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REGIONAL BLOCKS

Introduction
After the Second World War, regional economic integration
of trading blocks emerged as a new idea for expansion of
foreign trade among the developing countries.
Economic integration:
The term economic integration is commonly used to
refer to agreements between countries which remove
artificial trade barriers, like tariffs and quantitative
restrictions and leads to liberalization of trade and
investment between countries. At their deepest they have the
objective, judicial and legislative institutions.
Forms of integration:

 There are different degrees or levels of economic


integration. Bela balassa in the theory of economic
integration [1961] perceived the following five possible
levels or degree of economic integrations.
1. Free trade area/ association.
2. Customs union.
3. Common market.
4. Economic union.
5. Economic integration.
1-Free trade area / association:
 Free trade area, which is a grouping of countries to bring
about free trade between them. It abolishes all
restrictions on trade among the member but each
member is left free to determine its own commercial
policy with non-members. North American Free Trade
Agreement
2-Customs union:
 It is more advanced level of economic integration
than the free trade area. It not only eliminates all
restrictions on trade among members but also adopts
a uniform commercial policy against the non-
member. ( Common external tariff)
 Mercosur in South America
3-Common market:
 A common market allows free movement of labour
and capital within the common market, besides free
trade among members and uniform tariff policy
towards outsiders.
 EU
4-Economic union:
 The economic union achieves some degree of
harmonization on national economic policies,
through a common central bank, unified monetary
and fiscal policy etc. example: Belgium- Luxumberg
Economic Union
5.POLITICAL UNION

 The political union achieves further more degree of


harmonization in the form of political integration
along with national economic policies, through a
common central bank, unified monetary and fiscal
policy etc. example: 13 separate colonies operating
under the Article of Confederation grew intoUSA

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Advantages of regional blocks or grouping
The positive effects of regional economic
integration are as follows.
Economics of scale
High degree of specialization
Increased efficiency
Trade creation
The European Union (EU)

The World’s Strongest


Supranational Organization
European Union/ European Economic Community .

 EEC also known as the European Common Market European


community {EC} European Union [EU] is the most successful of
the regional economic integration schemes.
 Because of the political and economic destruction left by world
war II European political leaders realised that greater co-
operation among their countries would help speedy european
recovery and thus European Union was formed.
 EEC which originally comprised 6 nations namely, Belgium,
France, Federal Republic of Germany, Italy, Luxembourg and
Netherlands was brought into being on 1st January 1958, by treaty
of Rome, 1957.
European Union/ European Economic Community .

 The EEC was expanded in 1973 with the inclusion of


the United Kingdom, Denmark and Ireland.
Greece joined the community in 1981 Spain and
Portugal was admitted on 1st January 1986. The
community in was further expanded in January 1995
with the admission of Australia ,Finland and
Sweden.At present the EU has 28 members and is
regarded as the world’s biggest and richest super
national block.
The European Union

1951

Founding Members

Belgium
France
Germany
Italy
Luxembourg
Netherlands
The European Union

1973

Denmark
Ireland
United Kingdom
The European Union

1981

Greece
The European Union

1986

Portugal
Spain
The European Union

November 1989

Fall of the
Berlin Wall
sets the
stage for
unifying
Europe and
EU enlargement
The European Union

1995

Austria
Finland
Sweden
The European Union

2004

Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovakia
Slovenia
The European Union

2007

Bulgaria
Romania
The European Union

Candidate Countries

Croatia
Former Yugoslav Republic
of Macedonia
Turkey

Potential
Candidate Countries

Albania
Bosnia & Herzegovina
Montenegro
erbia including Kosovo under
UN Security Council Resolution
1244
GROWTH OF THE EU

Admission of
Romania and
Bulgaria
2007

Croatia and
Macedonia
are new
candidates

Major
debates
about Turkey
European Union/ European Economic Community .

The requirement for joining EU as member are.

 The country must be European country and

 It must be democratic country with a combined


population of 38 million and with a GDP of 8.6
Trillion.
European Union/ European Economic Community .

 Main objectives of ECC are:


1. Elimination of tariffs, quotas and other barriers on intra
community trade.
2. Devise a common internal tariff policy for imports from
the rest of the world.
3. Progressive reduction and removal of all fiscal and physical
restrictions on the free movement of goods, capital and
labour between member countries.
4. Harmonization of economic policies of the member
states in order to eliminate competition among the
member countries.
The European Union

Three key players

The European The Council of the


Parliament European Union
Voice of the people Voice of the Member States

The
European
Commission
Promoting the
common
interest
 Organization of EU
To be successful in Europe, International manager must
understand the organisation of EU along with the knowledge
about individual European Countries in which they are doing
business.The governing bodies of EU are
European Commission : This is the executive body of EU. It
assist the council. the members are appointed for a period of 4
yrs. the commission manages annual budget of EU and also
negotiates trade agreements.
28 Commissioners, each responsible for specific policy areas,
representing the common European perspective.
• Negotiates trade agreements.
• Manages Europe’s multilateral development co operation

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 European Council
It consist of different ministers of the member countries.
there are more then 25 councils e.g. : foreign Affairs,
Agriculture etc. Agriculture council comprised of
ministers of agriculture of all member countries. This
special council decides issues relating to agriculture.
The council is presided over by President, this
presidency rotates between member countries every 6
months.

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 European Parliament:
It is comprised of 626 members who are elected every 5 years
and its membership is based on country population. 3 major
responsibilities are legislative power, control over budget
and supervision of executive decisions.
European Court of Justice :
The court of Justice ensures the consistent application of EU
treaties , member states, EC institutions or individuals and
companies may bring cases to the court.
• Highest EU judicial authority.
• Ensures all EU laws are interpreted and applied correctly and uniformly.
• Can act as an independent policy maker but unlike the U.S. Supreme
Court, the ECJ can only deal with matters covered by the Treaties.

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 Euro is the common currency in Europe and is
administered by the European central Bank. Initially
involved all EU member countries except UK,
Denmark, Sweden and Greece. It was established on
January 1 , 1999,resulted in new bank notes in 2002.

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Council of the European Union
voice of the member states
The European Commission
promoting the common interest
The European Court of Justice
upholding the law

The European Court of Auditors


getting value for your money

The European Central Bank


managing the euro

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NAFTA - NORTH AMERICAN
FREE TRADE AREA

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NAFTA - NORTH AMERICAN
FREE TRADE AREA
 Members - Canada , USA & Mexico
 Came into effect on January 1 1994
 Large Trading Block and include country of different sizes
 US-Canadian trade is the largest bilateral trade in the
world
 US is Mexico’s and canada’s largest trading partner
 NAFTA is a good example for trade diversion. After the
formation of this regional block, USA ’s trade and
investment in Asia is diverted to Mexico.

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NAFTA objectives
 Elimination of tariff and non tariff barriers,
 Harmonisation of Trade rules (Subsidies, anti
dumping etc)
 Liberalisation of restrictions on services and Foreign
Investment
 Enforcement of Intellectual Property and Dispute
settlement process

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 Important components of NAFTA
 Rules of Origin - Goods and services must originate in
North America to get access to lower tariffs
 Regional content -Atleast 50% of net cost of most
products must come from NAFTA region. Exceptions
- 55%- Footware
 60% - Vehicles
 62.5% - Passenger automobiles

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Other Provisions
 Protection of labour rights
 Improving working conditions
 providing dispute resolution mechanism

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Thus NAFTA has benefited North American businesses
through increased export opportunities resulting from
lower tariffs, predictable rules, and reductions in
technical barriers to trade. Along with increasing
exports and imports, firms have become more
specialized and thus more competitive, allowing for
them to make things together for customers within and
beyond the NAFTA region.
APEC - ASIA PACIFIC ECONOMIC COOP

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 APEC came into existence in 1989 and had 21
members to promote multilateral economic co-
operation in trade and investment in the acidic rim.
All the member countries are in the border of Pacific
rim both Asia as well as America.
 Include countries like USA, Japan,china,Australia,
canada, Russia, singapore, Hong kong, Malaysia etc.
 member states account for 55% of world’s GNP, and
49% of world trade

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 3 pillars of APEC are
 Trade and Investment Liberalization- focuses on
opening up of markets and integrating economies

 Business Facilitation – increase ease of doing business


and reduce the cost of doing business

 Economic and Technical co-operation.-

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Contribution of APEC to Asia
Pacific region
APEC works to help all residents of the Asia-Pacific
participate in the growing economy. For example,
APEC projects provide digital skills training for rural
communities and help indigenous women export their
products abroad. Recognizing the impacts of climate
change, APEC members also implement initiatives to
increase energy efficiency and promote sustainable
management of forest and marine resources.
 To accomplish its objective APEC leaders committed
themselves to achieving free and open trade by 2010
for industrial nations (which generates 85% of the
regional trade) and by 2020 for the rest of the
members

 Problem is its size. Also many countries with diverse


interests.
 http://www.apec.org/about-us/about-apec.aspx

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ASEAN - Association of South
East Asian Nations

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The Association of Southeast Asian Nations
(ASEAN, 1967)
currently includes Brunei, Indonesia,
Malaysia, the Philippines, Singapore,
Thailand, Vietnam, Myanmar, Laos, and
Cambodia (10 countries).
wants to foster freer trade between member
countries and to achieve some cooperation in
their industrial policies

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 ASEAN member countries have developed
economically at a faster rate in the globe.
Their strength is well educated and skilled
human resources. Their strength enabled
them to achieve faster industrialisation.
Further the member countries are rich in oil,
mineral resources, agricultural goods and
modern industrial products.

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An ASEAN Free Trade Area (AFTA) between the six original members of
ASEAN came into effect in 2003

ASEAN and AFTA are moving towards establishing a free trade zone.
AFTA was able to cut tariffs on all intrazonal trade by about 5% by Jan
2008 and also it encouraged inflow of foreign trade in this region.

ASEAN member countries have a population greater then that of EU or


NAFTA, but their per capita GDP is smaller. However economic growth
rates of ASEAN members are among the highest in the world

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1. Together, ASEAN’s ten member states form an
economic powerhouse.
2. ASEAN is not a monolithic market.: ASEAN is a
diverse group. Indonesia represents almost 40 percent
of the region’s economic output and is a member of
the G20, while Myanmar, emerging from decades of
isolation, is still a frontier market working to build its
institutions. GDP per capita in Singapore, for instance,
is more than 30 times higher than in Laos and more
than 50 times higher than in Cambodia and Myanmar;
3. Macroeconomic stability has provided a platform for
growth.
This region proved to be remarkably resilient in the
aftermath of the 2008 global financial crisis, and today
it is in a much stronger fiscal position: government
debt is under 50 percent of GDP—far lower than the
90 percent share in the United Kingdom or 105 percent
in the United States.
. ASEAN is a growing hub of consumer demand.
ASEAN has dramatically outpaced the rest of the world
on growth in GDP per capita since the late 1970s.
Income growth has remained strong since 2000, with
average annual real gains of more than 5 percent. Some
member nations have grown at a torrid pace: Vietnam,
for example, took just 11 years (from 1995 to 2006) to
double its per capita GDP from $1,300 to $2,600. Extreme
poverty is rapidly receding. In 2000, 14 percent of the
region’s population was below the international poverty
line of $1.25 a day (calculated in purchasing-power-parity
terms), but by 2013, that share had fallen to just 3
percent.
 Drawback of ASEAN is that some of the member
countries like Malaysia, Singapore, Thailand are still
following the protectionist measures which decreased
the effectiveness of AFTA.

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SAARC - SOUTH ASIAN ASSOCIATION FOR
REGIONAL CO-OPERTION.

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CURRENT MEMBERS
1. Afghanistan ( joined the organization in 2007)
2. Bangladesh
3. Bhutan
4. India
5. Maldives
6. Nepal
7. Pakistan
8. Sri Lanka

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OBSERVERS
1. Australia
2. China
3. European Union
4. Japan
5. Iran
6. Mauritius
7. Myanmar
8. S. Korea
9. USA

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POTENTIAL FUTURE MEMBERS
 Myanmar has expressed interest in
upgrading it's status from an observer to a full
member of SAARC.

 Russia has expressed interest in becoming


an observer of SAARC.

OTHERS

 South Africa has participated in meetings.

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 SAARC’s Aims and Objectives:
 To promote the welfare of the people of South Asia and to improve their
quality of life.
 To accelerate economic growth in the region and to provide all
individuals the opportunity to live in dignity and to realize their full
potential.
 To promote and strengthen collective self reliance among the countries
of South Asia.
 To contribute to mutual trust, understanding and appreciations of one
another problem.
 To promote active collaboration and mutual assistance in the
economic,, social , cultural, technical and scientific fields.
 To strengthen cooperation with other developing countries.
 To strengthen cooperation among themselves in International forums
on matters of common interest.
 To cooperate with International and regional organizations with
similar aims and purposes.
 South Asian Preferential Trading Arrangement (SAPTA):
In December 1991, the Sixth Summit held in Colombo approved
the establishment of an Inter-Governmental Group (IGG) to
formulate an agreement to establish a SAARC Preferential
Arrangement (SAPTA) by 1997. Given the consensus within
SAARC, the Agreement on SAPTA was signed on 11 April 1993
and entered into force on 7 December 1995 well in advance of
the date stipulated by the Colombo Summit. The Agreement
reflected the desire of the Member States to promote and
sustain mutual trade and economic cooperation within
the SAARC region through the exchange of concessions.

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 South Asia Free Trade Agreement (SAFTA)
The Agreement on the South Asian Free Trade Area is
an agreement reached at the 12th South Asian
Association for Regional Cooperation (SAARC) summit
at Islamabad, capital of Pakistan on 6 January 2004. It
creates a framework for the creation of a free trade zone
covering 1.4 billion people in India, Pakistan, Nepal, Sri
Lanka, Bangladesh, Bhutan and the Maldives. The
seven foreign ministers of the region signed a
framework agreement on SAFTA with zero customs
duty on the trade of practically all products in the
region by end 2016.

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 SAARC countries are low-income developing economies.
The relevant economic question of the hour for these
nations is whether agricultural development or industrial
development is the appropriate strategy for accelerating
their economic development. SAARC nations lean or tend
to lean more towards industrial development than
agricultural development, because of the belief that rich
countries are believed to be rich because they are
industrialised; and poor countries are believed to be poor
because they are primary-producing. Thus, SAARC nations
are keen in expanding and developing the industrial
sectors of their economies.

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All the SAARC countries are showing positive
economic developments. the potential for
foreign investors is immense, and South Asian
integration is also coming to the forefront on a political
level.
All the SAARC countries are showing positive
economic developments. And international interest in
South Asia has never been stronger: the potential for
foreign investors is immense, and South Asian
integration is also coming to the forefront on a
political level.

http://www.kas.de/wf/doc/kas_21870-544-2-
30.pdf?110209115423

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