288 33 powerpoint-slides_chapter-6-international-economic-integrations

1

International Business
Rakesh Mohan Joshi
Professor & Chairperson, IIFT New Delhi

Copyright @ Oxford University Press
R. M. Joshi

Chapter 6: International Economic
Integrations

Chapter 6

INTERNATIONAL
ECONOMIC INTEGRATIONS

R. M. Joshi

Integrations

Learning Objectives












To provide an overview of international
economic integration
To make clear the theoretical framework
of special Trading Agreements
To
explicate
various
forms
of
international economic integration
To discuss major international economic
trade groups
To briefly outline India’s participation in
PTAs
To evaluate regional trading agreements
under the WTO framework

R. M. Joshi

Integrations

Significance of PTAs
Economic 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.
R. M. Joshi

Integrations

Trade-Creation Impact
Formation of an FTA results in the
expansion of consumption opportunities
by making available low-cost goods.

R. M. Joshi

Integrations

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 nonmembers,

even

at

the

cost

of

production

efficiency.
R. M. Joshi

Integrations

Forms of International Economic
Integration

R. M. Joshi

Integrations

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.

R. M. Joshi

Integrations

Free Trade Agreement (FTA)
Form of economic integration in which
member countries seek to remove all
tariffs and non-tariff barriers for crossborder trade of goods and services among
themselves e.g. NAFTA, LFTA., etc.
R. M. Joshi

Integrations

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.

R. M. Joshi

Integrations

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 crossborder investments, movement of labour,
technology

transfer,

sharing

capital

of

management,
resources,

e.g.

COMESA, MERCOSUR, etc.
R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

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 country’s
legislature.
R. M. Joshi

Integrations

Major Regional Trade
Agreements

R. M. Joshi

Integrations

European Union (EU)
Aimed at promoting regional co-operation among
countries in Europe, in addition to trade and
economy,

the

EU

deals

with

subjects,

such

as

citizens’

many

rights;

other

ensuring

freedom, security, and justice; job creation;
regional development; environmental protection;
and promoting globalization
R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

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.

R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

Asia-Pacific Economic Cooperation (APEC)
Established

in

1989,

APEC

aims

to

enhance economic growth and prosperity
for the region and to strengthen the AsiaPacific Community. APEC has no treaty
obligations required of its participants.
Decisions are reached by consensus and
commitments

and

undertaken

on

a

voluntary basis.
R. M. Joshi

Integrations

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

R. M. Joshi

Integrations

India’s Participation in PTAs

R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

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.
R. M. Joshi

Integrations

Framework Agreement on Comprehensive
Economic Cooperation between the
Association of South East Asian Nations
(ASEAN) and India
The framework agreement between ASEAN and
India was signed 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.
R. M. Joshi

Integrations

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
member countries.
Six areas were identified for cooperation
include trade and investment, technology,
transportation and communication, energy,
tourism, and fisheries.
R. M. Joshi

Integrations

Indo-Sri Lanka Free Trade Agreement
(ISLFTA)
An FTA between India and Sri Lanka was
signed

on

agreement

28

December

envisages

1998.

phasing

out

The
of

tariffs on all products except for a limited
number of items in the Negative List and
tariff rate quota items over a period of
time.
R. M. Joshi

Integrations

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).
R. M. Joshi

Integrations

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.

R. M. Joshi

Integrations

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 nonreciprocity.
R. M. Joshi

Integrations

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.

R. M. Joshi

Integrations

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 of products of
export interest to Afghanistan, as a part
of

India’s

endeavour

to

strengthen

bilateral trade and economic relations.
R. M. Joshi

Integrations

India–MERCOSUR 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.
R. M. Joshi

Integrations

India-Chile Framework Agreement on
Economic Cooperation

Signed

on

20

January

2005,

the

agreement envisages a PTA between the
two countries.

R. M. Joshi

Integrations

Indo–Gulf 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.

R. M. Joshi

Integrations

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 handled
at the bilateral or regional level.
R. M. Joshi

Integrations



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.

R. M. Joshi

Integrations

Regional Trade Agreements Vis-à-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.

R. M. Joshi

Integrations

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