Introduction

European Union (EU) is a politico- economic union situated in Europe consisting of twenty
eight member state. It was founded in 1st November, 1993 in Netherlands. The founder
Nations of EU are France, Belgium, Luxemberg, Italy, Netherlands, Germany. EU functions
through a system of supernational independent institutions and intergovernmental negotiated
decisions by the member states (the world Factbook, central intelligence Agency, 2009).
Institution of EU includes European commission, Council of European union, European
Council, Court of Justice of European union, European central Bank, Court of Auditor and
European Parliament.
European Union has created a strong relation between countries by allowing easier movement
of EU citizens from one country to another and thus reducing the risk of wars. It has been
working continuously for a common ground for laws and regulations. It has created free trade
in which capital; labor, goods and services have free movement in the market. It has even
been awarded with Nobel Peace Prize in 2012.

Importance and features

European Union has united the entire Europe by tying the countries of Europe
together economically and with strong legal, political and security interests which has
helped to bring everlasting peace to Europe.
It helps to create and implement uniform laws and regulations that integrate the
member states of EU.
It creates fair competition by devaluation of currency, changing interest rates, giving
equal opportunities, protecting employment and maintaining harmonized social
standards within member states.
EU helps to take competitive advantage based on improved efficiency and
productivity.
EU decides how the integration should be done and carried out regarding issues like
migration, labor, weights and measures.
EUs currency i.e. Euro is becoming very popular and successful and is replacing the
traditional currencies of 12 member of Euro-zone.
One of the major feature of EU is it comprises of 7.3% of world population and it
generated nominal gross domestic product (GDP) of 16.584 trillion dollars,
constituting about 23% of global nominal GDP and 20% when measured in terms of
purchasing power parity which is the largest economy by nominal GDP and the
second largest economy by GDP (PPP) in the world. (World Economic Outlook
Database, October 2013 Edition)
EU is currently larger than Unites States of America and is all ready to take in 13 new
countries i.e. 500 million people, about double size of the US. It is also currently the
largest investor in the US making 61% of foreign investment in US. EU exports about

170 billion more than US exports and it has invested more amount of money in US
than US has invested in EU.
It has power to determine the rules which regulate workplace relations between
employers and employees in member states and also influences HR/personnel
management in UK.

Advantages and Disadvantages of being part of Regional Integration such as EU

So, its clearly evident that the European Union has evolved into one of the dominant forces
in world map regarding economic, political and socio cultural context. We can see lots of
merits attached to such integration, but on the other hand we can also argue that there have
been some probable demerits attached along with such integration. So, its like a double
edged sword when it comes to being a member of this kind of regional integration.
As already mentioned, political stability can be facilitated with such integration. In case of
Europe, the initiation of the integration was seen by many as the means to escape from the
extreme forms of nationalism and the devastating consequences it has brought along with it
(European Union). Such integration also broadens the boundaries of economic activities.
Uniformity of regulations and policies, flexibility of labor migration, favorable tax policies
etc. provide conducive environment for economic prosperity. Also, affluent members of such
alliance can help less developed members to prosper by fostering institutional reforms,
providing aids and expertise (The EU is (still) an economic success story and should not
abandon its growth model).
On the other hand, as every member nation will be seeking to take maximum benefits from
such integration, members with high bargaining power and regional influence are more likely
to take benefits at the cost of other member nations. In such integration, it is never guaranteed
that every member nations involved will have same economic, social and political status. As
there will be a uniform rules for each of the members, the same gulf in status will result in
those rules being more favorable for one than another. In theory, it is true that each member
nation will have equal say and participation in policies formulation but in reality thats very
hard to achieve to full extent. So, there is always a chance that one nation may be benefitting
at the cost of another nation. We can take Black Wednesday as an example. Different
inflationary situation across different nations led to British government withdrawing pound
sterling from European Exchange rate mechanism (ERM) on September 16, 1992. Italy also
left ERM due to similar circumstances (Black Wednesday). The interest rate influenced by
Bundesbank which was primarily in favor of West Germany led to such circumstances.
(please mention source of this information)
So, being a part of such integration is like being a part of a team. Equality that ensures equity
will benefit every member of the team whereas individual influence within a team leads to
unequal gains and losses.

EU Economic Integration and SAFTA

European Union has made remarkable progress in terms of economic integration in its first
two decades. This integration started off as a union of various international associations like
European Coal and Steel Community (ECSC), European Atomic Energy Community
(Euratom), European Economic Community (EEC) etc. This regional integration was turned
into economic integration by introduction of three major changes in their associations viz.
new common European currency (i.e. Euro), new common European bank (i.e. European
Central Bank), and some important programs to remove other trade barriers.

Euro There were minimum economic conditions set to be meet by EU members for
introduction of Euro to create a convergence among various national economies.
These conditions include, maintaining international currency exchange rates within a
specified range for at least two years prior to introduction of Euro, and maintaining
long term-interest rates, public debt and total government debt under specified limit.
This method of convergence was able to bring economic uniformity, which was the
first step toward economic integration among various economies.

European Central Bank Initially Euro existed, as a currency of account, i.e. it

existed only on paper or for electronic transactions, as no Euro notes and coins were
circulated. Only countries who met the criteria were allowed to use Euro. These
countries were collectively referred to as single-currency area. Later on, the national
banks of the single-currency area coordinated for the establishment of European
Central Bank. This made the publication and regulation of Euro notes and coins
easier. This regulation of Euro has facilitated the flow of trade among EU nations.

Important programs Each European country used to provide different incentives

and subsidies to benefit its farmers and ensure domestically grown food supply. This
type of programs reduced the degree of trade and increased the number of conflicts
and complexity among economies regarding trade of agricultural products. Nearly
70% of EU expenditures was made to address agricultural issues. So, EU adopted a
Common Agricultural policy (CAP) as a part of treaty on European Union. This
brought uniformity and integration in agricultural policies. Similarly, Economic
Social Fund (ESF) and European Regional Development Fund (ERDF), were
established to facilitate the uniformity of social policies among EU members. ERDF
concentrates on building economic infrastructures in less-developed EU countries.
Also, European Investment Bank (EIB) was established to generate funds from
international capital market and grant funds to projects of common interest of EU.

Thus, member nations of SAFTA can follow the similar model, if they want to develop the
regional integration from free trade area to Economic union similar to European Union.

However, before following this model, SAFTA nations should reorganize the structure of
SAFTA, so as to make it participative and fair. It can be done by establishment of common
SAFTA organizations such as a common court to address regional trade issues.
Although SAFTA is a free trade agreement among SAARC nations, not much has been done
to remove both type of trade barriers i.e. tariffed and non-tariffed. So, each nation should first
realize the importance of free trade and implement the free trade through SAFTA. The
establishment of common currency such as Euro, could be one of the measures to remove
these barriers and integrate the economies at the same time. Similarly we can establish a
common bank and some common policies applicable among all SAFTA nations so as to
reduce the trade barriers and facilitate integration.
This sort of cooperation can be hugely beneficial to the least developed countries like Nepal
where huge potential of innumerable untapped resources exists. Possible gains of such an
economic integration to Nepal would be as follows:

Strengthened transport links & networking of private sectors

Increased quality of hospitals, schools and transport services through direct

investments or joint ventures.

Flourished inter-regional tourism with strengthened security measures

Increased flow of Foreign direct investment and technology transfer

Energy and electricity cooperation with large exports of hydro-electric power

However, the recurring political tensions between India and Pakistan, lack of concrete
agreements on water and land management issues, and several unresolved border related
issues can act as the major challenges for such integration. Also, the countries in the SAARC
region competing for the same international market can be the key blockade for inter-regional
trade

Good work: 8.5 /10.

You have provided good information on EU and its creation and also pointed out some of the
important elements that could be used by SAFTA to become Economic Union. However, it
would have been better if you could have added some of your own thoughts into your
writing. For example how could monetary union be made possible in SAFTA? How could
member nations be united with common objective of gaining competitive advantage? etc.

References
"European Union". Encyclopdia Britannica. Retrieved 3 July 2013. "international
organisation comprising 28 European countries and governing common economic, social, and
security policies .
European Union. Retrieved from www.encyclopedia.com/topic/European_Union.aspx
http://www.business-standard.com/article/opinion/chandrajit-banerjee-immense-potential-forintra-saarc-trade-111111300039_1.html Assessed on 27th July 2014