IBF Chapter-4 Regional Economic Integration

1. INTERNATIONAL BUSINESS FINANCE
ACFN542-CREDIT HOURS:2
CHAPTER-FOUR
REGIONAL ECONOMIC INTEGRATION
PROF. DR. ANBALAGAN CHINNIAH
PROFESSOR OF ACCOUNTING AND FINANCE
COLLEGE OF BUSINESS AND ECONOMICS
SAMARA UNIVERSITY, AFAR STATE, ETHIOPIA, EAST
AFRICA
MAIL ID:DR.CHINLAKSHANBU@GMAIL.COM

2. 1. Free Trade Area. This Is The Most Basic Form Of
Economic Cooperation
2. Customs Union. This Type Provides For Economic
Cooperation As In A Free-trade Zone.
3. Common Market. This Type Allows For The Creation
Of Economically Integrated Markets Between Member
Countries.
4. Economic Union.
What is Regional Economic Integration?
2

3. Regional Economic Integration Occurs When
Countries Come Together To Form Free Trade Areas
Or Customs Unions, Offering Members Preferential
Trade Access To Each Others‘ in Markets.
What is Regional Economic Integration?
3

4. South African Foreign Policy is anchored in domestic
priorities with the main aim of consolidating regional
integration with particular emphasis on improving the
political and economic integration of Southern
African Development Community (SADC).
South Africa’s position is that regional integration
process should be guided by developmental
requirements to respond to the myriad challenges
confronting the continent, namely multidimensional
poverty, underdevelopment and Africa’s
marginalization.
4

5. 5
What is the meaning of economic integration?
Economic integration, process in which two or
more states in a broadly defined geographic area
reduce a range of trade barriers to advance or
protect a set of economic goals.

6. What factors motivate formation of regional
integration?
– Economies of Scale.
– Complimentary Economies.
– Efficient Use of Resources.
– Export-Oriented Industrialization.
– Peace and Security through Integration.
6

7. What is the impact of integration?
According to
regional integration theory, integration can affect
economic growth by raising the economy?
competitiveness and accelerating industrialization,
and by creating better employment opportunities
which lead to poverty decrease in the region.
7

8. What is Global Integration?
Global integration is the degree to which the
company is able to use the same products and
methods in other countries.
Local responsiveness is the degree to which the
company must customize their products and
methods to meet conditions in other countries.
8

9. 1. Trade Creation
Member Countries Have (A) Wider Selection Of Goods And Services Not
Previously Available; (B) Acquire Goods And Services At A Lower Cost After
Trade Barriers Due To Lowered Tariffs Or Removal Of Tariffs (C) Encourage
More Trade Between Member Countries The Balance Of Money Spend From
Cheaper Goods And Services, Can Be Used To Buy More Products And
Services
2. Greater Consensus
Unlike WTO With Hugh Membership (147 Countries), Easier To Gain
Consensus Amongst Small Memberships In Regional Integration
3. Political Cooperation
A Group Of Nation Can Have Significantly Greater Political Influence Than
Each Nation Would Have Individually.
4. Employment Opportunities
As Economic Integration Encourage Trade Liberation And Lead To Market
Expansion, More Investment Into The Country And Greater Diffusion Of
Technology,
Advantages of Economic Integration
9

10. OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT.
Flows from the pan-African ideology that sought
emancipation from colonial domination.
Specific milestones and timelines
– SADC FTA by 2008;
– SADC Custom Union by 2010 (not achieved);
– SADC Common Market by 2015 (not
achieved);
– Monetary Union by 2016 (not achieved).
10

11. OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT.
• The Free Trade Area (FTA) was launched in 2008 following
the signing of a SADC Protocol on Trade by SADC Member
States in Johannesburg, South Africa.
• It involves the strengthening of the capacity of individual
states to fulfil their core functions.
• However, attempts at regional integration have been slow,
with only 15% of trade being intra-regional.
• Full liberalization was not achieved by January 2012 as
expected as some Member States had not yet signed the
SADC Protocol on Trade (Angola and DRC).
11

12. OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT.
• 2013 SADC exports worth $218.6 billion, with 44% from
SA and another 33% from Angola (a combined 77%).
• 2013 SADC imports worth $204.6 billion with 56% into
SA and another 11.4% into Angola (a combined 67.4%).
• Major trading partners are the EU, USA, CHINA, JAPAN
• SADC and SACU are primary vehicles to regional
economic integration - key building blocks to realizing
the Tripartite Free Trade Area (TFTA) and the envisaged
Continental Free Trade Area (CFTA)
12

13. What are the pros and cons of regional
economic integration?
Benefits
• Creation of trade and more jobs. Encourages a
greater consensus, and allows for political
cooperation.
Cons
• Lowers sovereignty, shift of employment,
inefficient trade diversion from productive
exporters to less capable exporters
13

14. FACTORS THAT HINDER REGIONAL INTEGRATION
• Reduction in unemployment and
underemployment.
• Better response to economic implications of
globalisation and trade liberalisation.
• Improvement in the quality of life.
• Reduction in the inequality of wealth distribution.
• Free movement of goods, labour and capital.
• Increased market size.
14

15. How does Regional Integration affect
countries?
• The regional integration also can affect the
economic development or economic growth. A
country with a highest economic rate will have
more power and authority than other country
members. Moreover, it can increase competition
in tradeable goods sector.
15

16. CHALLENGES OF REGIONAL ECONOMIC INTEGRATION
 SADC intra-regional trade remains relatively low with South
Africa’s share in exports accounting for just over 46% and its
share in imports accounting for just over 17% of this trade and
over 50% of the regions GDP;
 Uneven trade which includes, amongst others; lack of
industrialization, insufficient infrastructure, and Member States
producing the same commodities (lack of diversity);
 Requests for derogations from Members; and
 Multiple membership with RECS – consensus a challenge.
16

17. TRIPARTITE FREE TRADE AREA
• The tripartite area involves a block of 26 countries,
a combined population of 530million people and a
GDP of $1trillion (2013).
• This political vision is aimed at consolidating:
 intra-regional trade
 Promote cross-regional infrastructure projects and
 Remove the costs of overlapping regional
memberships
• The region had initial attempts to foster integration
and only in 2011 did SADC, EAC and The
Common Market for Eastern and Southern
Africa (COMESA) met to review their 2008
agreement involving a free trade area. 17

18. TRIPARTITE FREE TRADE AREA, CONT
• The final objective of the Tripartite FTA is to achieve
Duty-Free and Quota-Free treatment on all products
and without quantitative restrictions on goods that
meet the Tripartite Rules of Origin.
• The COMESA-The East African Community
(EAC)-SADC Tripartite Free Trade Area (TFTA)
negotiations continue to address outstanding issues
to meet the 2017 deadline for formal establishment
18

19. TRIPARTITE FREE TRADE AREA, CONT
• The Tripartite FTA was launched in June 2015 at the
Tripartite Summit of Heads of State and Government with
the signing of the agreement establishing the FTA.
• RSA did not sign the agreement – pending finalization of
outstanding issues in negotiations.
• The Rules of Origin, Trade remedies and Dispute
settlement remain contentious issues in the TFTA
negotiations.
• African Union CFTA processes to kick-start in April 2016
19

20. TRIPARTITE FREE TRADE AREA, CONT
• The main elements of the TFTA the draft
Agreement for establishing the Tripartite FTA are
the annexures.
• Some of the complementary areas covered
include:
Promotion of customs cooperation and trade
facilitation; Harmonization and coordination of
industrial and health standards; Combating of
unfair trade practices and import surges,
Use of arbitration settlement mechanisms;
20

21. TRIPARTITE FREE TRADE AREA: CHALLENGES
• Most economies remains weak
• Historical divisions have worked against the process
• Lack of institutional capacity
• Overlapping membership
• Low levels of industrialization (hence Indus Strategy)
• Insufficient infrastructure
• Uneven levels of development
• Market integration still lags behind
• Lack of popular participation in integration process
21

22. CHALLENGES, CONT.
• Perceived/suspicion at SA’s market dominance
• Low levels of intra-trade
• Extreme low levels of diversification
• High prevalence of the informal sector
• Lack of political will by Member States to adhere to
appropriate regional agendas
22

23. WAY FORWARD
• SA to continue participating in the SADC Ministerial Task
Force on Regional Economic Integration as well as other
SADC structures geared towards the formalization of the
TFTA. SA continue to provide leadership during
negotiations
• SA to continue using both the bilateral and multilateral fora
to advocate for the conclusion of negotiations by June
2017.
• Missions and line-function departments will continue
serving as early warning centers with respect to economic
activities that may have an impact on economic integration.
23