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International Economic
Integration
Theoretical framework of Trade Agreements
Forms of International Economic
Agreements
Indias participation in Trade Agreements
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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
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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