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Regional Economic Integration

By
Dr.N.Moogana Goud
Professor and Director
MBA Programme
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Regional Economic Integration

Regional Economic 90
Integration are 80
agreements among 70
countries in a 60
geographic region to 50
East
reduce and ultimately 40
West
remove, tariff and non- 30 North
tariff barriers to the flow 20
10
of goods, services, and
0
factors of production 1st 3rd
between each other. Qtr Qtr
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LEVELS OF INTEGRATION
Political integration
Group of nations with shared sovereignty or
complete unification of Nations

Economic Union
Common Market plus Full economic
policy harmonization

Common Market
Customs Union plus the free movement of goods,
services, people and capital

Custom Union
Free trade area plus a common external tariff

Free Trade area

Formal tariff-free trading area between countries

Loose Economic Integration

Reduced tariffs or special quotas allowing
preferential access to markets
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LEVELS OF ECONOMIC INTEGRATION

Preferential Trading Agreement:

(Loose Economic Integration)
It is the loosest form of economic integration.
Under this a group of countries have a formal agreement
to allow each others goods and services to be traded on
preferential terms
This requires that the tariffs are reduced between the
countries or that special quotas allow preferential access
for their products.
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LEVELS OF ECONOMIC INTEGRATION

This type of trade agreement is not allowed among

WTO members who are obligated to grant most-
favored nation status to all other WTO members
Thus, if a country's low tariff on bicycle imports, for
example, is 5%, then it must charge 5% on imports
from all other WTO members.
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LEVELS OF ECONOMIC INTEGRATION

Free Trade Area

The goals for a free trade
area include:
1. Removal of all
barriers to trade in goods
and services.
2. Each country
continues to determine its
own trade policies relative
to non-member countries
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LEVELS OF ECONOMIC INTEGRATION

There are several trade agreements in practice. The North

American Free trade agreement (NAFTA) is the best
known example. Other includes the European Free Trade
association (EFTA), and the Asian Free Trade Area
(AFTA)
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LEVELS OF ECONOMIC INTEGRATION

Customs Union – the

goals for a customs union
include:
1. Removal of all barriers
to trade in goods and services.
2. Adoption of a common
external trade policy, which
will require the development
of administrative machinery to
oversee trade relations with
non-member nations
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LEVELS OF ECONOMIC INTEGRATION

The European Union

was initially a customs
union. A current
example includes the
Andean Pact, which is
an agreement between
Bolivia, Colombia,
Ecuador and Peru
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LEVELS OF ECONOMIC INTEGRATION

Common Market
 It has three basic characteristics
 All member countries abolish all the restrictions and
barriers on trade among themselves or change low
rate of tariffs
 They adopt a uniform commercial policy of barriers
and restrictions jointly with regard to the trade with
non member countries.
 They allow free movement of human resources and
capital among the member countries
 It is superior to customs union
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LEVELS OF ECONOMIC INTEGRATION

The examples for

common market is EU,
which achieved this
status in the year 1990
as a result of a 30
years struggle to end
barriers to the free
movement of labour,
capital and technology.
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Economic Union: the goals for an
economic union include:
 Removal of all barriers to trade in goods
and services.
 Adoption of a common external trade
policy.
 Removal of barriers to the flow of factors
of production.
 Development of a common currency.
 Harmonization of tax rates.
 Development of common monetary and
fiscal policies across all countries within
the union.
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LEVELS OF ECONOMIC INTEGRATION

This involves a choice to sacrifice national

sovereignty.
The European Union is clearly moving this direction
with the establishment of a common currency and
common monetary policy goals.
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LEVELS OF ECONOMIC INTEGRATION

Political Union:
In this case, the individual countries are effectively
combined into a single nation. In case of the
Europeans Union, the next step would be to form the
United States of Europe. In some sense, Europe has
been moving this direction.
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LEVELS OF ECONOMIC INTEGRATION

The European Parliament, which is playing a large role in

Europe, has been directly elected by citizens in European
countries since the 1970’s. The Council of Ministers,
which is a policy making body of the EU, is composed of
government ministers from each EU member country.
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The impact of Economic Integration of Firms

For a Individual firm Regional integration is a two

edged sword.
Reduction of barriers open the markets of member
countries to all member country firms. Firms can reduce
the cost of production and compete internationally outside
the trading block
However elimination trade barriers also exposes a firm
home market to competition from firms located in other
member countries
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The impact of Economic Integration of Firms

Typically each form of EI confers benefits on the

national economy as a whole, but often hurts special
sectors and communities within the economy
Thus negotiating for EI is not easy
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Advantages of Integration

Increases the size of the Market

There is a increase in the aggregate demand for the
product and services, employment and ultimately the
economic activity of the region.
the resources of the region are rich and enables for
specilisation
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MAJOR TRADE BLOCKS

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TRADE BLOCKS
INTRODUCTION
The post-Second World War period has
witnessed concerted efforts to integrate national
economies at regional levels.
The efforts to form regional groups, trade blocks
and treaties have often floundered due to political
differences and unforeseen economic hurdles.
This resulted in increased trade, investment and
economic efficiency.
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TRADE BLOCKS

MAJOR TRADE BLOCKS

EUROPEAN UNION
NAFTA (North American Free Trade Agreement)
MERCOSUR
APEC ( Asia Pacific Economic Cooperation)
ASEAN ( Association of South East Nations)
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TRADE BLOCKS

THE EUROPEAN
COMMUNITY (EC)
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THE EUROPEAN COMMUNITY (EC)

It is the most important

regional trading block in
the world today. The EU
has 15 members with a
combined population of
370 million composed
the worlds richest
market which has a total
GDP of $ 7.8 Trillion or
31% of the world
economies.
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THE EUROPEAN COMMUNITY (EC)

The European Economics

Community or European
Common Market (ECM) was
founded in 1957. The EEC
was formed under the Treaty
of Rome by six countries i.e.
France,
West Germany,
Italy,
Belgium,
Luxembourg and
Netherlands
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THE EUROPEAN COMMUNITY (EC)

On January 1, 1973, Ireland, Denmark and United

Kingdom became members of the community.
The community was further enlarged as Greece joined in
1981, followed by Portugal and Spain in 1984. Article 2 of
the Treaty of Rome lays down that “the community shall
have as its task, by setting up a common market, to
promote throughout the community a harmonious
development by economic activities, a continuous and
balanced expansion, an increase in stability and
accelerated raising by the standard of living and closer
relations between the member states belonging to it.”
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The objectives of the community are

The main objective of the EEC according to the Article 1

of the Rome Treaty of 1957 is
“ The community will have its task, by setting up a
common market, to promote throughout the community
a harmonious development by economic activities a
continuous and balanced expansion an increase in the
stability and accelerated raising of the standard of living
and closer relations between the member states
belonging to it”
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The objectives of the community

OTHER OBJECTIVES
 The elimination of custom duties and quantitative
restrictions in exports and imports, as well as other
measures having equivalent effect.
 Establishment of common customs tariff and common
commercial policy.
 The abolition of obstacles to freedom of movement for
persons, services and capital
 The establishment of a common policy in the sphere of
agriculture.
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The objectives of the community

 Establishment of a system ensuring that competition in

the common market is not distorted.
 Adoption of common policy in the sphere of transport.
 Application of procedures so that the disequilibrium in
the balance of payments of member states can be
remedied.
 The establishment of a European Investment Bank to
facilitate the economic expansion of community.
 The association of overseas countries and territories with
a view to increase trade and to promote jointly
economic and social development.
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Organisation of EEC
EUROPEAN COUNCIL
Court
Court of European European Advisory
Of
Auditors Commission parliament Committee
Justice

•Agriculture
•Social •Commissions •Economic
•EEC Budget •Consultation
Security And •Social
•Monitoring •Approvals
•Competition Assets •Monetory
Policy
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THE EUROPEAN COMMUNITY (EC)

European Council is the main administrative body of EEC.

Each member country is represented by a minister of the
Council
EUROPEAN COMMISSION
 It is composed of the 20 people selected from different
countries
 Executive body of EEC
 Members are appointed for 4 years term.
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THE EUROPEAN COMMUNITY (EC)

EUROPEAN COUNCIL
It is an executive agent of EEC
 Making routine decisions
 Preparing rules of conduct
 Preparing new legislation
 Enable the members to carryout the provisions of the
treaty.
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THE EUROPEAN COMMUNITY (EC)

COURT OF JUSTICE
 EEC consists of judges who serve six years term
 They adjudicate the disputes relating to agriculture, social
security for migrants among member countries.
COURT OF AUDITORS
 Auditing the EEC budget
 Monitoring the EEC expenditure
 Laying down improved procedures for collection of duties
and levies.
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THE EUROPEAN COMMUNITY (EC)

EUROPEAN PARLIAMENT
 EP consists of 626 representatives elected in national
elections to serve five year terms
 European commission should consult Parliament before
final decision is taken
 Activities include
 Provide consultation and information to the commission
 Approve or reject the draft budget prepared by the
commission
 Dismiss the commission if necessary
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THE EUROPEAN COMMUNITY (EC)

ADVISORY COMMITTEE
 Economic and Social Committee: it represents the
activities like employers, Employee Union. Farmers,
Retail Traders and public.
 Monetary Committee: Examines monetary problems,
problems of the balance of payments.
 Consultative committee on Coal and steel Industry: It
studies the problems of Coal and Steel industry and offers
suggestion
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THE FUNCTIONS (WORKING AND ACHIEVEMENTS) OF EEC

1. COMMON AGRICULTURAL POLICY (CAP)

- Before the creation of the common market, each
member country followed its own separate agricultural
policy.
-there is a ‘Green Rate’ at which the support prices are
converted into national prices.
- Trade barriers do not exist for the movement of
agricultural products from one country to another.
- EU failed to provide farm products to consumers at
reasonable and stable prices because the support
prizes have been set at high levels.
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THE FUNCTIONS OF EEC

2. COMMON FISHERIES POLICY

 The Common Fisheries Policy came into force in
February 1971.
 The policy covers marketing of fresh, frozen and
preserved fish.
 It provides equal access to fishing areas for all EEC
nationals, with provisions for certain kinds of offshore
fishing.
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THE FUNCTIONS OF EEC

3. THE EUROPEAN MONETARY UNION (EMU)

-Establish the European Monetary System (EMS) in
1978, which started functioning in March 1979
-It established an Exchange Rate Mechanism (ERM)
-The EMS established the European Currency Unit
(ECU)
-The ECU is the weighted basket of all EC currencies
and is calculated daily by the European Commission.
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THE FUNCTIONS OF EEC

EMS Extended credit facilities to its members as under:

 Very short-term financing (45 days).
 Short-term financing (3 months renewable up to 2 times).
 Mid-term financial assistance (2 to 5 years).
 The ERM and EMS worked smoothly and were successful
in bringing International monetary cooperation.
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THE FUNCTIONS OF EEC

4. FACTOR MOBILITY
 One of the objectives of the European Community was the
free movement of persons, services and capital.
 Presently, workers and their families can move from one
member country to another without a permit.
 They have the same rights to work and are subject to the
same taxation as nationals of the concerned country.
 The capital mobility are obstructed by international
monetary disturbances.
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THE FUNCTIONS OF EEC

5. REGIONAL DEVELOPMENT POLICY

 The regional development policy aims at reducing the
differences between the various regions and mitigating the
backwardness of the less favored.
 EC aimed at the promotion of balanced expansion by
providing financial help to the backward areas of the
member countries.
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THE FUNCTIONS OF EEC

6. COMMON TRANSPORT POLICY

 The common transport policy had three objectives.
 Elimination of obstacles which transport may put in the
way of the establishment of common market.
 Free movement of transport services within the member
countries.
 General organization of the transport system with the EC.
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INDIA AND THE EC

India has entered into a commercial and economic
cooperation agreement with the European Community.
There are two elements in the community’s relations with
India.
Trade cooperation: The EC has entered into a commercial
agreement with India for the import of textiles under the
Multi Fibre Agreement (MFA). Under this, India exports
textiles and clothing to EC.
Development Aid: This includes cooperation in science and
technology, energy and human resources.
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INDIA AND THE EC

The EC has passed a legislation, whereby the following

export products are required to meet EC standard and
certification.
 Food and food related products
 Drugs and pharmaceuticals
 Durable consumer goods including electrical equipment.