UNIVERSITY OF MUMBAI

PROJECT REPORT ON ECONOMIC INTEGRATION IN RELATION TO EUROPEAN UNION, & SAARC

SUBMITTED BY SANTOSH GUNWANT PANDARE

MASTERS OF COMMERCE ( MANAGEMENT ) (M.COM )

UNDER THE GUIDANCE OF: Prof. RACHANA JOSHI

PTVAs M.L DAHANUKAR COLLEGE OF COMMERCE Vile Parle (East), Mumbai 2012-2013

CERTIFICATE

I, Prof. RACHANA JOSHI here by certify that SANTOSH GUNWANT PANDARE of M.L Dahanukar College of Commerce of M.COM P- I MANAGEMENT (Semester-I ) has completed project on ECONOMIC INTEGRATION IN RELATION TO EUROPEAN UNION, & SAARC during academic year 2012-2013. The information submitted is true and original to the best of my knowledge.

Signature of Project Guide

Signature of the principal

External Project Guide

DECLARATION

I, SANTOSH GUNWANT PANDARE of M.L Dahanukar College of Commerce of M.COM (Semester-I), hereby declare that I have completed project on ECONOMIC INTEGRATION IN RELATION TO EUROPEAN UNION, & SAARC in the academic year 2012-13, as per the requirement of the University of Mumbai as a part of Master of commerce (M.COM) programme. The information submitted is true and original to the best of my knowledge.

( SANTOSH GUNWANT PANDARE )

ACKNOWLEDGEMENT
3

Success is not a destination, but a journey. While I reach towards the end of journey, I realize I may not have come this far without the guidance, help and support of people who acted as guides, friends and torch bearers along the way.

I take this Opportunity to thank the UNIVERSITY OF MUMBAI for giving me a chance to do this project,

I take this opportunity to thank our principal Prof. MADHAVI PETHE for her moral support and guidance. I would like to express my sincere gratitude toward my project guide Prof. RACHANA JOSHI whose guidance and care made the project successfully.

Apart from the efforts of me, the success of the project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this project.

INDEX

CHAPTER NO. 1.

TOPICS
INTRODUCTION OF ECONOMIC INTEGRATION

PAGE NO. 6-9

2.

TYPES OF ECONOMIC INTEGRATION

10 - 16

3.

ARGUMENTS SURROUNIDING ECONOMIC INTEGRATION

17 - 19

4.

EUROPEON UNION

20 -26

5.

SAARC

27 -29

6.

ORIGIN OF SAARC

30 -32

7.

ACHIVEMENTS OF SAARC

33 -34

8.

CONCLUSION OF SAARC

35

9.

CONCLUSION OF THE OVERALL STUDY

36

10

BIBLOGRAPHY AND WEBLOGRAPHY

37

INTRODUCTION OF ECONOMIC INTEGRATION

During the last decade, several authors have explored how the degree of regional economic integration depends on whether different regions are in the same country or in different countries. This research has been undertaken in response to several different factors including Europes commitment to the Maastricht Treaty, increased academic interest in economic geography, large falls in transport and communication costs, and the availability of new data sets. The research has yet to reach definitive conclusions, but most of it suggests that national borders are considerably greater impediments to economic integration than had been previously imagined. Economic integration does not have a single, straightforward definition, and two variants should be distinguished. The simplest case concerns commodities such as wheat which are sold in international auction markets and for which sales transactions are largely unaffected by the identity or characteristics of the producing firm. For such commodities, markets are integrated if people in different regions have access to the same goods at similar prices. A notable feature of these commodity markets is that they can be integrated without interregional trade being extensive, for a producer who usually sells into one region can substitute sales into another region very rapidly if necessary. The second case concerns producers who have limited ability to substitute sales between regions because sales are affected by such characteristics of the firm as its marketing strategy and its distribution chain. In this case, a second component needs to be added to the concept of spatial integration: in addition to prices being similar, products produced in one region must be routinely sold and used in other regions. Because most products and services are not sold anonymously through auctions, the second case is most important. For this reason, it is not generally sufficient to consider that regions are integrated because they have similar products at similar prices; rather, trade in these products is also necessary. This section begins with a discussion of several issues pertaining to the integration of goods markets, before examining financial market integration. It ends with a short discussion of how economic integration can affect the location of output across space. The term economic integration has been interpreted in many ways.

Tinberg 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 or unification. Balassa defines economic integration as a process and as a state of affairs. Regarded as a process, it encompasses measure designed to abolish discrimination between economic unit belonging to different national states; viewed as a state affairs, it can be represented by the absence of various forms of discrimination between national economies.

Economic integration, therefore, refers to a process whereby two or more countries combine into larger economic group by removing discriminations existing along national frontiers. Economic integration is a process where barriers to trade are reduced or eliminated to facilitate trade between regions or nations. There are varying degrees

of economic integration ranging from theoretically completely free trade to the use of preferential trade agreements to stimulate relationships between specific trade partners. Removing trade barriers comes with costs and benefits, depending on the degree of economic integration and the level of cooperation between member regions or nations.

Many economies have attempted some degree of economic integration. Some nations use free trade zones, for example, to stimulate trade with partners. Others sign free trade agreements like the North American Free Trade Agreement (NAFTA). In the European Union(EU), a high degree of economic and monetary integration has been accomplished between member nations. Various EU nations may also have trade agreements with nations outside the union.

Reducing

barriers

to

trade

has

the

tendency

to

cut

costs

associated

with economic activities. Not having to pay taxes, tariffs, fees, and other expenses can be beneficial for trading partners. This causes the volume of trade to increase, as trading partners actively seek out deals in regions where some degree of economic integration has been achieved. For nations outside integration agreements, however, barriers to trade can be created as they may not be able to compete with preferred trading partners.

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 other extreme there would be a number of closed economies, each dependent and self-sufficient. The various integrative agreements in effect today lie along the middle of this spectrum.

The combination of several national economies into a larger territorial unit. It implies the elimination of economic boarders between countries. An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement.

By integrating the economies of more than one country, the short-term benefits from the use of tariffs and other trade barriers is diminished. At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse.

Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states.

The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist.

An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement.

Integration between countries is an important feature of trade liberalisation. International integration may be either political or economic. Political integration involves pooling of countries of sovereignty to some degree.

TYPES OF ECONOMIC INTEGRATION

There Are Five Important Types Of Economic Integration:

1. Preferential Trading Agreement 2. Free Trade Area 3. Customs Union 4. Common Market 5. Economic Union

1. Preferential Trading Agreement: A preferential trading agreement is the loosest form of economic integration. Under it a group, of countries have a formal agreement to allow each others good to be traded on preferential terms. These countries usually reduce their respective duties on imports of all goods from each other. However, the member countries retain their original tariff against the outside world. A good example of preferential trading agreement is the commonwealth preference system. In 1932, Great Britain and its commonwealth associates established a system of trade known as the commonwealth preference system. Under it, the commonwealth countries lowered their tariff rates on their mutual trade but retained their higher tariff rates on imports from the rest of the world. Often preferential trading agreements are also made between developed and underdeveloped countries primarily to support the economic development of underdeveloped countries. Since 1990 the number of preferential trade agreements (PTAs) has increased very rapidly. This paper aims to contribute to this literature by presenting a new database on PTAs called Design of Trade Agreements (DESTA). We identified a total of 690 negotiated trade agreements between 1945 and 2009 of which we have coded 404 agreements for which treaty texts and appendices were available. We aim to have a database for about 550 agreements by 2012. We have coded agreements for a total of 10 broad sectors of cooperation, encompassing market access, services, investments, intellectual property rights, competition, public procurement, standards, trade remedies, nontrade issues, and dispute settlement. For each of these sectors, we have coded a significant
10

number of items, meaning that we have about 100 data points for each agreement. The resulting DESTA database is to the best of our knowledge by far the most complete in terms of agreements and sectors covered. This dataset fills a crucial gap in the field by providing a fine-grain measurement of the design of PTAs. Among others, we think that DESTA will be of relevance for the literatures on the signing of PTAs; the legalization of international relations; the rational design of international institutions; the diffusion of policies; the political and economic effects of trade agreements; power relations between states; and forum shopping in international politics. This working paper describes the DESTA data set and provides selected descriptive statistics. The overview puts emphasis on variation in design over time and across regions.

During the past twenty years, PTAs that liberalize trade between countries have proliferated. Twenty new agreements were notified to the WTO in 2009 and thirteen in 2010. Every member of the WTO (with the exception of Mongolia) is now a member of a PTA.2 The proliferation of PTAs shows no signs of slowing down in the near future. Many negotiations are underway. Canada, for instance, is currently negotiating 12 PTAs.3 The proliferation of PTAs also is not limited to developed economies. On the contrary, many PTAs are concluded between developing countries. The average African country belongs to four different agreements, and the average Latin America country belongs to seven agreements. This proliferation of PTAs has significantly altered the world trade regulatory landscape. Both economic and political studies therefore have tried to identify the factors that explain this rapid growth.

While research on PTAs is not short of theoretical arguments, there are still important gaps in the collection of systematic data for the purpose of empirical testing. The objective of this paper is to describe a new dataset on PTAs that will allow us to address a number of empirical puzzles present in the literature on international cooperation and the design of international agreements. In particular, the data could prove helpful to address research questions on the formation of PTAs, the design of international agreements, and the impact of PTAs on economic and political phenomena.

11

2. Free Trade Area: Free trade areas (FTAs) are arrangements among two or more countries under which they agree to eliminate tariffs and nontariff barriers on trade in goods among themselves. However, each country maintains its own policies, including tariffs, on trade outside the region. In the last few years, the United States has engaged or has proposed to engage in negotiations to establish bilateral and regional free trade arrangements with a number of trading partners. Such arrangements are not new in U.S. trade policy. The United States has had a free trade arrangement with Israel since 1985 and with Canada since 1989, which was expanded to include Mexico and became the North American Free Trade Agreement (NAFTA) effective in January 1994.

U.S. interest in bilateral and regional free trade arrangements surged, and the Bush Administration accelerated the pace of negotiations after the enactment of the Trade Promotion Authority in August 2002. U.S. participation in free trade agreements can occur only with the concurrence of Congress. In addition, FTAs affect the U.S. economy, with the impact varying across sectors.

Free trade areas are part of the broad category of trade arrangements under which member countries grant one another preferential treatment in trade. The process of forming an FTA usually begins with discussions between trading partners to ascertain the feasibility of forming an FTA. If they agree to go forward, then the countries undertake negotiations on what the FTA would look like. At a minimum, participants in an FTA agree to eliminate tariffs and some other nontariff trade barriers and agree to do so over a specific time period. In addition, the partner countries usually agree on rules of origin, that is, a definition of what constitutes a product manufactured within the FTA and, therefore, one that is eligible to receive duty-free and other preferential trade treatment. Rules of origin prevent products from non members entering an FTA market over the lowest tariff wall. Most FTAs also include procedures on the settlement of disputes arising among members and rules on the implementation of border controls, such as product safety certification and sanitary and phytosanitary requirements. Most recent FTAs contain rules on economic activities besides trade in goods, including foreign investment, intellectual property rights protection, treatment of labour and environment, and trade in services. The size and complexity of the FTA will largely reflect the size and complexity of the economic relations among the participating
12

countries. U.S. FTAs with Israel and Jordan are relatively basic, while the NAFTA (the United States, Canada, and Mexico) is very complex.

Countries form free trade areas for a number of economic and political reasons. Most basically, by eliminating tariffs and some nontariff barriers, FTAs permit the products of FTA partners easier access to one anothers markets. The 1989 FTA between the United States and Canada was formed arguably for this purpose. Developed countries have also formed FTAs with developing countries to encourage them toward trade and investment liberalization. FTAs may be used to protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs. For example, some supporters of the U.S.-Chile FTA argued that U.S. firms were at a disadvantage vis--vis their Canadian competitors whose exports face no Chilean tariffs under the Canada-Chile FTA. Slow progress in multilateral negotiations has been another impetus for FTAs. For example, when the 1986-1994 Uruguay Round negotiations got bogged down, the impetus for the United States, Mexico, and Canada to form NAFTA seemed to increase. Arguably the surge in FTA formation worldwide in the past few years has been a result of the difficulties encountered in launching and implementing the Doha Development Agenda round of negotiations in the WTO. A good example of free trade area is the European Free Trade Area [EFTA] which was created by the Stockholm convention in 1960. Originally, EFTA consisted of seven countries, viz; Australia, Denmark, Norway, Portugal, Sweden, Switzerland and the UK. Late on Finland and Iceland joined EFTA. Since then, the membership to EFTA had been shrinked mainly because several countries joined the European community. It is headquartered at Geneva. It has neither a common external tariff nor a common economic policy. It does not participate in GATT negotiations as a single bargaining unit. Other examples of free trade area are the north American free trade agreement (NAFTA) and the Asean Free Trade Area (AFTA). The EU has a higher level of integration which incorporates a free trade area, but it has progressed well beyond the simple removal of tariffs.

3. Customs Union: Trade agreement by which a group of countries charges a common set of TARIFFs to the rest of the world while allowing free trade among themselves. It is a partial form of economic integration, intermediate between free-trade zones, which allow mutual FREE TRADE but lack

13

a common tariff system, and common markets, which both utilize common tariffs and allow free movement of resources including capital and labour between members. Well-known customs unions include the Zollverein, a 19th-century organization formed by several German states under Prussian leadership, and the EUROPEAN UNION, which passed through a customs-union stage on the path to fuller economic integration.

4. Common Market: A common market (CM) can be considered the first stage of deep economic integration. Free mobility of the key participants in the process of production is its characteristic. In addition to goods and services, capital and people move freely inside a common market. The benefits expected consist of further gains in efficiency through a more appropriate allocation of resources. capital moves to where skills are and people move to where opportunities beckon. In addition to the common external tariff that defines a CU and to ensure the viability of a common market, uniform regulations have to be worked out among the members regarding the movement of people and capital. This is a major task that requires, at least over time, agreement on qualifications and certifications of workers from different member countries. For a common market to become effective, therefore, co-operation in decision-making is required in yet more areas. Non-tariff barriers have to be dismantled, structural adjustment policies have to be jointly reassessed, distribution policies will face harmonization pressures, and fiscal and monetary policies, as a dynamic consequence or by design, will show greater convergence. This convergence results from the increased economic interdependence among the members and necessitates that greater consideration be given to the effects of national policies on the welfare of CM partners. A common market is a custom union that also has free movement of all factors of production among the common market countries. The common market countries abolish all trade restrictions on their mutual trade and also establish a common external tariff, as a custom union. The existence of a common market implies that the internal market comprising all the member countries, is common to all firms trading within it. The removal of all internal barriers, both tariff and non-tariff, allows all firms access to the entire internal market. Trade in goods may be obstructed by non-tariff barriers such as differences in product standards or testing procedures, customs formalities, and transport restrictions and so on. Non-tariff barriers are often much more of an

14

obstruction to trade than tariff barriers because they are less visible and more difficult to overcome. Removal of such barriers will facilitate trade in goods.

5. Economic Union: An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of

production (capital and labour) and a common external trade policy. The countries often share a common currency.

Purposes for establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. Economic union is established through trade pact. An economic union is the most complete form of economic integration between countries. It involves a common market and also harmonisation of economic policies in particular monetary union and coordination of fiscal policies. Monetary union implies there is fixed exchange rate system between the member countries, a common or single currency, and central control over interest rates and other instruments of monetary policy. Coordination of fiscal policy implies harmonisation of tax rates and taxes, and some degree of control over government budgets and budget deficits. The member countries in the economic union function as a single economy.

Thus,the degree of economic integration ranges from preferential trading agreement to Free trade areas, Customs union, and Common market and Economic unions.

15

LEVELS OF ECONOMIC INTEGRATION

Types of integration Abolition tariff Quotas

Important Features of Integration of Common barriers Free movement Harmonisation

Free areas

trade

Yes

No

No

No

Customs union Common market Economic union

Yes Yes

Yes Yes

No Yes

No No

Yes

Yes

Yes

Yes

16

ARGUEMENTS SURROUNDING ECONOMIC INTEGRATION.

1. Trade Creation: Since Jacob Viner (1950) described how the welfare effects of a regional trade agreement (RTA) depended on the trade creation and trade diversion generated, economists have been interested in estimating these two effects. Empirical work estimating these effects is particularly important since theoretical work suggests that regional agreements may be beneficial or harmful depending on the particular countries involved and the extent of trade creation relative to trade diversion (see Panagariya (2000) for a survey). As Bur fisher, Robinson, and Their felder (2001, 139) put it, whether or not a regional trade agreement benefits its members will depend on parameter values and initial economic structure it is essentially an empirical issue that must be settled by data analysis. Because of data limitations, most studies do not attempt to measure the welfare effects of regional agreements, but instead take the first step down that path by estimating the impacts of the agreements on trade flows. Existing studies estimate changes in trade patterns due to regionalism in two distinct ways.

Ex post studies examine trade flows after the RTA has been implemented and compare the actual levels of trade with a prediction of trade in the absence of the RTA. Ex ante studies use trade patterns and estimated elasticises or computable general equilibrium models prior to the agreement to calculate the predicted effect of eliminating trade barriers with a partner country.

(a) Production effect: The formation of customs union 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. This results in trade creation. Trade creation improves the international allocation of resources by shifting the production from a high cost producer to a low cost producer. Thus, trade creation increases welfare by reducing costs or alternatively by increasing world income. In this case trade creation increases the welfare. (b) Consumption effect: Formation of customs union leads to increase in consumption. Trade

17

creating economic integration increases specialisation 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 the 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 in the relative strength of these two opposite forces.

2. 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. Oligopolistic and monopolistic market structures become exposed to outside competition. Inefficient firms must either become efficient or close down. The increased level of competition is also likely to stimulate the development and utilisation of new technology. This creates a stimulus conducive to managerial efficiency and technological improvements. This creates an environment for faster economic growth.

3. Economies Of Scale: Formulation of customs union leads to expansion of the size of the market, increase in competition and greater degree of specialisation. Firms will be able to exploit internal and external economies. The firms will be able to utilize fully their plant capacity and reach their optimum size.

4. 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 sine large scale economies can be reaped.

5. Investments: The formulation of customs union may stimulate investment. The increase in competition and technical change leads to additional investments, which is necessary to take advantage of the newly created opportunities. At the same time, some import-competing industries may be hit by increase in competition coming from more efficient producer located in other union countries. This may result in some disinvestments.

18

6. Economic Growth: Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflationadjusted terms, in order to obviate the distorting effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output. As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries.

19

EUROPEAN UNION (EU)

Headquarters

Brussels (Belgium) is the main place ,some Other Important offices Luxembourg (Luxembourg ) and Strasbourg (France)

Presidents

Jos Manuel Barroso ( Portugal )

Website

http://europa.eu/index_en.htm

20

MEMBERS COUNTRIES

21

The European Union is not a federation like the United States. Nor is it simply an organization for cooperation between governments, like the United Nations. Neither is it a State intended to replace existing states, but it is much more than any other international organization. The EU is, in fact, unique. Never before have countries voluntarily agreed to set up common institutions to which they delegate some of their sovereignty so that decisions on specific matters of joint interest can be made democratically at a higher, in this case European, level. All EU decisions and procedures are based on the treaties agreed to by all EU countries, under which sovereignty is shared in specified areas. The result is a union of 27 Member States covering 1.6 million square miles with roughly half a billion people producing almost a third of the worlds gross national product and speaking more than 23 languages, bound together by a desire to promote peace, democracy, prosperity, stability, and the rule of law. The EU embraces the fundamental values shared by its Member States across a multitude of cultures, languages, and traditions.

The Member States agree that democracy is the best form of government. They believe in societies that encourage pluralistic political thought and endorse freedom of speech and religion. They support free market economieswhere economic development and growth are driven by the private sector and facilitated by governments. They believe prosperous countries have an obligation to help poorer and less developed regions and nations. And they value living together in peace as well as promoting these principles globally. The EU sets high standards for membership. Candidate states must have stable democratic governments; respect for the rule of law, minorities, and human rights; a functioning market economy; and the ability to take on the obligations of EU membership. That is, prospective members must have the capacity to adopt and implement the body of EU laws and regulations that ensure cooperation in a multitude of areas in addition to trade and the economy, including citizens rights, freedom, security, and justice, job creation, regional development, environmental protection, and making globalization work for everyone.

22

ORIGIN OF EUROPEAN UNION

Economic integration was launched in the wake of World War II, as a devastated Western Europe sought to rebuild its economy. On May 9, 1950, French Foreign Minister Robert Schuman announced a planin a speech inspired by French businessman turned-advisor Jean Monnetthat proposed pooling European coal and steel production under a common authority. While contributing to economic recovery, this plan would also control the raw materials of war. The Schuman Declaration was regarded as the first step toward achieving a united European ideal that in the past had been pursued only by force. Belgium, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands accepted the French proposal and signed the European Coal and Steel Community (ECSC) Treaty in Paris on April 18, 1951. The Six set up the ECSC High Authority, to which member governments transferred portions of their sovereign powers. Coal and steel trade increased by 129 percent over the next five years. Encouraged by this success, the Six pursued integration in the military and political fields. When these efforts were derailed, European leaders decided to continue the unification of Europe on the economic front alone. A historic meeting in Messina, Italy, in June 1955, launched the negotiations for two new treaties, the first to establish a European Economic Community (EEC) to merge separate national markets into a single market that would ensure the free movement of goods.

The European Union is often compared to the United States, and there are indeed some similarities in function and organization. The Member States of the EU have agreed to pool some of their sovereign powers for the sake of unity and promotion of shared values, just as American states did to create a federal republic. In the fields where national sovereignty has been pooled, such as trade, the EU negotiates directly with the United States.

23

THE INSTITUIONS AND POLICY MAKING PROCESS OF EUROPEAN UNION

The EU is built on an institutional system which is the only one of its kind in the world. The basic institutional structure of the EU was laid down in the Treaties of Paris and Rome and later confirmed by the Merge Treaty.

The member states delegates sovereignty for certain matters to independent institutions which represents the interests of the union as a whole, its member countries and its citizens. The important institutions are:

1. Council of the European Union 2. European Parliament 3. European Commission 4. Court of Justice 5. European Central Bank

The other institutions are Court of Auditors, Economic and Social committee, Committee of the Regions, European investment Bank and European Ombudsman.

Each of these institutions is given clearly defined power and responsibilities. And rule of law are the cornerstones of the structure of EU.

1. Council of the European Union: The council of the European Union is the main decision making body of EU. It is made up of ministries from each of the member governments. The presidency of the council of ministers rotates between the member governments at six-monthly intervals. The council meets in different compositions such as foreign affairs, finance, education, telecommunications, etc. The European Council meets at least four summits a year.

2. European Parliament: Member of the European Parliament are directly elected by citizens in their respective countries. The number of members of parliament form each country is proportional to its population. The members are elected every five years. The European
24

parliament represents the democratic will of the people of the EU.

3. European commission: It acts as the EUs executive arm and is responsible for initiating legislation and day to day running of the EU. It is intended to act solely in the interest of EU as a whole. It is currently composed of 27 commissioners, one from each member state. Its main functions are: It has the right to initiate draft legislation and therefore presents legislative proposals to parliament and the council. It acts as guardian of the treaties and, together with the court of justice, ensures that community law is properly applied. It represents the EU on the international stage and negotiates international agreements, chiefly in the field of trade and cooperations.

4. Court of justice: The European court of justice is the highest legal authority in the EU. It ensures that community law is uniformly interpreted and effectively applied. It has jurisdiction in disputes involving member states, EU institutions, businesses and individuals. The court has one judge from each state, appointed by consensus. A court of First instance has been attached to it since 1989 to relieve its excessive workload. 5. European Central Bank : It came into operation in 1998. It frames and implements EUs monetary policy. Its responsibilities include control over the issue of euro notes and coins, foreign exchange operations and official reserves. It conducts foreign exchange operation and ensures the smooth operation of payments systems. Its primary monetary policy objective is the maintenance of price stability

25

CHALLENGES AND FUTURE PROSPECTS OF EUROPEAN UNION

Consolidating Euro: One of the future prospects is consolidating the euro which will enhance economical integration among the European nations. Strengthening common foreign and security policy: Another prospective area is the strengthening the common foreign and security policy. The EU does not possess common energy policy. That is why there is need for launching of the common energy policy.

CONCLUSION
At the same time the unification of Europe can be a danger to many firms in other countries. While Europe dismantles internal barriers, it will raise external ones, making access to the European market difficult for non- EU firms. Fears that the EU will erect barriers to US exports and of the domestic content rules governing many goods have led to many US firms to initiate or expand direct investments in European countries.

26

SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATIONS (SAARC)

Headquarters Official languages Demonym Chairman Secretary General

Kathmandu ,Nepal English South Asian Jigme y thinley LC Dorji

Total Area

5,130,746 km (1,980,992sq mi )

Website

http://www.saarc-sec.org/

27

MEMBERS COUNTRIES

28

The South Asian Association for Regional Cooperation (SAARC) is an organisation of South Asian nations, which was established on 8 December 1985 when the government of Bangladesh , Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka formally adopted its charter providing for the promotion of economic and social progress, cultural development within the South Asia region and also for friendship and cooperation with other developing countries. It is dedicated to economic, technological, social, and cultural development emphasising collective self-reliance. Its seven founding members are Sri Lanka, Bhutan, India, Maldives, Nepal, Pakistan,

and Bangladesh. Afghanistan joined the organization in 2007. Meetings of heads of state are usually scheduled annually; meetings of foreign secretaries, twice annually. It is headquartered in Kathmandu, Nepal.

The world today is at a turning point. The changes that we are undergoing are global in scope, revolutionary, fundamental and structural in content. As we have entered the 21st century a sense of optimism prevails for attaining peace and prosperity through effective role-play of regional as well as global organizations. Many view Asia as having a variety of characteristics in common with Europe of the nineteenth century: underdeveloped international institutions, mixed domestic orders, rising nationalism, high but differential growth rates, and bitter, emotional rivalries between insecure neighbours. The success of states in todays world is not so much measured in terms of capacity for defending borders or creating uniquely national institutions, but in terms of ability to adapt to regional and global trends, promote exports, attract investments, and skilled labour, provide a beneficial environment for transnational companies, build attractive institutions of research and higher learning,

29

ORIGIN OF SAARC
The first concrete proposal for establishing a framework for regional cooperation in South Asia was made by the late president of Bangladesh, Ziaur Rahman, on May 2, 1980. Prior to this, the idea of regional cooperation in South Asia was discussed in at least three conferences: the Asian Relations Conference in New Delhi in April 1947, the Baguio Conference in the Philippines in May 1950, and the Colombo Powers Conference in April 1954. In the late 1970s, SAARC nations agreed upon the creation of a trade bloc consisting of South Asian countries. The idea of regional cooperation in South Asia was again mooted in May 1980. The foreign secretaries of the seven countries met for the first time in Colombo in April 1981. The Committee of the Whole, which met in Colombo in August 1985, identified five broad areas for regional cooperation. New areas of cooperation were added in the following years. AIMS AND OBJECTIVES OF SAARC

The South Asian Association for Regional Cooperation (SAARC) comprising Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka is a dynamic institutionalized regional cooperation in South Asia, basically perceived as an economic grouping to work together for accelerating the pace of socio-economic and cultural development.12 The objectives of the association as defined in the SAARC Charter are:

6. To promote and strengthen collective self-reliance among the countries of South Asia; 7. To contribute to develop mutual trust, understanding and appreciation of one anothers problem; 8. To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; 9. To strengthen cooperation with other developing countries; 10. To strengthen cooperation among themselves in international forums on matters of common interest; and 11. To cooperate with international and regional organizations with similar aims and purposes.

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Cooperation in the SAARC is based on respect for the principles of sovereign equality, territorial integrity, political independence, non-interference in internal affairs of the member states and mutual benefit. Regional cooperation is seen as a complement to the bilateral and multilateral relations of SAARC members. Decisions are taken on the basis of unanimity. Bilateral and contentious issues are excluded from the deliberations of SAARC. Though economic cooperation among South Asian nations was not a new phenomenon yet the quest for economic integration remained inhibited by the colonial heritage of these countries.13 Since 1985, SAARC has evolved slowly but continuously both in terms of institutions and programmes. However, it is true that most of the programmes and achievements of SAARC exist on paper. The much talked about SAARC Food Security Reserve could not be utilized to meet the needs of Bangladesh during its worst natural disaster in 1991. It is also true that most SAARC activities are confined to the holding of seminars, workshops, and short training programmes. These activities may be useful, but they do not address priority areas and lack visibility and regional focus so essential for evolving a South Asian identity. Most importantly, SAARC suffers from an acute resource crunch. Unless the organization is successful in mobilizing funds and technical know-how from outside sources, most of its projects cannot be implemented and, thus, its relevance will remain limited.

PROGRAMME OF ACTION

1. Poverty Eradication. 2. Suppression of Terrorism. 3. Trade and economic cooperations

SAPTA (SOUTH ASIAN FREE TRADE AREA) The SAPTA Agreement entered into force on 7th December 1995. SAPTA contains provisions giving special and favourable treatment to the LDCs in the SAARC region. Additional measures in favour of LDCs including provisions for safe guard action and balance of payment measures are also incorporated in SAPTA to protect the interests of member states during critical economic circumstances.

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Instruments Trade Liberalisation Programme Rules of origin Institutional Arrangements. Consultation and dispute settlement procedures. Safeguard measures Any other instruments that may be agreed upon.

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ACHIEVEMENTS OF SAARC
Several factors such as political, economic, security and potentiality of mutual economic benefit through regionalism seem to have influenced President Ziaur Rahmans thinking about establishing a regional organization in South Asia. 15 SAARCs existence, however, has enabled South Asian political leaders to meet regularly and carry on informal discussions to address their mutual problems. This is no mean achievement given South Asias past history and low level of interaction among South Asian countries since their independence. Informal talks among the leaders at regularly held SAARC meetings have led to inter-elite reconciliation on many sensitive issues, producing some noteworthy results in South Asia. The informal talks between the Indian and Pakistani Prime Ministers at the second SAARC Summit meeting at Bangalore in November 1986 led to the diffusion of tension between the two countries on the issue of Indias military exercise, Operation Brasstacks, on the Indo-Pakistan border, and the India-Sri Lanka talks at the 1987 SAARC foreign ministers meeting led to their accord on the Tamil problem. As a result of an informal meeting and discussion between Prime Minister of India and Pakistan, Narasimha Rao and Nawaz Sharif, at Davos (Switzerland), in 1992, the Pakistani government took action to prevent the move of the Jammu and Kashmir Liberation Front (JKLF) to cross the ceasefire line in Kashmir later that year. The Davos meeting was possible because of an earlier informal agreement between the two leaders at the sixth SAARC Summit meeting at Colombo in December 1991. Given this utility of SAARC, can the organization grow or expand its role in the coming decades?

The Heads of State or Government during the Ninth SAARC Summit agreed for the first time that a process of informal political consultations would prove useful in promoting peace, stability, amity and accelerated socio-economic cooperation in the region. The leaders reiterated this intent during their Tenth and Eleventh Summits in Colombo and Kathmandu respectively also. The Agreement on SAARC Preferential Trading Arrangement (SAPTA) was signed in 1993 and four rounds of trade negotiations have been concluded. With the objective of moving towards a South Asian Economic Union (SAEU), the Agreement on South Asian Free Trade Area (SAFTA) was signed during the Twelfth Summit in Islamabad in January 2004. SAFTA may enter into force by the end of the year 2006. The Association has carried out Regional Studies on trade, manufactures and services, environment and poverty alleviation, SAFTA and Customs matters. Since its inception in 1984 there have also been serious differences among member countries over the aims and functioning of SAARC.16 Such differences have been pronounced in verbal bickering
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in several SAARC meetings. This is in the face of the fact that closer social, economic and cultural ties (the espoused ideals of SAARC) are considered the one and only hope for building regional cooperation efforts in South Asia in the coming years. Indeed, increasing rationalization of world trade and the fluidity of the emerging global system has increased trade within each trade bloc and those countries that do not belong to any trade blocs are likely to be the losers.17 This also provides a strong rationale for sustaining the SAARC vis--vis future trade prospects of South Asia.

The assumption that peace can be achieved through SAARC without addressing the political problems of the region has neither been able to cultivate peace nor to invigorate the SAARC process successfully.

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CONCLUSION
Though the formation of SAARC is a landmark step taken by the leaders of the region, the main rational behind its establishment is to develop a congenial environment through summit diplomacy where all nations may interact peacefully with each other, cultivate sustainable peace and promote mutual economic well being by harnessing available resources in the region through the peaceful process of economic integration. Nevertheless, after 21 years of establishment, neither South Asian nations have been able to push the process of integration into full swing nor the organization itself has become viable enough to promote peace, harmony and economic integration or prevent conflicts in the region.

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CONCLUSION OF THE OVERALL STUDY

Given the enormity of the recent financial bailout, the new administration in Washington will undoubtedly be forced to cut social spending. State and local governments also face cutbacks. How can the United States address serious social problems failing schools, crime, chronic joblessness, teen pregnancy, drug abuse in a time of fiscal retrenchment? One way is to promote economic integration. The research is clear that concentrated poverty has negative effects on school performance and a range of social outcomes independent of individual characteristics, including poverty. Even if we cannot reduce poverty we can reduce its effects by creating more mixedincome communities. Though racial segregation has been declining slowly, economic segregation has been increasing steadily, and we need to do something about it. Economic integration varies significantly across metropolitan areas. As we show, there are many different ways to measure economic integration. For this study we devised a Relative Economic Integration Index that takes into account the huge differences in income ranges across metropolitan areas. We also examined the segregation of the poor from the rest of society and the concentration of poverty.

The different ways of measuring economic integration are related but measure different aspects of the same phenomena. Notwithstanding the complexities of measuring economic integration, the federal government should make tracking and setting goals for increasing economic integration, part of its policy. Policies for promoting economic integration should not tell people where to live. As we put it: Economic integration, stated simply, means that households of all different income levels have realistic housing options in all parts of a metropolitan area, so that they can pursue opportunities throughout the region. A certain amount of economic segregation is normal. But present levels of economic segregation are excessive.

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BIBOLOGRAPHY
Economics of global trade and finance text book of M.com part-I

WEBLOGRAPHY
http://www.saarc-sec.org/india/ http://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation http://en.wikipedia.org/wiki/Economic_integration http://en.wikipedia.org/wiki/European_Union Official site of economic integration of us, canada and mexico. http://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation

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