Regional Trade Blocs

Arun Mishra
9893686820
arunjimishra@gmail.com
Economic Integration
Business & governments have created a range of
institutions, treaties & agreements that help to
Overcome trade differences
Boost the free movement of trade, investment,
and services across national boundaries
Economic integration is concerned with:
The removal of trade barriers or impediments
between at least two participating nations
The establishment of cooperation & coordination
between them
Integration creates high levels of globalization and
regionalization
Regional Trade Blocs
Regional trade blocs are intergovernmental
associations that manage and promote trade
activities for specific regions of the world.
A trade bloc is a type of intergovernmental
agreement, often part of a regional
intergovernmental organization, where
barriers to trade (tariffs & others) are
reduced or eliminated among the participating
states.
Such blocs have liberal rules for member countries
while a separate set of rules is laid for non-members.
For example, European Union (EU), Association of
South East Asian Nations (ASEAN).
Types of Trading Blocs
Free trade areas
Customs Union
Common Market
Political Unions
Economic Union
 Free Trade Areas
If a group of countries agree to abolish all trade
restrictions & barriers among
Simplest form of economic integration which
provides the internal free trade between
member nations.
Each member is allowed to determined its
own commercial policy with respect to non-
members.
Example: Latin American Free Trade
Association (LAFTA)
 Customs Union
More advanced form.
Have two basic features:
Internal free trade among the member nations
and
adopts a uniform commercial policy against the
non-members.

Example: EEC European Economic

Community
 Common Market
Has three basic characteristics:
Member countries abolish all trade restrictions
They adopt uniform commercial policy of
barriers and restrictions jointly with the non-
members.
They allow free movement of human resource
and capital among themselves .
factors of production such as capital, labour and
technology are mobile among them.
 Economic Union
Level of integration is more developed.
Has four basic characteristics:
Member countries abolish all trade
restrictions
They adopt a uniform commercial policy of
barriers with the non-members.
They Allow free movement of HR and Capital
among.
They achieve uniformity in monetary policy
and fiscal policy among member countries.
Example: European Union has introduced a
common currency EURO.
 Political Union
It is the ultimate type of economic integration
whereby member countries achieve not only
monetary and fiscal integration but also political
integration.

Example: the Europe Union (EU) is

moving towards a political union similar to
one created by 52 states of America.
Advantages of Trading Blocs
Resources of the region are pooled.
Access to larger markets leads to internal
economies of scale.
External economies of scale due to improved
infrastructure (e.g. transport & telecoms links)
Greater international bargaining power.
Increased competition between members.
More rapid spread of technology.
Disadvantages of Trading Blocs
Country may lose resources to more efficient
members, or to geographical center, and become
depressed region.
Firms may co-operate, join together and merge,
leading to greater monopoly power.
Diseconomies of scale if firms become very
large.
High administrative costs of trading bloc.
Major Trade Blocs
EU (European Union )
NAFTA (North American Free Trade
Agreement)
MERCOSUR (Mercado Comun del Cono Sur,
also known as Southern Common Markets
(SCCM)
ASEAN (Association of Southeast Asian
Nations)
SAARC (South Asian Association for Regional
Cooperation)
European Union
Evolutionary Stages of EU are:
European Coal and Steel Community ECSC was
formed in in 1952.
In 1957 the Treaty of Rome gave birth to European
Economic Community also known as European
Common Market.
On January 1986 EEC became EU with the
introduction of Uniform Monetary policy, common
currency & fiscal policy.
Requirements for joining EU are:
Country must be European country
It must be a democratic country.
European Union

Objectives:-
Setting up a common market
Continuous & balanced expansion
Closer relations between the member states.
ACTIVITIES OF EU
Elimination of custom duties, quantitative
restrictions with regard to export & imports.
Establishment of a common custom tariff
& commercial policy.
Abolition of all obstacles for movement of
persons, services & capital.
Application of programmes in order to
coordinate the economic policies.
Organisational Structure of EU
European Council is the main administrative
body
Corper is a committee of permanent
representatives acts as secretariat.

European
Council

Court of Court of European European Advisory

Justice Auditors Commission Parliament Committee
ASEAN (Association of South East Asian Nations)

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

Council of Ministers

Standing Committee

Programming Committee

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

Council of Ministers
Represented by foreign ministers of members
Meets twice a year or more, if necessary
It formulates policies, reviews functioning,
decides the general interests of SAARC members
Organisational Structure of SAARC
Standing Committee
Consists of foreign secretaries of member.
Functions include:
Monitoring & coordinating programs
Determining inter-sectoral priorities
Mobilizing cooperation within & outside region
Formulating modalities of finance
Programming Committee
Includes sr. officials of members, Functions are:
Scrutinizing the budget of the secretariat
Finalizing the annual schedule of the secretariat
Carrying out activities assigned
Analyzing & Submitting the reports of the technical
committee
Organisational Structure of SAARC
Technical Committee
Comprises the representative of all countries
Functions include:
Formulating projects & programmes
Monitoring & implementing the projects
Submitting the report to standing committee
through programming committee
SAPTA
The council of ministers have signed the
SAARC preferential trading arrangement
agreement on April 11, 1993.
Objectives of SAPTA
To gradually liberalize the trade among
members of SAARC.
To eliminate trade barriers among SAARC
countries & reduce or eliminate tariffs.
To promote and sustain mutual trade &
economic cooperation among member
countries.
EFTA (European Free Trade Association)
Formed in 1959
Members: Austria, Norway, Portugal, Sweden &
Switzerland.
Associate member countries: Finland &
Iceland, Great Britain and Denmark
EFTA achieved most of its objective during 40
years of existence.
It does not regulate agriculture & economy of
member countries.
It is managed by a Council, each members
representative represents in the council.
Council makes policy decisions and Secretary
General implements the policies.
Objective of EFTA
To eliminate all tariffs among members
To abolish the trade restrictions among members
To enhance economic development, employment,
income & living standards of people.
To enable free trade I Western Europe
LAIA (Latin American Integration Association)
Formed by LAFTA in 1960
Members: Argentina, Brazil, Chile, Mexico,
Paraguay, Peru, Uruguay, Colombia, Ecuador,
Venezuela and Bolivia.
Later LAIA replaced LAFTA.
Objectives are:
To eliminate restrictions on trade among
To reduce the customs and tarrifs & eliminate
them gradually.
Organisational Structure of LAIA
OPEC (Organisation of Petroleum
Exporting Countries)
A permanent, intergovernmental Organization, created at
the Baghdad Conference on September 1014, 1960 ( Iraq,
Kuwait, Iran, Saudi Arabia & Venezuela ).
Later joined by 8 more countries.
The main objective is
To coordinate and unify petroleum policies among the
member countries.
To secure fair and stable price for petroleum producers.
Proper price and regular supply for petroleum consuming
nations.
Its Headquarter is in Vienna, Austria.
 IMPACT OF OPEC ON INDIA
India Imports its crude oil largely from Saudi
Arabia, Iraq, Iran, Angola, Nigeria and many more.
The top 5 oil exporting countries to India are
members of OPEC.
As Indian crude oil import is the part of bulk
imports in the balance of payments (BoP), the
fluctuations in international crude oil prices tends to
fluctuate the domestic economys current account
balance, foreign exchange reserves, inflation etc.
According to Goldman Sachs report, a rise in global oil
prices by $10 a barrel would reduce India's economic
growth by 0.2 percentage points and also affect the
country's current account deficit.
MERCOSUR
Established in 1991 by Brazil, Argentina,
Paraguay, Uruguay.
Chile & Bolivia became associate members in
1996 & 1997
These four members generate 70% GNP of south
America.
By 1996, MERCOSUR had abolished tariffs on
goods accounting for 90% of the trade between
its members countries, with remaining tariffs to be
abolished by 2000.
MERCOSUR & EU Signed a cooperation
agreement to pave the way for a free trade accord in
2001.
Objectives of MERCOSUR
The free transit of produced goods,
services & factors among the member states
among other things, this includes the
elimination of customs rights & lifting of
nontariff restrictions on the transit of goods or
any other measures with similar effects
Fixing of a common external tariff (CET)
Coordination of macro-economic &
sectorial policies of members
Free movement of manpower & capital
across
Develop institutional groups
India and Mercosur
A Framework Agreement had been signed
between India and MERCOSUR on 17th June
2003
India MERCOSUR PTA came into effect
from 1st June, 2009
Products covered in Indian offer list are meat &
meat products, organic & inorganic chemicals,
Product covered in the offer list of
MERCOSUR are food preparations,
pharmaceuticals, essential oils
Trade volume should reach 17 billion USD in 2012
and 30 billion USD by 2030
Implication of Trade Blocs for Business
Opportunities to business firms :
Business is opened within the region
More efficient business helps less efficient
business in other country to grow.
Productivity, quality, price, & customer service
will increase in the region.
Customers will get the best product at the lowest
price.
Employment opportunities will increase.
Implication of Trade Blocs for Business
Threats to business firms:
Less efficient firms may face the problem of
survival due to efficient firms.
Market forces may kill the firms having higher
cost of production than the industry average.
Resources of the less efficient firms may get
exploited.
Less developed countries may become the
consumption center.
Less developed countries may become
poorer.