control arrangement. It was not much of a successful agreement and finally dissolved in 1990. The International Coffee Agreement : It was established in 1963, with an export quota system. The agreement was revived five times. The agreement was not much of a success due to differences in interest between large and small producers and between producers and consumers. The International Cocoa Agreement: It was signed in 1973. It involved buffer stock arrangement. The agreement was periodically extended till 1992. It could not operate successfully as it was unable to increase prices. International Natural Rnbber Agreement: It was the tirst agreement under the UNCT AD integrated programme. It was fairly. successful in maintaining prices The International Sugar Agreement, 1954: It was by and large an unsuccessful one. According to many economists, sugar producers would have been better off under free market without any agreement

II. III.

IV. V. VI.

Limitations of Commodity Agreements: Most of the commodity agreements except the cartel formed by OPEC were not very effective. Some of them did not last long. The reasons for unsuccessful functioning are : Non-inclusion of all the producers. Failure to fix appropriate price. Attempt to have a complete price stabilization which was neither possible nor desirable. Failure to have an effective management of buffer stock.

Commodity agreements aims at stabilisation of price, hence it naturally requires to hold buffer stocks. It enables to control the world price of a commodity in question. The buffer stock operation requires holding stock of the commodity and also the stock of money. Buffer stock requires to purchase the commodity when price is Iowan sell it when price is high. Here, unlike the private stockholder the intention is to stabilise the prices and also earn reasonable profit. There is also a large number of "study group" style agreements whose functions are information collection and dissemination, market promotion and, in certain cases, the fostering of research and development. With the ending of international commodity control, where they have survived, the previously active agreements have taken on this form and a market for manufacturer of advanced countries.

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MODULE-2 ECONOMICS OF INTEGRATION A. Meaning and Types of Integration What is meant by economic integration? What are its forms? March 2009 The term economic integration has been in different ways : Timbergen defines economic integration as, the creation of most desirable structure of international economy, removing artificial hindrances to the optimum operation and introducing deliberately all desirable elements of coordination and unification. Types or forms of economic integration: There are five important types of economic integration they are: 1) Preferential Trading agreement Free trade area Customs Union Common market Economic Union Preferential trading agreement: It is the loosest form of economic integration. Under this, a group of countries have a formal agreement to allow each others goods to be traded on preferential However, the member countries retain their original tariffs against the outside world. A good example of this type is common wealth preference system (1932) between Great Britain and its associate nations. Free trade area: This allows for tariff-free trade, a complete removal of tariffs on goods traded between the members of the free trade area. The member countries are free to levy their own tariffs on imports of countries other than in free trade area (for example NAFTA). Sometimes, a free trade area is formed only for certain classes of goods, such as an agricultural free trade area. An important problem faced by free trade areas is that goods from outside the area may enter, a high-duty member through a low-duty member country and thus avoid the high import duty. Customs Union: A customs union is a mixture of both free-trade area and an agreement to establish common barriers to trade with the rest of the world. Since they have a common tariff against the outside world, the members need neither customs control on goods moving among themselves nor rules of origin. A good example of customs unions is the European community which was formed by the Treaty of Rome in 1857. Common market: The important features of common market are : a) It has free movement of all factors of production (labour and capital) among the common market countries.
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2)

3)

4)

b) The countries under common market, abolish all trade restrictions on their mutual trade. c) It establishes a common external tariff, as a customs union. Common markets are advantageous as they attract FDIs, allow large scale production and improve efficiency of member nations. 5) Economic Union: An economic union is the most complete form of economic integration between countries. It involves a common market and also the harmonization of economic policies. The coordination of economic policy requires a high-level of cooperation between the member governments, central banks and other institutions. The member countries in the economic union function as a single economy. The European Union provides the best example. Economic integration can thus be viewed as a spectrum. At one extreme-we can envision a truly global economy in which all countries share a common currency and agree to a free flow of goods, services and factors of production. At the other extremes there would be a number of closed economies, each independent and selfsufficient. The various integrative agreements in effect today, lie along the middle of this spectrum. The important differences and similarities among the last four types of economic integration can be shown with the help of following table: Important features of Integration Abolition of Common Free movement Unification tariffs barriers of trade of factors of economic among for the rest of among policies members the world members YES NO NO NO YES YES NO NO YES YES YES NO YES YES YES YES

Type of Integration Free trade area Customs Union Common market Economic Union

B. ARGUMENTS IN SUPPORT and AGAINSTOF ECONOMIC INTEGRATION (Advantages & Disadvantages) Advantages The important arguments surrounding economic integration are discussed below. 1. Trade Creation: The Economic integration tends to increase competition among the member countries and this represents a movement towards free trade. This, may improve resource allocation and welfare, depending upon the respective strengths of trade creation Trade creation occurs when some domestic production in a country that is a member of the customs union (or an economic integration) is replaced by lower-cost imports from another member country. This increases the welfare of member countries because it leads to greater specialization in production based on competitive advantage. 21

2.

Production Effects: The formation of a customs union (economic integration) causes some products that were formerly produced domestically to be imported from other member country due to the elimination of tariffs. In this case, the shift in production is from a higher-cost domestic producer to a lower-cost producer of a member country. Consumption Effects: Formation of customs union leads to increase in consumption. Trade creating economic integration increases specialization in production and welfare in the member countries. It also increases the welfare of non-members, since some of the increase in real income of member countries spills over into increased imports from the rest of the world. On the other hand, a trade diverting economic integration leads to both trade creation and trade diversion and may increase or decrease welfare, depending on the relative strength of these two opposing forces. Increased competition: Economic integration is likely to result in increased competition. As trade barriers are eliminated the market expands and the number of potential competitors increases. Inefficient firms must either become efficient or close down. The increased level of competition is also likely to stimulate the development and utilization of new technology. This creates a stimulus conducive to managerial efficiency and technology improvements. This creates an environment for faster economic growth.

3.

4.

5.

Economies of scale: Formation of customs union leads to expansion of the size of the market, increase in competition and greater degree of specialization. Firms will be able to exploit internal and external economics. Technical change: Increased competition and expansion of the market encourage research and development, innovation and technical change. Economic integration will be conducive to technological improvement since large scale economies can be reaped. Investment: The formation of customs union may stimulate investment. The increase in competition and technical change leads to additional investment, which is necessary to take advantage of the newly created opportunities. Economic Growth: Increased competition, technical changes, economies of scale and increased investment may lead to increase in income and employment among the member countries of the union. This may lead to higher economic growth which could be sustained with continuing changes in business expectations, higher investment and new production technique in the union countries. Better Utilization of Resources: In a common market, the free movement of labour and capital is likely to result in better utilization of the economic resources of the entire community.

6.

7.

8.

9.

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Disadvantages 1. Unhealthy competition: Economic integration tends to provide relatively more protection against trade and competition from the rest of the world and this represents a movement towards greater protection. This will provide undue advantage to the member countries and disadvantage to the non-member countries. This may worsen resource allocation and welfare, depending upon the respective strengths of trading countries Trade diversion; Trade diversion occurs when lower-cost imports from outside the customs union (or economic integration) are replaced by higher cost imports from a union member. This results from the preferential trade treatment given to member countries. This will be an injustice to the low cost non-member country.. Against global interest: The formation of a customs union (or economic integration) causes some products that were formerly imported from a lowest cost producer in a foreign country to be shifted to a higher cost producer of a member country. This results in trade diversion. Trade diversion worsens the international allocation of resources and it works against the global interest. Negative impact on political relations; The economic integration will work against the international peace and harmony. There is a possibility og conflict among the various international associations. Here trade may lead to political rivalry among various countries. Wastage of resources; Another negative outcome of economic integration can be wastage of resources. The economic integration always beneficial to the member country even though that country is cost ineffective. This will lead to wastage of resources in the cost effective countries due lack of demand. Un ethical control over World economy; The economic integration will provide unwarranted benefits to the stronger association they may use this power to dominate the international agencies like UNO ,IMF or WTO.

2.

3.

4.

5.

6.

Thus economic integration may provide both positive and negative benefits to the member countries C. EUROPEAN UNION: Introduction: The most complete form of economic integration is Economic Union. The European Union provides the best example. In 1952The European Union (EU) started with 6 members, in 1995 it has become a union of 15 independent states based on the European communities and founded to enhance political, economic and social co-operation. On December 2007 there are 27 members in the European Union. By far it is the most successful of the regional economic integration schemes.

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Origin and growth of European Union (EU) The origin and growth of European union can be seen as below: 1952- Immediately after Second World War, France, Belglum, West Germany, Italy Luxembourg, and Nether lands formed the European Coal and Steel Company. This removed trade restrictions on coal and steel. 1957- These six countries signed the treatry of Rome and created European Economic Community (EEC) 1973 -UK, Denmark, Ireland joined the EEC .and total membership becomes 9. 1979- The first direct elections to the EuropeanParliament. 1981 -Greece joined and total membership rose to 10 1986- Spain and Portugal and membership rose to 12. EEC was then made a European Community Market (ECM) 1992- Maastricht Treaty was signed supporting single market act. 1st November 1993 European Community was known as European Union. 1995 Austria, Sweden and Finland joined EU and membership rose to 15. Jan 1999 Agreement for creating the common currency Euro for member countries making the price system much more transparent and eliminating the exchange rate risk. 2002- Euro replaced the national currencies of 12 countries. Now 15 members accepted the Euro has a common currency. 2004- Ten more countries joined total members became 25 2007- Two more countries Bulgaria and Romania became the member of European Union and the total membership became 27. 2009-The Lisbon Treaty comes into force, changing theway the EU works. Aims of European Union (EU) 1. 2. 3. 4. To establish the foundations of an ever-closer union among the European people. To establish a common market and closer economic cooperation between members. To harmonies national economic policies especially taxation and monetary policies. To achieve balanced regional development lf the economy as a whole.
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5.

To establish a common agricultural policy and a commitment to free and fair competition.

The EUs mission in the 21st century is to: 1. Maintain and build on the peace established between its member states; 2. Bring European countries together in practical cooperation; 3. Ensure that European citizens can live in security; 4. Promote economic and social solidarity; 5. Preserve European identity and diversity in globalised world; 6. Promulgate the values that Europeans share. Institutions of European Union The basic institutional structure of European Union was developed during the Treaties of Paris and Rome. Institutional system of European Union is the only one of its kind in the world. It includes following independent yet interlinked institutions. 1. Council of the European Union: It is the main decision making legislative body of European Union. It is made up of ministers from each of the member governments. The presidency of the council of Ministers rotates between member governments at sixmonthly intervals. The council meets in different compositions such as foreign affairs, finance, education, telecommunications etc. European Parliament: Members of European parliament are directly elected by citizens in their respective countries for every five years depending on their population. It exercises political supervision over all other institutions. It represents the democratic will of people of the European Union. European Commission: It is the main administrative body responsible for day-today administration of European Unions policies. It consists of commissioners nominated from member countries. It acts as the executive body, drafting authority and as a guardian of the Treaties for European Union. Court of justice: It is the highest legal authority in the European Union . It consists of one judge from each state, appointed by consensus. It ensures that community law is uniformly interpreted and effectively applied. It has jurisdiction in disputes involving member states European Union institutions, businesses & individuals etc. European Central Bank: It came into operation in 1998. It frames and implements European Unions monetary policy. Primary objective is price stability. Its other responsibilities include control over the issue of euro notes and coins, Foreign exchange operations and official reserves. Apart from these institutions, other institutions are court of Auditors, Economic and Social Committee, Committee of the Regions, European investment Bank and ombudsman.
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2.

3.

4.

5.

Important policies of European Union : The European Union acts in a wide range of policy areas where its action is beneficial to the member states. These include: Innovation policies, which bring state-of-the art technologies to fields such as environmental protection, research and development (R & D) and energy; Solidarity policies (also known as cohesion policies) in regional, agricultural and social affairs. The Union funds these policies through an annual budget which enables it to complement and add value to action taken by national governments. The EU budget is small by comparison with the collective wealth of its member states: it represents no more than 1.23 % of their combined gross national income. Some of the important policies are mentioned below: What does the EU do? 1. 2. 3. 4. 5. 6. 7. Exchange Rate Policy: That aims at exchange rate stability in Europe. Single market : It was inaugurated on January 1, 1993 in order to facilitate the free movement of people and capital Tax Policy: The policy aims at eliminating tax induced distortions of competition within European Union. Agricultural Policy: The policy aims to stabilize markets, to assume food supplies and to make food available at reasonable prices. Industrial Policy: European Union. It provides conductive environment to business development in

Competitive policy: It aims to preserve the benefits of choice, price, quality, efficiency and innovation. Transport Policy: It aims to create an integrated transport system which is safe, reliable and environmentally sustainable.

Benefits of European Union: 1. There will be gains from elimination of the transaction costs associated with Border patrols, customs procedures and so on. 2. The member countries are going to enjoy the economies of scale due to the concentration of production facilities. 3. The firms earlier with monopoly now has to face competition from the firms from other countries. This will provide benefits of competition to all the member countries among EU.
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4. The introduction of euro has benefited all the member countries. Now all the member countries of European union can enjoy the gains associated with the strong international currency. 5. The products of European Union can be freely sold across borders. In a borderless Europe; firms can have access to many more millions of consumers . 6. The free movement of factors will allow the firms to sell securities, raise capital and recruit labour throughout Europe. There can also be substantial economies of scale in production and marketing. 7. Multinational firms from non-member countries can take advantage of the new economies of scale by standardising their products and processes to exploit the new opportunities. 8. It has brought down the barriers to trade and business . The companies of the member states benefit from access to the largest single market for trade and investment in the world.

9. The economic reforms adopted by the new members increase their purchasing power and thus the demand for EU goods and services. 10. The international competitiveness of ED companies has increased. They benefit from cheaper inputs, a larger and more diverse labour market, additional opportunities for technology transfers 11. The consumer from member countries will enjoy cheaper and a wider choice of imports. 12. The creation of a wider single market has provided businesses with more export opportunities Achievements: 1. The single market is one of the European Unions greatest achievements. Restrictions on trade and free competition between member countries have gradually been eliminated, thus helping standards of living to rise. The single market has not yet become a single economy: some sectors (in particular services of general interest) are still subject to national laws. 2. Freedom to provide services is beneficial, as it stimulates economic activity. 3. The financial crisis in 2008-09 has led the EU to tighten up its financial legislation . Over the years the EU has introduced a number of policies (on transport, competition, etc.) to help ensure that as many businesses and consumers as possible benefit from opening up the single market. 4. Citizens of European Union countries can travel, live and work anywhere in the EU. 5. The EU encourages and funds programme, particularly in the fields of education and culture, to bring EU citizens closer together. A sense of belonging to the European Union will develop only gradually, as the EU achieves tangible results and explains more clearly what it is doing for people. People recognize symbols of shared European identity such as the single currency and the European flag and anthem.

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6. A European public sphere is beginning to emerge , with Europe-wide political parties. Citizens vote every five years for a new European Parliament, which then votes on the new European Commission.

Future Prospects: The solidarity between Europes peoples and nations must constantly be adapted to deal with new challenges posed by a changing world. Completion of the single market in the early 1990s was a great achievement, but it was not enough. To make the market work effectively, the euro had to be invented making its appearance in 1999. To manage the euro and ensure price stability, the European Central Bank was set up. but the financial crisis of 2008-09 and the debt crisis of 2010 showed that the euro is vulnerable to attack by global speculators. What is needed, in addition to the ECB, is coordination of national economic policies a much closer coordination than currently provided by the Euro group. So, will the EU soon be laying plans for genuinely shared economic governance. The European Union will soon have more than 30 member states, with very different histories, languages and cultures. Can such a diverse family of nations form common political public sphere? Can its citizens develop a shared sense of being European while remaining deeply attached to their country, their region and their local community? Perhaps they can, if todays member states follow the example of the very first European Community the ECSC which was born from the rubble of the Second World War. Its moral legitimacy was based on reconciliation and consolidating the peace between former enemies. It adhered to the principle that all member states, whether large or small, had equal rights and respected minorities. Will it be possible to keep pushing ahead with European integration, claiming that the EUs member states and their peoples all want the same thing? Or will EU leaders make greater use of reinforced cooperation arrangements, whereby ad hoc groups of member states can move ahead without the others in this or that direction? The multiplication of such arrangements could lead to an la carte or variable geometry Europe, with each member state free to choose whether to pursue a particular policy or to be part of a particular institution. This solution might appear attractively simple, but it would be the beginning of the end for the EU, which works by anticipating the common interests of its member states, in both the short and the long term. It is based on the concept of solidarity which means sharing the costs as well as the advantages. It means having common rules and common policies. Exemptions, derogations and opt-outs should be exceptional and of short duration. Transitional arrangements and phasing-in periods may sometimes be necessary, but unless all the member states keep to the same rules and work towards the same goals, solidarity breaks down and the advantages of being in a strong and united Europe are lost.

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 Globalisation obliges Europe to compete not only with its traditional rivals (Japan and the US) but also with fast-rising economic powers such as Brazil, China andIndia. Can it continue restricting access to its single market in order to protect its social and environmental standards? Even if it did so, there would be no escape from the harsh realities of international competition. The only solution is for Europe to become a real global player, acting in unison on the world stage and asserting its interests effectively by speaking with one voice. Progress in this direction can only be achieved by moving towards political union. At the same time, the EU needs to become more democratic. The European Parliament which has been given greater power with each new treaty is directly elected by universal suffrage every five years. But the percentage of the population actually voting in these elections varies from country to country, and the turnout is often low. The challenge for the EUs institutions and national governments is to find better ways of informing and communicating with the public Finally, Europe should punch its full weight in international affairs. One of the EUs great strengths is its ability to spread European values beyond its borders. Values such as respecting human rights, upholding the rule of law, protecting the environment and maintaining social standards in the social market economy . Imperfect as it is, the EU can hardly claim to be a shining model for the rest of humanity. But to the extent that Europe is successful, other regions will look to it as an example. What would count as success for the EU in the years ahead? Bringing its public finances back into balance. Coping with the ageing of its population in away that does not unfairly penalise the next generation. Finding ethical responses to the huge challenges posed by scientific and technological progress particularly in biotechnology. Ensuring security for its citizens without undermining their freedom. If it can do these things, Europe will continue to be respected and will Conclusion To conclude, the member countries of European Union have benefited in all aspects and will continue to enjoy cheaper transaction costs, reduced currency risks. Consumers and business will enjoy price transparency and increased price based competition. At the same time the unification of Europe can be a danger to many firms in other countries. D. North American Free Trade Agreement (NAFTA) Introduction: Economic integration refers to a process whereby two or more countries combine into a larger economic group by removing discriminations existing among national frontiers. One of the important types of economic integration is free trade Area. The classic example of Free Trade Area is NAFTA i.e. North American Free Trade Agreement between three countries viz., United States, Canada and Mexico. This process created a trade block based of the continent of North America. The North American Free Trade Agreement took place on January 1st,1994 and took in effect as the Canada superseded between the boarder of United States and Canada. This agreement will remove most of the barriers to trade and investments among the three countries. Origin of NAFTA
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 1988 An agreement was signed between Canada and the US to drop all trade barriers on all goods and most non-government services. 1993 Canada and USA renegotiated to include Mexico and NAFTA was formed. 1. Jan 1994 NAFTA was implemented to eliminate all tariffs on products moving among the three countries and other barriers to services and investment of capital within North America. NAFTA Agreements: Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008. The agricultural provisions of the U.S.-Canada Free Trade Agreement, in effect since 1989, were incorporated into the NAFTA. Under these provisions, all tariffs affecting agricultural trade between the United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed by January 1, 1998. Mexico and Canada reached a separate bilateral NAFTA agreement on market access for agricultural products. The Mexican-Canadian agreement eliminated most tariffs either immediately or over 5, 10, or 15 years. Tariffs between the two countries affecting trade in dairy, poultry, eggs, and sugar are maintained. Objectives: The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to: a) Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties; b) Promote conditions of fair competition in the free trade area; c) Increase substantially investment opportunities in the territories of the Parties; d) Provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory; e) Create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and f) Establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement. Important Provisions under NAFTA: 1. Elimination of Trade barriers: On 1 January 1994, tariffs on many agricultural commodities between Mexico and the United Stated were immediately eliminated and other were to be phased out over a period of 5, 10 or 15 years. More than half the value of agricultural trade became duty free when the agreement went into effect. Both Mexico and United Stated protected their import-sensitive sectors with larger transaction periods, tariffs-rate, quotas and for certain products, special safeguard provisions.
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2.

Protection for import sensitive crops : NAFTA contains special agricultural provisions to provide relief against import surges. These provisions allow only a specified quantity of a selected product to enter at low or preferential NAFTA duty rates. Higher tariffs are automatically triggered when imports reach a specified level. United States applies special safeguards on imports of onions, tomatoes, eggplants, chilli peppers and watermelons. Mexico applies special safeguard on three groups of products i.e. live swine and most pork products, apples and potatoes products. Sanitary and Phytosanitary Measures: The NAFTA imposes disciplines on the development adoption and enforcement of sanitary and phytosanitary measures. These are measures taken to protect human, animal or plant life or health from risks that they may arise from animal or plant pests or diseases or from food additives or contaminants. Export Subsidies: In order to achieve the elimination of export subsidies, United States and Canada will be allowed to provide export-subsidies into the Mexican market to counter subsidized exports from other countries. Both United States and Canada are required to consider Both United States and Canada are required to consider the export interests of the other whenever subsiding agricultural exports to a third country. Rules of Origin: NAFTA provides for though rules origin to ensure that maximum benefits accrue only to those items produced in North America. The NAFTA rules of origin for agricultural products were constructed to prevent Mexio from becoming an expert platform for processed products made from subsidized raw materials originating in Non-NAFTA Countries.

3.

4.

5.

Committees of NAFTA 1. The NAFTA Committee on Agricultural Trade: The committee provides a forum for the three countries to consult regularly on trade issues and other matters related to implementation of the agreements. The NAFTA Committee on Sanitary and Phytosanitary measures (SPS) measures: It facilitates technical co-operation including consultations technical co-operation including consultations regarding disputes involving SPS measures. The NAFTA Advisory Committee on private Commercial Disputes Regarding Agricultural Goods: It aims to achieve prompt and effective resolution of commercial disputes, with special attention to perishable items..

2.

3.

General Benefits of NAFTA NAFTA created a free trade area among developed and developing economies. It is one of the first agreements to include agriculture as well as other industries. The implementation of NAFTA has not always proceeded smoothly and disputes continue to affect trade in some commodities. However, NAFTA has had significant impact on agricultural trade among the NAFTA countries. The important economic benefits are explained below.
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1.

Access to markets of member countries: It has facilitated greater exports by increasing access to the US, Mexican and Canadian markets and by ensuring a climate of greater openness, stability and certainty for producers, importers, exporters and investors throughout the region. Increase in trade: During 1993 and 2005, trade among the NAFTA by 173 percent from $ 297 billion to $ 810 billion. . nations rose

2.

3.

GDP growth: The dismantling of trade barriers and opening of markets have led to economic growth and rising prosperity in the US, Mexico and Canada. During the period 1993 to 2005, real GDP growth in US and 48%, Mexico 40% and in Canada 49 percent. Increase agricultural trade: Two-way agricultural trade between the US and Mexico increased by 149 percent since 1993 reaching $ 15.8 billion in 2004. Trade in agriculture between US and Mexico has been balanced. US agricultural exports to Mexico increased by $ 5.7 billion and US agricultural imports from Mexico increased by 5.6 billion during 1993 and 2005. Two ways agricultural trade between the US and Canada increased by more than 112 percent since 1993 reaching 21.1 billion in 2004. Rise in productivity: The productivity has risen in the 3 countries during 1993 to 2003. Productivity rose 28% in US, 55% in Mexico and 23% in Canada. . Intangible benefits: NAFTA has encouraged commitment to reforms and led to major advances in government procurement and intellectual property rights. Environmental provisions: NAFTA was the first trade agreement to explicitly include environmental provisions. For this purpose the North American Agreement on Environment till Cooperation was developed to address environmental concerns. Since then, all three countries have benefited from coordination on environmental issues.

4.

5. 6. 7.

Benefits to United States1. Free trade access to Mexico allows US industries to import labour-intensive components from Mexico. Some of the industries that have benefited from this include industries in computers, autos, petrochemicals, financial services and also agricultural sector. The trade between the US and Mexico more than doubled. There is an increase in the employment. The consumers are benefited in USA due to reduced prices of the commodities and increased competition. There is an expansion of trade not only with NAFTA members but also with other countries.

2. 3. 4. 5.

Benefits to Mexico1. It has resulted in greater export-led growth resulting from increased access to huge US market. 32

2. It has encouraged the return of the capital that left Mexico in search of higher and more secure return abroad. 3. It has fostered more rapid structural reforms in Mexico, 4. It has encouraged higher regulatory standards in Mexico and more cross border cooperation. 5. It has helped speed up of Mexicos economic and political transformation.

Benefits to Canada 1. 2. 3. There is an increased exports. There is an higher economic growth. There is also optimum utilization of the resources.

In this way, the free trade area called NAFTA between three North American countries helped grow them in length and width. Achievements: Despite its critics, NAFTA's record is clear: by lowering trade barriers, the agreement has expanded trade, increased employment, provided more choices for consumers at competitive prices, and increased prosperity for all three countries. NAFTA created the world's largest free trade area with about 450 million people and $17 trillion worth of goods and services. Since it came into force in 1994, trade has blossomed, investment has increased, and all three countries have become more competitive. Over 39 million NAFTA related jobs have been created and the benefits of expanding trade have flowed to businesses, farmers, workers, and consumers all over the region. From 1993 to 2008, trade among the NAFTA countries more than tripled, from $288 billion to $902 billion. On average, each one of the NAFTA countries conducts nearly $1.9 billion in daily trilateral trade. NAFTA has been good for Mexico but so it has been for the United States. An interesting success story for the United States is the role that NAFTA has played in making US agricultural goods more competitive. U.S. investors have also found NAFTA an attractive destination for their businesses. The tariff agreements scheduled at the time of NAFTAs signature were implemented either on time or ahead of schedule. As a result, NAFTA has evolved to a more advanced stage of trade facilitation. In 2009 the governments of the three countries defined new and creative ways to further increase trade among themselves. To make North America one of the most economically competitive regions in the world, trade officials agreed to push regulatory cooperation as the new top priority of the agreement. These actions have the potential to strongly reduce costs to businesses and prices to consumers by eliminating unneeded regulatory differences on standards.
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Looking to all the progress achieved in the past ten years, one is forced to agree that NAFTA works and increases employment and competitiveness in the region. NAFTAs progress and results underline the advantages that a fuller integration would bring to all the countries in the North American region.

Failures: NAFTA Production Declines More Than Other World Regions Capacity Utilization Is 30% Below 2008 Levels The Great Recession of 2008-2009 affected the Entire NAFTA Region The Great Recession Has Technically Ended, But The U.S. Economy Still Faces Major Challenges

Prospects: More than fifteen years after NAFTAs establishment, there is much evidence of its positive effects on the agricultural sectors and economies of its members. Agricultural trade within the region rapidly expanded, accompanied by tremendous growth in FDI in the agri-food value chains of all three countries. With NAFTA now fully implemented, it is of interest to ask what path NAFTA partners might choose to capitalize on opportunities that freer trade and global markets offer. NAFTA leaders have intermittently floated the idea of a free trade area that would encompass all of the Western Hemisphere. NAFTA members have negotiated separate bilateral and regional trade agreements (RTAs) with countries outside the region. Despite occasional irritants, the overall consensus is that NAFTA has been beneficial for all three members. Convinced that it was through private sector cooperation that regional integration could progress at a faster pace, in March 2006 Mexicos President, Vicente Fox, suggested the constitution of an important working group the North American Competitiveness Council (NACC), composed of top businessmen from the region. The NACC provides a voice for the trilateral business community and engages the private sector in finding solutions for better integration within NAFTA. The NACC report listed the following priorities to enhance North American competitiveness: Facilitating entry for cargo and reducing border congestion along the borders with Canada and Mexico; Establishing competitive supply chains across North America by developing efficient transportation networks, especially along the northern and southern borders of the United States; Working towards comprehensive integration of the North American automotive industry through more efficient border inspections and greater regulatory cooperation by aligning vehicle safety standards and regulations among the three countries;
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Implementing a trilateral Intellectual Property Action Strategy for more rigorous protection of intellectual property rights; Enhancing secure alternatives to a passport before the June 2009 date for full implementation of the Western Hemisphere Travel Initiative; Strengthening trilateral communication and cooperation to prevent the entry of unsafe food and products into North America and working to make regulatory and inspection regimes for food and product safety more compatible;

Encouraging development of sustainable energy technologies and protection of the environment through private sector cooperation; Ensuring emergency management planning through increased cooperation on emergency protocols, particularly those related to border traffic and prioritization of cross-border shipments during emergencies; and Enhancing cooperation in financial regulation in order to provide more efficient access to capital, to improve the availability and affordability of insurance coverage for crossborder carriers, and to find new ways for cross-border collaboration on investment.

No matter what form the future regional partnership may take, the experience over the past two years of the NACC demonstrates the clear benefits of close cooperation on both strategic and specific issues among North Americas business communities, as well as its governments. Other business organizations have extended this cooperation over the past year in launching productive new initiatives addressing issues such as border costs, sector Conclusion: The North American Free Trade Agreement (NAFTA) has enhanced prosperity in all three countries through increased trade and investment, stronger economic growth, and lower prices for consumers. Nonetheless, NAFTAs benefits are not universally understood and the current economic environment of the United States is creating public misperceptions about the value of further regional economic integration. This misperception is unfortunate because it limits possible cooperation between the governments of the three countries in making the region more competitive, its businesses more efficient and the offer of new jobs more sustainable. A regional approach is the only opportunity that NAFTA countries have to strengthen their competitiveness and security. E. ASIA-PACIFIC ECONOMIC CO-OPERATION (APEC) Introduction: Asia-Pacific Economic Co-operation (APEC) was established in 1989 to further enhance economic growth and prosperity for the region. APEC is the premier forum for facilitating economic growth, co-operation, trade and investment in the Asia-Pacific region.

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APEC has 21 member countries, viz., Australia, Brunei, Canada, Chile, China, HongKong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Paupa New Guinea, Peru, Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, United States and Vietnam. These 21 member counties account for 41% of the worlds population, about 55% of the world GDP, and about 49% of world trade. It is also the most economically dynamic region in the world having generated about 70% of global economic growth in its first 10 years. APEC is the only inter governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis. India has requested membership in APEC and has received initial support from US, Japan and Australia. In addition to India, Mongolia, Pakistan, Laos, Columbia and Ecuador are also seeking membership of APEC by 2008. Goals of APEC APEC was established in 1989 to further enhance economic growth and prosperity for the region and to strengthen the Asia-Pacific community. Since its inception, APEC has worked to reduce tariffs and other trade barriers across the Asia-Pacific region, creating efficient domestic economies and increasing exports. The imports goals of APEC are specified in the Bogor Goals or free and open trade and investments in the Asia-Pacific by 2010 for industrialized economies and 2020 for developing economies. These goals were adopted by Leaders at their 1994 meeting in Bogor, Indonesia. 1. According to Bogor goals, free and open trade and investment helps economies to grow, creates jobs and provides greater opportunities for international trade and investment. APEC also tries to create an environment for the safe and efficient movement of goods, services and people across borders in the region through policy alignment and economic and technical co-operation. APEC leaders meeting in Bangkok, Thailand in 2003 has considered counter-terrorism as a complementary mission to Bogor Goals. It has also agreed to strengthen efforts to build knowledge-based economies and to promote sound and efficient financial systems and to accelerate regional structural reform.

2.

3. 4.

Operation of APEC: The APEC secretariat is based in Singapore and it operates as the core support mechanism for the APEC process It provides co-ordination, technical and advisory support as well as information management, communications and public outreach services. 36

The APEC secretariat performs a central project management role, assisting APEC Member Economics and APEC forum with overseeing more than 230 APEC funded projects. APECs manually budget is also administered by the APEC secretariat. The APEC secretariat is headed by an Executive Director and a Deputy Executive Director. These positions are filled by officers of Ambassadorial rank from the current and incoming host economies respectively. The positions rotate annually.

Achievement and Benefits: The Asia-Pacific region has consistently been the most economically dynamic region in the world. Since APEC's inception in 1989, APEC's total trade has grown 395%, significantly outpacing the rest of the world.1 In the same period, GDP (in purchasing power parity terms) in the APEC region has tripled, while GDP in the rest of the world has less than doubled. APEC's work under its three main pillars of activity, Trade and Investment Liberalisation, Business Facilitation and Economic and Technical Cooperation, has helped drive this economic growth and improve employment opportunities and standards of living for the citizens of the region. The important achievement of APEC are: 1) 2) 3) 4) 5)
6)

Exports increased by 113 percent to over US$ 2.5 trillion. Foreign direct investment grew by 210 percent overall, and by 475 percent in lower income APEC countries. Real goals national product grow by about a third overall, and by 74 percent in lower income APEC countries. Gross domestic product per person in lower income APEC economies grew by 61 percent. Over 30 bilateral free trade agreements (FTAs) have been concluded between APEC Member Economies. APEC is also pursuing trade and investment liberalisation through its Regional Economic Integration agenda. Progress to date includes: Investigating the prospects of and options for a Free Trade Area of the Asia-Pacific. The development of 15 model measures for RTAs/FTAs that serve as a reference for APEC members to achieve comprehensive and high-quality agreements. APEC has also acted as a catalyst in the advancement of World Trade Organisation multilateral trade negotiations over the past 20 years. 37

7) 8) 9)

10) APEC is strategically important to the United States because it is a primary venue for multilateral engagement with the Asia-Pacific on economic and other key interests. APECs growing economic importance is clear. The 21 APEC members account for 55 percent of world GDP; 45 percent of global trade; and 40 percent of the worlds population. 11) The Asia-Pacific economies are leading the global recovery, with recent forecasts suggesting that emerging Asian economies could grow by at least 5 percent in 2009 while the G-7 economies contract by 3.5 percent. The other achievements of APEC can be mentioned as below: A. Economic Growth: Since its inception in 1989, the APEC region has been the most economically dynamic part of the world. During its first decade, APEC member countries generated about 70% of global economic growth. B. Benefit to the People in APEC Region: Consumers in Asia-Pacific have both directly and indirectly benefited from the collective and individual actions of APEC member countries. Important direct benefits are increased job opportunities, more training programmes, stronger social safety nets and poverty alleviation. C. Improvements in Information and Telecommunications: In 1990, an average of only 0.6% of those living in APEC member countries were cellular subscribers and only 008 percent used internet. Within a space of 15 years those figures rose to 55 percent and 30 percent, respectively. Since 1990. D. Benefits to Low Income APEC Countries: Economic growth leads to social advancement. During the first decade of APECs existence the low income APEC countries had the following benefits. a. The United Nations Development Programme (UNDP) Human Development Index for lower income APEC countries improved by about 18 percent. b. Poverty in East Asian APEC countries has fallen by about a third (165 million people), mostly on account of strong economic growth. c. About 195 million new jobs have been created in APEC member countries, including 174 millions in lower income countries. d. Infant mortality has fallen and life expectancy has improved in lower income APEC countries on account of significant improvement in access to sanitation and safe water, and expanding public expenditure on health. e. There has been heavy investment in human capital with rising education enrolment ratios and growing expenditures on education.
E. Regional priorities: APEC has also been able to evolve its agenda to include pressing regional priorities. Examples include: counter-terrorism (The Shanghai Statement in 2001, and the Counter-Terrorism Task Force); human security (Health Working Group); emergency preparedness (Task Force for Emergency Preparedness); climate change, 38

energy security and clean development (The Sydney Declaration in 2007); and the global financial crisis (The Lima Statement in 2008). F. APEC initiatives to facilitate trade: a. The introduction of electronic/paperless systems by all member economies, covering the payment of duties, and customs and trade-related document processing b. The Single Window Strategic Plan, adopted in 2007, provides a framework for the development of Single Window systems which will allow importers and exporters to submit information to government once, instead of to multiple government agencies, through a single entry point. c. Providing business with a concise one-stop repository of customs and trade facilitation related information for all APEC economies through the APEC Customs and Trade Facilitation Handbook
d. The APEC Tariff Database provides users with easy access to APEC member economies' tariff schedules, concessions, prohibitions and other information.

e. In 2008, a groundbreaking Investment Facilitation Action Plan was endorsed; it aims to improve the investment environment in Member Economies. f. The APEC Privacy Framework provides guidance and direction to both APEC Member Economies and businesses on implementing information privacy protection policies and procedures. By facilitating information flows it will facilitate trade and ecommerce. g. The APEC Business Travel Card (ABTC) provides substantial time and cost savings to business people and facilitates their travel in the region, by allowing visa free travel and express lane transit at airports in participating economies. h. APEC is also removing behind-the-border barriers to trade through its Structural Reform agenda, which focuses on reforming domestic policies and institutions that adversely affect the operation of markets, and the capacity of businesses to access markets and to operate efficiently. Major Challenges: APEC process may be moving too slowly, because of flexibility. APEC could be focusing on too many issues. APEC process may be too expensive with costs greater than benefits. APECs progress is not clear, as performance indicators are not provided. APEC continues to be criticized for not doing enough for business and for not convincingly achieve the Bogor Goals.

Future prospects:

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 APECs role is particularly important in the current economic environment . Although nations on both sides of the Pacific have taken individual steps to respond to the economic crisis. APEC is unique in that it already has the tools and focus to ensure regional economic prosperity by promoting policies that will spur long-term economic growth, and ensure all the citizens have the opportunity to thrive in the global economy. It promotes free and open trade and investment, and initiatives to build healthy and resilient economies by tackling such issues as energy security, food security, and preparing workforces for an increasingly competitive global economy. On the economic front, APEC provides the best and most established regional mechanism for practical cooperation and action. With almost half of the G-20 being APEC members, APEC has an important role to play in supporting, reinforcing, and implementing G-20 principles for global economic recovery and future economic growth.

APEC is already leading efforts to facilitate reforms that will prevent future crises and improve the business environment throughout the region. Reform efforts include initiatives aimed at improving corporate governance and promoting regulatory reform. APEC is also using the World Banks Ease of Doing Business indicators to spur progress on making it faster, cheaper, and easier to do business in APEC economies, covering such areas as starting a business, obtaining credit, the efficiency of conducting trade, and enforcing contracts. APEC provides a forum for leaders of these economies to coordinate on macroeconomic, financial and structural policies that will promote strong and balanced global demand, led by thriving private sectors. Regarding sustainable growth, including efforts to stem the impact of climate change APEC has an increased role for in advancing energy security and "green" development. APECs human security agenda can make a vital contribution to ensuring the prosperity and resiliency of societies against a multitude of threats. APEC is fostering closer collaboration among regional emergency management agencies, examining the impact of climate change on disaster management, and helping school children prepare for disasters. Going forward, APEC will continue to strengthen public-private partnerships and capacity building for emergency preparedness. APEC is also working to protect the regions financial and economic system from attack and abuse by terrorists. F. Association of South East Asian Nations (ASEAN) 40

Introduction: The Association of South East Asian Nations (ASEAN) contains several of the so called Asian tiger-economies most of which have suffered in the Asian financial crisis. Its number nations lie close to the sea lanes between Europe China and Japan. ASEAN is sometimes seen as political counter weight to Chinas dominance in the region. Established 1967. Reasons for creation: No regional group in Southeast Asia before Conflict-resolution: Indonesia-Malaysia conflict called Konfrontasi. Communist rebellions (backed by China and USSR) against pro-Western governments in Thailand, Malaysia, Singapore, Indonesia and Philippines Superpower intervention during the Cold War- Indochina Economic Nationalism and underdevelopment

Origin of ASEAN 8 August 1967 ASEAN was established in Bangkok by five original member countries viz. Indonesia, Malaysia, Philippines, Singapore and Thailand. 8 January 1984 Brunei, Darussalam joined ASEAN 28 July 1995 Vietnam joined ASEAN 23 July 1997 Laos and Myanmar joined ASEAN 30 April 1999 Cambodia joined ASEAN. Peculiarities of ASEAN ASEAN does not function as a regional trade arrangement, but it has become an effective means for cooperation in economic matters and foreign affairs with Organization for Economic Cooperation and development (OECD). There are significant political and religious differences among the countries for example Democracy is well established in the Philippines, Burma (now Myanmar) still continues with its military dictatorship. The regions religions are also varied, consisting of Islam, Buddhism, Christianity and animism. In addition, several countries have a less homogenous population. Despite their political, economic and cultural diversity the countries are recognize their mutual needs to promote the regions development and thus respect each others independence in internal politics.
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Diverse cultures: Muslim, Buddhist, Christian, Confucian Divergent colonial history: British (Malaysia, Singapore, Myanmar) Dutch (Indonesia) French (Vietnam, Cambodia, Laos) Spanish/American (Philippines) Portugese (East Timor) Different political systems: Military Myanmar), communist (Vietnam, Laos), soft-authoritarian (Malaysia and Singapore), stable democracy (Indonesia), unstable democracy (Thailand and Philippines) parliamentary democracy, presidential democracy

Objectives of ASEAN The ASEAN declaration in Bangkok on 8 August 1967 stated the following aims and objectives of ASEAN: 1. To accelerate economic growth, social progress and cultural development in the region in order to strengthen the foundation for a prosperous and peaceful community in Asia. 2. To promote regional peace and stability in the region. Fundamental Principles At the first Asian Summit in Bali in February 1976, the member countries signed the Treaty of Amity and spelled following fundamental principles of ASEAN 1) 2) 3) 4) 5) 6) Mutual respect for the independence, sovereignty, equality, territorial integrity and national identify 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 means. Renunciation of the threat or use of force. Effective co-operation among themselves.

Structure and Organisation The highest decision-making organ of ASEAN is the meeting of the ASEAN Heads of state and government. The ASEAN summit takes place every year. Ministerial meetings on several sectors such as economy energy environment etc, are also held. To support these ministerial bodies there are 29 committees of senior officials and 122 technical working groups. The secretary, General of ASEAN is appointed on merit and accorded ministerial status for five years. ASEAN also consists of other specialized bodies such as ASEAN University Network, ASEAN centre for Energy etc. Achievements ASEAN 1. Political co-operation: The ASEAN security community is formed to bring ASEANs political and security co-operation to a higher plane to ensure that countries in the region live at peace. At the 1992 Singapore summit, the SEAN leaders declared that ASEAN will move towards a higher plan of political co-operation to secure regional peace and prosperity.
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2. Economic co-operation: When ASEAN was established, trade among the member countries was insignificant. To tackle this, the Preferential Trading Agreement (PTA) was established in 1977 and further, ASEAN Free Trade Area (AFTA) was launched in 1992. The elimination of tariffs and non-tariff barriers among the member countries promoted greater economic efficiency productivity and competitiveness. In 1997 the ASEAN Leaders adopted the ASEAN vision 2020, which aimed at creating a stable, prosperous and highly competitive ASEAN Economic Region in which there is free flow of goods, service, investments, capital etc. 3. Other achievements: o No major conflict among members since founding o Inclusive membership: Vietnam joining in 1995 key development o Key role in the resolution of Cambodia conflict o Engaging all the major powers of the world China, US, Japan, India, Russia, EU) through dialogue and cooperation

In this way, as a result of this greater regional integration ASEAN has helped the member countries in all directions. Problems: Economic Cooperation: intra-ASEAN trade still around 25% of total trade, mechanisms for financial crisis untested Persisting Intra-ASEAN Conflicts: Thailand-Cambodia, Singapore-Malaysia, Maritime disputes South China Sea Dispute: China, Vietnam, Philippines, Malaysia, Brunei, and Taiwan Transnational Threats: Environmental degradation, Deforestation and haze problem, Piracy, Terrorism, Drug trafficking, People Smuggling, Natural disasters Recent developments; Community-Building (Bali Concord II-2003) ASEAN Economic Community (Free Trade and customs Union, investment area) ASEAN Political-Security Community (Conflict resolution, Cooperation against common challenges such as terrorism, piracy, disaster management, etc) ASEAN Socio-Cultural Community (peoples ASEAN, caring and sharing ASEAN) ASEAN Charter (2008)-legal personality, consolidation of treaties and agreements, compliance enforcement East Asian Summit (2005). New reigonal architecture; Now includes US and Russia Challenges: Rise of China and India, a multipolar world Increasing burden: scope of issues, and membership, and partnerships
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Sovereignty and non-Interference in an age of globalization and transnational challenges Compliance with new rules and the Charter: National interest version regional interest ASEANs unity and cohesion G. SOUTH-ASIAN ASSOCIATION FOR REGIONAL CO-OPERATION.

Introduction: To bring about regional co-operation among South Asian Countries, The South Asian Association for Regional Co-operation (SAARC) was formally launched on 7-8 December 1985, through the idea was first marked in November 1980. The SAARC comprises of eight countries of South Asia that is Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan.

Objectives of SAARC: SAARC was established to achieve the following objectives: 1) 2) 3) 4) 5) 6) 7) 8) To promote the welfare of the people of South Asia and to improve their quality of life. To accelerate economic growth, social progress. To promote and strengthen collective self-reliance among the countries of South Asia. To contribute to mutual trust, Understanding and appreciation of one anothers problems. To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields. To strengthen co-operation with other developing countries. To strengthen co-operation among themselves in international forms on mattes of common interest. To cooperate with international and regional organizations with similar aims and purposes.

Principles of SAARC Among the various programmes of the SAARC, the two most important are: 1) Poverty Eradication: Poverty Eradication has been placed high on the social Agenda of SAARC since the 6th SAARC summit (Colombo, 1991). A consensus on poverty eradication was adopted at the 7 th SAARC summit (Dhaka, 1993). The summit expressed its commitment to eradicate poverty from south Asia preferably by the year 2002. It is through an agenda of action which would include a strategy of social mobilization and human development. The summit also stressed that within the conceptual approach of Dhal-Bhaat, the right to work and primary education should receive priority.
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2) Trade and Economic Co-operation SAARC has taken important steps to expand co-operation among member countries in the core economic areas. A committee on economic Co-operation (CEC) comprising the commerce secretaries of member states was established in July 1991 to acts as the forum to address economic and trade issues. The committee is charged with the responsibility of monitoring the progress in the implementation of decisions relating to expansion of trade and economic cooperation under the frame work of SAARC. Achievements SAARC was not able to play a very important role in integrating South Asia due to political and military rivalry between India and Pakistan. However, at the same time SAARC has made some achievements which are stated below. a. b. c. SAFTA: The signing of the frame work agreement on South Asia Free Trade Area was a major mile stone. This is bound to increase inter-regional trade. SAARC Social Charter: It is another important achievement. The charter aims at bringing needed social change in the living conditions of South Asians. Environmental Plan: The SAARC also recognized the importance of undertaking regional cooperation in conservation of water resources, environment, pollution prevention, etc. Thus it has stressed the need for effective implementation of environmental plan of action. Anti-terrorist stand: SAARC summits categorically condemned terrorist violence in all its form and manifestations. The SAARC declaration envisages South Asia to be a peaceful and stable region. Active collaboration: SAARC tries to strengthen cooperation among the member states in international forums on matters of common interest. Asian Development Bank (ADB) assistance: ADB and SAARC singed a MOU in 2004 to strengthen the co-operation between the ADB & SAARC. The MOU provides a frame work for ADB assistance to SAARCs regional co-operative activities such as transport, energy, trade, investment and private sector development. South Asia Development Fund : The South Asia Development Fund has been established to serve as an umbrella financial institution for all SAARC projects and programmes. It comprises of three windows the social window, infrastructure window, and economic window.

d. e. f.

g.

Future Prospects South Asia needs increased co-operation among its countries to face challenges posed by hikes in food prices, recurrent disasters and climate change. Due to geographic, economic, cultural and other strategic reasons. South Asia has distinct advantages to co-operate in many areas including cross-border infrastructure and services, health trade, finance, and regional public goods. 1. Due to its strategic geographic location, South Asia can play an important role in the wider Asian integration. Through there are significant achievements in co-operation
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and integration has been slow. The SAARC has tremendous prospectus to expediate the integration process. 2. Regional co-operation can help to achieve economic and social development. Crossborder development of basic infrastructure, such as highways, railways, shipping and air-connectivity, inland waterways, power grids, and telecommunication links, can reduce physical barriers to the movement of goods and people across national boundaries. It can in turn help to expand regional trade and tourism, increase in foreign exchange earning capacities, generating employment opportunities etc. 3. SAARC has a vital role to play in poverty reduction and building a more integrated and prosperous Asian region. 4. To change the functioning of SAARC in to a more vibrant and result oriented body, there is a need to over come the differences and disputes among the member countries and create a climate of mutual trust and confidence. 5. The recent steps such as social charter, SAFTA etc. are in the positive direction and their goals appear achievable. The political will to do so appears forthcoming now. This looks good for the future of the SAARC. CONCLUSION The absence of conflicts and the beginning of normal relations among the member states are the minimum, not the maximum expectation of the people of the region. Ideally friendship among them is a prior requirement to enable and sustain friendly co-operation among the SAARC member governments. To achieve economic integration in South Asia, it is necessary for member countries to give priority to the serious socio-economic problems and at the same time reducing the political tensions. India can help the other members by providing technology in all the sectors, specially in agriculture and service sector and the required administration expertise. A serious attempt is required by all the member countries to make the SAARC an effective economic region rather than only a political and cultural gathering. H. REGIONALISM VS MULTILATERALISM The debate on regionalism versus multilateralism is growing as economists and political scientists try to manage with the question whether regional integration arrangement (RIA) are good or bad for the multilateral system. Are regional integration arrangements (RIA) building blocks, or stumbling blocks or stepping stones towards multilateralism? Due to the emergence of large number of regional integration arrangements (such as the EU, NAFTA, APEC, the ASEAN Free Trade Area (AFTA) the SAFTA and so on) there arises a question among the economist about the ability of the WTO to maintain the momentum towards global free trade. Meaning of Regionalism: Regionalism refers to any policy designed to reduce trade barriers between a subset of countries regardless of whether those countries are actually contiguous or even close to each other.
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Rationale and Benefits of RTAs 1) Unresolved issues in WTO negotiations: Everybody would agree that multilateral agreement is the preferred instruments for liberalizing international trade. Such agreements ensure a non-discriminatory approach, which provides political and economic benefits for all. But the current political environment is not particularly favourable for multilateral trade negotiations. Countries are taking RTAs route because such agreements are often a more practical and feasible way to liberalize trade. RTAs can bring faster results than multilateral process. RTAs can be valuable in dealing with different issues such as services, government procurement etc. which often cause deadlocks on the multilateral negotiations. 2) Promote Freer Trade: Regional arrangements promote freer trade and multilateralism. According to them, on account of regional integration trade creation has generally exceeded trade diversion. Further, regionalism has contributed to both internal and international dynamics that enhance rather than reduce the prospects of global liberalization. Create Interest in Multilaterism: According to the proponents of regionalism, regional initiatives can accustom officials, governments and countries to the liberalization process and thus increase the probability that they will subsequently move to similar multilateral actions. Positive Political Effects: Trade and broader economic integration has bought about peace between neighbouring countries and thus has positive rather than negative political effects. More Practical and Feasible: Everybody would agree that multilateral agreements are the preferred instruments for liberalizing international trade. There are many important and unresolved issues .Under this background, more and more countries have turned to RTAs. Countries are taking RTAs route because such agreements are 'often a more practical and feasible way to liberalize trade. RTAs can bring faster results than multilateral process. RTAs can be valuable in dealing with different issues such as services, government procurement, etc. which often cause deadlocks on the multilateral negotiations. Contribute to Multilateralism: They seem to be contradictory, but often regional trade agreements can actually support the WTO's multilateral trading system. Regional agreements have allowed groups of countries to negotiate rules and commitments that go beyond what was possible at the time multilaterally. In turn, some of these rules have paved the way for agreement in the WTO. In other words, regional integration should complement the multilateral trading system and not threaten it. Demonstration Effects: The proponents of regionalism note that it often has important demonstration effects. Regional initiatives can accustom officials, governments and nations to the liberalization process and thus increase the probability that they will subsequently move on to similar multilateral actions. 47

3)

4)

5)

6)

7)

8)

Positive Political Effects: Trade and broader economic integration has brought about peace between neighbouring countries and thus has positive rather than negative political effects. The supporters of regionalism contend that it has had positive rather than negative political effects. Trade and broader economic integration has created Compatibility: The supporters of regionalism note that Article 24 of the GATT, and now the WTO, explicitly permits regional agreements and thus acknowledges their compatibility with the multilateral trading system.

9)

Costs and Consequences of RTAs are: 1. Trade Diversion: Regional agreements divert trade by creating preferential treatment for member countries vis--vis non-members. They can divert trade away from lower cost producers outside the bloc. Undermine the Multilateral System: Countries may lose interest in the multilateral system when they engage actively in regional initiatives. RTAs

2.

3. 4.

Geopolitical Impact: Extensive and intensive regional ties may lead to conflicts that range beyond economics to broader spheres of international relations. Prevents developing countries from active participation: There are concerns that RTAs are incomplete, unequl or counter-productive. The volume of RTA activity stretches negotiation capacities to their limit, and in the case of developing countries, prevents them from actively participating in all proceedings. The WTO has partnerships with the United Nations and the World Bank to build capacity in smaller countries and give aid money to support participation in trade negotiations.Further, there is a fear that in agreements formed outside the WTO, developing countries do not have the power of collective bargaining to negotiate RTAs. Hurt the interest others : Under some circumstances regional trading arrangements could hurt the trade interests of other countries. Normally, setting up a customs union or free trade area would violate the WTO's principle of equal treatment for all trading partners ,that is "most-favoured-nation agreement".

5.

Meaning of Multilateralism: Multilateralism is a characteristic of the world economy or world economic system. It ultimately depends on the behaviour of individual countries, that is, the extent to which they behave in a multilateral fashion. For any one country, the multilateralism is a positive function of: a) The degree to which discrimination is absent, that is the proportion of trade partners that receive identical treatment, and b) The extent to which the trading regime approximates free trade. There are problems in the world that cannot be confronted with any success by a single state, no matter how powerful. Big environmental issues and world hunger and poverty, along with 48

many regional peacekeeping needs and most economic and trade-related problems, etc., can be tackled effectively through the process of multilateralism. The multilateralism is the consensus-driven process that democratically pulls countries together for collective problem solving, usually under the auspices of an umbrella organisation such as the United Nations or the World Trade Organisation. Advantages of Multilateralism: 1. Cannot be dominated by the major players: In this process, when priorities are set, they cannot be dominated by the major players. 2. Best for liberalizing an economy: A free and fair multilateral trading system serves best the interests of any liberalizing economy. Although there has been a huge proliferation of bilateral/regional free trade agreements in recent years, no one questions the primacy of the multilateral trading system. 3. Contributed to India's growth: India's engagement with the multilateral trading arrangement helped it to sustain the trade liberalisation process which was started in 1991.

The inclusion of agriculture in the WTO agreement helped India bring about some policy changes even in the agricultural sector, which had remained highly protected after the initial round of reforms. While the agricultural sector is still reasonably protected with high tariffs, the phasing out of quantitative restrictions (QRs) has arguably been the single most successful area of trade liberalisation in this sector and has happened mainly because of India's WTO commitments. 4. Better Economic performance: The protagonists of trade liberalisation claim that open trade policies lead to better economic performance. Virtually all growth miracles are associated with rapid expansion of trade rather than wholesale substitution of imports by domestic production 5. Other advantages: Beyond the welfare gains achieved through the reduction of tariffs in manufacturing and agriculture, additional gains tend to accrue with the introduction of scenarios that incorporate trade liberalisation in the services sector, reduction of non-tariff barriers, trade facilitation, effective utilisation of dispute settlement mechanism etc. Disadvantages of Multilateralism: 1. The biggest disadvantage to multilateralism is that in the process every country has the right to have their opinions taken into account, and they usually take advantage of it. It can slow things down a lot. . 2. Another important problem in the WTO is the increasing use of Non- Tariff Barriers (NTBs) to restrict trade from developing countries. The term 'Non-Tariff Barriers' has not been defined under the WTO but its usage and understanding broadly refers to any 'border measure' other than a tariff, which acts as a barrier to trade. This includes internal measures that, despite in several instances being in line with WTO rules and serving legitimate policy objectives may discriminate or
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unnecessarily restrict access to markets, translating in additional costs for the exporters or importers. Nontariff barriers (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are antidumping measures and countervailing duties. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. They are being used by developed countries against developing countries. In general the disadvantages of regionalism can be considered as the advantages of multilateralism. Conclusion: More and more countries are joining preferential arrangements at the same time the pace of multilateral trade negotiations has solved markedly in the recent years.

According to some estimates there are about 250 regional or bilateral free trade agreements either in force or under negotiation. Asian countries such as Japan and China, which have traditionally shunned RTAs, are actively negotiating such agreements with their neighbours and even more distant trading partners. The EU has been active in this area for years. The US has now joined the parade of signing more RTAs. Until 2001, the US had only three RTAs namely, Israel, Canada and NAFTA. Since then, the US concluded and put into effect RTAs with Jordan, Chile and Singapore. It has concluded negotiations on other agreements with Australia, the five Central American countries plus the Dominican Republic and Morocco Talks are underway with many other countries. The multilateral trading system, as embodied in the GATT-1947 and now the WTO, has completed more than 60 years of existence. The basic philosophy behind multilateralism is that open markets, non-discrimination and global competition in international trade are conducive to the national welfare of all countries. The key guiding principles of this system is non-discrimination, which is embodied in the MFN clause and National Treatment. WTO rules require that each member accord Most Favoured Nation (MFN) status to other WTO members. However, GATT Article XXIV allows exceptions to the MFN principles for RTAs so long as they meet certain conditions. These conditions are: 1. The agreement must lower trade barriers within the regional group. 2. The agreement cannot raise trade barriers against non-participating members. 3. The agreement is supposed to cover substantially all trade among the RTA partners. In reality, RTA participants do not meet all these conditions very often, the trade coverage of many RTAs is incomplete with many sensitive sectors exempted from trade liberalization.
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The focus of debate shifts from the immediate consequences of regionalism for the economic welfare of the integrating partners to the questions of whether the regionalism integration sets up forces that encourage or discourage evolution towards globally freer trade. The EU is the only RTA that is both big enough to affect the multilateral system and longenough lived to have currently observable consequences. However, the EU does not accept the hypothesis that one act of regionalism necessary leads to the collapse of the multilateral system. RTAs are a reality and will not go away. What is needed is to ensure that RTAs conform to WTO rules as far as possible.

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