Assignment

On

Regional Integration

Submitted To: Submitted By

Ms Shavina Goyal Kanwardeep Sohi(3754)
Prof. S.M.S Naresh Kumar (3757)
Punjabi university Patiala M.B.A. 2nd (A)

Punjabi University Patiala

School of Management Studies
Regional Integration Defined….

Regional integration is a process in which states enter into a regional agreement in order to
enhance regional cooperation through regional institutions and rules. Its objectives could range
from economic to politic although it has become a political economy initiative where
commercial purposes are the means to achieve broader socio-political and security objectives.
Past efforts at regional integration have often focused on removing barriers to free trade in the
region, increasing the free movement of people, labour, goods, and capital across national
borders, reducing the possibility of regional armed conflict (for example, through Confidence
and Security-Building Measures), and adopting cohesive regional stances on policy issues, such
as the environment, climate change and migration. Such an organization can be organized either
on supranational or intergovernmental decision-making institutional order, or a combination of
both.
THE FOLLOWING TABLE SHOW FIVE DIFFERENT KIND OF INTER-
RELATIONSHIPS BETWEEN DIFFERENT COUNTRIES AS FAR AS FORIGNTRADE
IS CONCERNED, AND WHAT IS THE MAJOR DIFFRENCE BETWEEN ALL OF
THEM.

FTA Custom Common Economic Political

Union Market Union Union
Elimination
of internal YES YES YES YES PROBABLY
duties
Elimination
of common NO YES YES YES PROBABLY
barriers
Free mobility
of factors of NO NO YES YES PROBABLY
production
Common
economic NO NO NO YES PROBABLY
policies and
currency
Common
political NO NO NO NO YES
policies
FREE TRADE AREA:
Free trade area is a type of trade bloc, a designated group of countries that have
agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and
services traded between them. It can be considered the second stage of economic
integration. Countries choose this kind of economic integration form if their economical
structures are complementary. If they are competitive, they will choose customs union
Unlike a customs union, members of a free trade area do not have
a common external tariff (same policies with respect to non-members), meaning
different quotas and customs. To avoid evasion (through re-exportation) the countries
use the system of certification of origin most commonly called rules of origin, where
there is a requirement for the minimum extent of local material inputs and local
transformations adding value to the goods. Goods that don't cover these minimum
requirements are not entitled for the special treatment envisioned in the free trade area
provisions.
The aim of a free trade area is to so reduce barriers to easy exchange that trade
can grow as a result of specialization, division of labor, and most importantly via (the
theory and practice of) comparative advantage. The theory of comparative advantage
argues that in an unrestricted marketplace (in equilibrium) each source of production will
tend to specialize in that activity where it has comparative (rather than absolute)
advantage. The theory argues that the net result will be an increase in income and
ultimately wealth and well-being for everyone in the free trade area. However the theory
refers only to aggregate wealth and says nothing about the distribution of wealth. In fact
there may be significant losers, in particular among the recently protected industries
with a comparative disadvantage. The proponent of free trade can, however, retort that
the gains of the gainers exceed the losses of the losers.
EXAMPLE:
ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of
Southeast Asian Nations supporting local manufacturing in all ASEAN countries. The
AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA
agreement was originally signed, ASEAN had six members, namely:- Brunei, Indonesia,
Malaysia, Philippines, Singapore and Thailand. Vietnam joined in
1995, Laos and Myanmar in 1997 and Cambodia in 1999. AFTA now comprises ten
countries of ASEAN. All the four latecomers were required to sign the AFTA agreement
in order to join ASEAN, but were given longer time frames in which to meet AFTA's tariff
reduction obligations.
The primary goals of AFTA seek to:
 Increase ASEAN's competitive edge as a production base in the world market
through the elimination, within ASEAN, of tariffs and non-tariff barriers; and
 Attract more foreign direct investment to ASEAN.
CUSTOMS UNION:
A customs union is a type of trade bloc which is composed of a free trade area with
a common external tariff. The participant countries set up common external trade policy,
but in some cases they use different import quotas. Common competition policy is also
helpful to avoid competition deficiency.

Purposes for establishing a customs union normally include increasing economic

efficiency and establishing closer political and cultural ties between the member
countries.

EXAMPLE:
The Southern African Customs Union (SACU) is a customs union among five countries
of Southern. SACU is the oldest customs union in the world. It was established in 1910
as a Customs Union Agreement between the then Union of South Africa and the High
Commission Territories of Bechuanaland, Basutoland, and Swaziland. With the advent
of independence for these territories, the agreement was updated and on December 11,
1969 it was relaunched as the SACU with the signing of an agreement between
the Republic of South Africa, Botswana, Lesotho and Swaziland. The updated union
officially entered into force on March 1, 1970. After Namibia's independence from South
Africa in 1990, it joined SACU as its fifth member.

As of 2007, the Executive Secretary of the SACU is Ms. Tswelopele C. Moremi.

COMMON MARKET:

A common market is a type of trade bloc which is composed of a customs union with
common policies on product regulation, and freedom of movement of the factors of
production (capital and labor) and of enterprise. The goal is that the movement of
capital, labour, goods, and services between the members is as easy as within them.
This is the third stage of economic integration.

Sometimes a single market is differentiated as a more advanced form of common

market. In comparison to a common market a single market envisions more efforts
geared towards removing the physical (borders), technical (standards) and fiscal (taxes)
barriers among the member states. These barriers obstruct the freedom of movement of
the four factors of production. To remove these barriers the member states need
political will and they have to formulate common economic policies.

EXAMPLE:
The European Economic Area (EEA) was established on 1 January 1994 following an
agreement between Norway, Iceland and Liechtenstein and the European Union (EU). It
allows these countries to participate in the EU's single market without joining the EU. In
exchange, they are obliged to adopt certain EU internal market legislation.
ECONOMIC AND MONETRY UNION:

An economic and monetary union is a type of trade bloc which is composed of a single
market with a common currency. It is to be distinguished from a mere currency
union (e.g. the Latin Monetary Union in the 1800s), which does not involve a single
market. This is the fourth stage of economic integration. EMU is established through a
currency-related trade pact.

EXAMPLE:

The European Union (EU) is an economic, political and cultural union of 27 member
states, located primarily in Europe. Committed to regional integration, the EU was
established by the Treaty of Maastricht on 1 November 1993 upon the foundations of
the European Communities.]With over 500 million citizens, the EU combined generates
an estimated 30% share (US$ 18.4 trillion in 2008) of the nominal gross world
product and about 22% (US$15.2 trillion in 2008) of thePPP gross world product.

The EU has developed a single market through a standardized system of laws which
apply in all member states, ensuring the free movement of people, goods, services, and
capital. maintains common policies on trade, agriculture, fisheries and regional
development. Sixteen member states have adopted a common currency, the euro,
constituting the Euro zone. The EU has developed a limited role in foreign policy, having
representation at the World Trade Organization, G8, G-20 major economies and at
the United Nations. It enacts legislation in justice and home affairs, including the
abolition of passport controls by the Schengen Agreement between22 EU and 3 non-EU
states.
POLITICAL INTEGRATION:
Political integration is required because for an economic union to be most effective it is
necessary for all provinces to be at the same stage of the economic cycle.
Although provinces is a narrow description as within a specific geographic area there is
a much greater amount of mini-economies, all in different stages of the economic cycle;
it is in theory possible for a single town to be in recession/boom whilst another is
experiencing the opposite. In a practical sense it is best for as many of these economic
microcosms to be at the same stage of the economic cycle as possible as it results in
government policy having it's effectiveness maximized, whether it be through the
employment of fiscal or monetary policy.

To achieve economic harmonization requires increasing central control to pursue an

economic area wide policy of inflation combatance and stability promotion. Though this
is often viewed as a loss of provincial political sovereignty it is necessary to remove
disparities and thus unfair advantages with certain firms across the economic area to
provide the best conditions possible for the promotion of competition and therefore
economic efficiency.

AT PRESENT THERE IS NO SUCH EXAMPLE OF POLITICAL INTEGRATION BUT

EUROPEAN UNION IS SLOWLY MOVING TOWARDS POLITICAL INTIGRATION.