INTERNATIONAL ECONOMIC INTEGRATIONS Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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 India’s participation in PTAs To evaluate regional trading agreements under the WTO framework Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Trade-Creation Impact Formation of an FTA results in the expansion of consumption opportunities by making available low-cost goods. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Forms of International Economic Integration Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Major Regional Trade Agreements Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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 Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Asia-Pacific Economic Cooperation (APEC) Established in 1989, APEC aims to enhance economic 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. Copyright @ Oxford University Press International Business R. M. Joshi

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 Copyright @ Oxford University Press International Business R. M. Joshi

India’s Participation in PTAs Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Indo-Sri Lanka Free Trade Agreement (ISLFTA) An FTA between India and Sri Lanka was signed on 28 December 1998. The agreement envisages phasing out 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. Copyright @ Oxford University Press International Business R. M. Joshi

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). Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

India-Chile Framework Agreement on Economic Cooperation Signed on 20 January 2005, the agreement envisages a PTA between the two countries. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi

Copyright @ Oxford University Press International Business R. M. Joshi 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. Copyright @ Oxford University Press International Business R. M. Joshi