14 - 15 International Economic Integration

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International Economic

Integration

Theoretical framework of Trade Agreements

Forms of International Economic

Agreements

Indias participation in Trade Agreements

Sunday, December 09, 2012 1Dr. S. Jain


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Learning Objectives

To provide an overview of international economic

integration

To elucidate the theoretical framework of

Preferential Trading Agreements

To explicate various forms of international

economic integration To discuss major international economic trade

groups

To briefly outline Indias participation in PTAs

To evaluate regional trading agreements under the

WTO framework

Sunday, December 09, 2012


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Significance of PTAsEconomic integrations among countries significantly influence

international business. The preferential treatment granted to

member countries affects the competitiveness of goods in

international markets. Elimination of import tariffs by the member

countries of a trade group encourages sourcing of goods from cost-

efficient production locations. However, discriminatory tariff

against non-members do result in trade diversion to member

countries, even at the cost of production efficiency.



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Trade-Creation Impact

Formation of an FTA results in the expansion ofconsumption opportunities by making available low-

cost goods.



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Trade-Diversion Impact

Formation of an FTA results in trade diversion to its members

from non-members since the elimination of import tariffs

among member countries makes sourcing of goods from

member countries more attractive compared to non-

members, even at the cost of production efficiency.



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Forms of International Economic Integration



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Preferential Trade Agreement (PTA)

Member countries in a PTA lower tariff barriers to

imports of identified products from one another e. g.

ECOWAS, GSTP, COMESA, etc.



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Free Trade Agreement (FTA)

Form of economic integration in which member

countries seek to remove all tariffs and non-tariff

barriers for cross-border trade of goods and services

among themselves e.g. NAFTA, LFTA., etc.



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Customs Union (CU)

Countries not only eliminate tariff barriers among

themselves but also apply common external import tariffs for

non-members e. g. CARICOM, CACM, etc.



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Common Market (CM)

In addition to free trade among members and

uniform tariff policy for non-members in a common

market, it involves elimination of all restrictions on

cross-border investments, movement of labour,

technology transfer, management, sharing of capital

resources, e.g. COMESA, MERCOSUR, etc.



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Economic Union (EU)

It enjoys much greater level of economic integration where

free exchange of goods and services takes place. The

member countries in an economic union also maintain a

fiscal discipline, stability in exchange, and interest rates by

way of unified monetary and fiscal policies.



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Political Union (PU)

As a culmination of economic integration, the

member countries strive to harmonize their security

and foreign policies. A common parliament is

created with representatives of member countries

who work in synchronization with an individual

countrys legislature.



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Major Regional Trade Agreements



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European Union(EU)

Aimed at promoting regional co-operation among countries

in Europe, in addition to trade and economy, the EU deals

with many other subjects, such as citizens rights; ensuring

freedom, security, and justice; job creation; regional

development; environmental protection; and promoting

globalization



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North American Free Trade Area (NAFTA)

Formed on 1 January, 1994, the economic

integration between the US, Canada and Mexico

aims at elimination of trade barriers related to

industrial goods and services, besides separate

agreement on agriculture, intellectual property

rights, labour adjustment, and environmental

protection.



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MERCOSUR (Mercado Comun del Sur)

MERCOSUR, created in March 1991, aims at

allowing free movement of goods, capital, labour,

and services with a common uniform external tariff

among member countries in Latin America.



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Gulf Cooperation Council(GCC)

Aimed at promoting stability and economic

cooperation among the Persian Gulf nations, the

GCC was established on 25 May 1981. Its members

include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,

and the United Arab Emirates.



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Asia-Pacific Economic Cooperation (APEC)

Established in 1989, APEC aims to enhanceeconomic growth and prosperity for the region and

to strengthen the Asia-Pacific Community. APEC has

no treaty obligations required of its participants.

Decisions are reached by consensus and

commitments and undertaken on a voluntary basis.



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Association of South East Asian Nations (ASEAN)

The ASEAN was established on 8 August 1967 with major

objectives:

To accelerate economic growth, social progress, and

cultural development in the region through joint

endeavors

To promote regional peace and stability through abiding

respect for justice and the rule of law in the relationship

among countries



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Indias Participation in PTAs



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SAARC Preferential Trading Agreement(SAPTA)

The SAPTA was signed on 11 April 1993 at the

Seventh SAARC Summit held in Dhaka to provide a

framework for the exchange of tariff concessions

with a view to promoting trade and economic

cooperation among the SAARC member countries.



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South Asian Free Trade Agreement(SAFTA)

SAFTA has come into force from 1 January 2006 aimed at

economic cooperation and integration among member

countries. It anticipates completion of the whole

process of instituting free trade among the member

countries in ten years.



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Comprehensive Economic Cooperation Agreement

(CECA) between India and Singapore

Signed on 29 June 2005, the CECA came into force

on 1 August 2005. Besides trade in goods, it also

covers investment, services, mutual recognition

agreements, and customs co-operations.



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Framework Agreement on Comprehensive Economic

Cooperation between the Association of South East

Asian Nations (ASEAN) and India

The framework agreement between ASEAN and India wassigned on 8 October 2003. It covers several aspects such as:

gradual tariff reductions leading to formation of FTA

trade facilitation measures,

Trade and investment promotion measures

early harvest programmes

tariff concessions.



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Bay of Bengal Initiative for Multi-sectoral

Technical and Economic Co-operation (BIMSTEC)

BIMSTEC provides a unique link between South Asia and

Southeast Asia aimed to develop into an FTA and focus

on activities that facilitate trade, increase investment,

and promote technical cooperation among membercountries.

Six areas were identified for cooperation include trade

and investment, technology, transportation and

communication, energy, tourism, and fisheries.



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Asia-Pacific Trade Agreement(APTA)

(Bangkok Agreement)

The Bangkok agreement was approved by the GATT council

in March 1978 aimed to liberalize and expand trade

progressively in the ESCAP region through mutually agreed

concessions by member countries. From 2 November 2005,

this agreement is renamed the Asia Pacific Trade Agreement

(APTA).



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Global System of Trade Preferences (GSTP)

The GSTP establishes a framework for exchange of trade

concessions among the member developing countries. It also

lays down the rules, principles, and procedures for conduct of

negotiations and implementation of the decisions made.



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Generalized System of Trade Preferences (GSP)

The GSP is a non-contractual instrument by which

developed countries extend tariff concessions to

developing countries unilaterally and on the basis of

non-reciprocity.



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Framework Agreement for Establishing FTA

between India and Thailand

Signed on 9 October 2003, the framework agreement covers

FTA in goods, services and investment, and areas of

economic cooperation. It also provides an Early Harvest

Scheme (EHS) under which common items have been agreed

for elimination of tariffs on a fast-track basis.



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Bilateral Preferential Trading Agreement with

Afghanistan

The Preferential Trade Agreement between India

and Afghanistan, signed on 6 March 2003, aims to

provide for grant or concessions on a range ofproducts of export interest to Afghanistan, as a part

of Indias endeavour to strengthen bilateral trade

and economic relations.



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IndiaMERCOSUR PTA

Signed on 19 March, 2005, the PTA aims to expand

and strengthen existing trade relations between

India and MERCOSUR by granting reciprocal fixed

trade preferences with the ultimate objective of

creating an FTA.



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IndoGulf Cooperation Council(GCC) FTA

Signed on 25 August 2004, it also aims to include

services as well as investment and general economic

cooperation alongwith goods.



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Limitations of Regional Economic Integrations

It can create an incentive for even further

discrimination, which eventually will hurt all

trading partners.

PTAs cannot solve systemic issues, such as rules of

origin, anti-dumping, agricultural, and fisheries

subsidies. These issues simply cannot be handledat the bilateral or regional level.



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The proliferation of Regional Trade Agreements can

greatly complicate the trading environment, creating a

web of incoherent rules.

To many small and weak developing countries entering

into a PTA with a powerful big country means less leverage

and a weaker negotiating position as compared to that in

the multilateral talks.



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Regional Trade Agreements Vis--vis

Multilateral Trading System Under the WTO

RTAs are an important exception under Article XXIV of the

GATT Agreement to the MFN rule of the WTO agreements,

under which tariff and other technical barriers to trade can

be reduced on preferential basis by countries under the

regional agreement.

Sunday December 09 2012

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14 - 15 International Economic Integration