CH.

INTEGRATION BETWEEN
COUNTRIES
 ECONOMIC INTEGRATION
• Economic Integration can be defined as a kind of
arrangement where countries get in agreement to
co-ordinate & manage their fiscal, trade &
monetary policies in order to be mutually
benefitted by them.
• There are many degrees of economic integration,
but the most preferred & popular one is free
trade.
• In economic integration, no country pays customs
duty within the integrated area, so it results in
lower prices for both the countries.
 REASONS FOR ECONOMIC
INTEGRATION
• Changes in the cost price structure
• Consumer’s Surplus
• Economies of Scale
• High Degree of Specialization
• Increase in Economic Development
• Increase in Efficiency
• Increase in Standard of Living
• Increase in the Volume of Trade

• Mutual Benefits

• Optimum utilization of Resources

• Overall increase in Welfare

• Widening of Markets
FACTORS RESPONSIBLE FOR GLOBAL
ECONOMIC INTEGRATION
• Improvements in technology & communication
have reduced the costs.
• The tastes of individuals & societies
• Public policies
• International Markets & other overseas production
facilities
• Political stability
• Human immigration & other developments

• Setting up overseas plants to reduce

transportation costs

• Growth of trading blocs like EU, NAFTA, ASEAN

• Creation of WTO

• Reduced tariff barriers

 BENEFITS OF ECONOMIC
INTEGRATION
• Beneficial for Financial Markets
• Ease of Agreement
• Improved Political Co-operation
• Increase in FDI
• Opportunities for Employment
• Progress in trade
 TYPES OF ECONOMIC INTEGRATION
• Group of countries making Preferential Trading
Agreements
• Free Trade Area (F.T.A) – removing all the trading
restriction
• Customs Union – FTAs + Common Policy of Tariffs
to deal with non member countries of the world
• Common Market – Customs Union + Free
movement of Factors of Production
• Economic Union – Common market + organization
of monetary & fiscal policies
• Monetary Union – involves scrapping individual
currencies & adopting a single currency, such as
Euro.
• Fiscal Union – an agreement to harmonize tax
rates, establish common levels of public sector
spending & borrowing, & jointly agree national
budget deficits or surpluses
• Complete Economic Integration – it involves
single economic market, common trade policy,
single currency, common monetary policy
together with single fiscal policy, tax rates etc.
 TRADING BLOCS
• Trading Blocs are group of nations states that
promote trade activities

• It helps to increase trade liberalization between

member nations

• During 12th century, the ‘Hanseatic League’ was one

of the trade blocs introduced specially for North
European Merchant Associations, in order to
protect the interests & political privileges.
• In 1871, Hanseatic League split.
• Post World War II, in 1948 GATT (General Agreement on
Tariffs & Trade) was introduced.
• It had 23 member nations & by 1994, the membership
increased to 123 members.
• In 1995, GATT was replaced by WTO (World Trade
Organization).
• By the end of 20th century, majority of world’s nations
became member of one or the other trade bloc agreement
 Role & Importance of Trading Blocs
• Economic Integration
• Free transfer of resources
• Increase in Trade
• Employment Opportunities
• Benefit to the Consumers
• Co-operative Spirit
• Competition
• Development of Region
 REGIONAL TRADING GROUPS
• EU (European Union)
• NAFTA (North American Free Trade Area)
• SAFTA (South Asian Free Trade Area)
• APEC (Asia Pacific Economic Cooperation)
• ASEAN (Association of South East Asian Nations)
• MERCOSUR (Mercado Comun del Cono Sur)
• BRICS (Brazil, Russia, India, China, South Africa)
• SAARC (South Asian Association for Regional
Cooperation)
• OPEC (Organization of the Petroleum Exporting
Countries)
 EU
• The European Union is a political & Economic Union
of the member states that are primarily located in
Europe.
• It operates through a system of independent
institutions & intergovernmental decisions by the
member states.
• Institutions of EU include –
European Commission
Council of the European Union
European Council
Court of Justice of the European Union
European Central Bank
Court of Auditors
European Parliament

• EU policies aim to ensure the free movement of

people, goods, services, capital & maintain common
policies on trade, agriculture, fisheries, & regional
development.
 Role of EU
• EU has provided political & legal benefits to its
member nations. Many Eastern European countries
are keen to join the EU because they feel it will help
promote economic & political stability

• The EU has a strong commitment to human rights,

preventing discrimination & the due process of law

• Prospect of membership has helped modernize

countries like Turkey
• EU is one of the strongest economic areas in the
world. It has 500 million people covering 7.3% of
world’s population & accounts for 23% of global
GDP
• Free trade & removal of non-tariff barriers have
helped reduce costs & prices for consumers which
inturn have helped to create jobs & higher income
• Removal of customs barriers
• Least developed countries have made economic
development since they joined EU
• Social Cohesion fund helps the poorer areas of EU
to reduce regional inequality
• EU has attracted greater inward investment from
outside EU
• Free movement of labor & capital has helped create
more flexible economy
• Migration due to EU has helped increase the
productive capacity which in turn contribute to tax
revenues
• EU has enabled people to travel freely across
national boundaries making trade & tourism easier
& cheaper
• EU has led to reduce the costs of the firms , which
in turn encouraged the development of small &
medium businesses
• EU has also provided protection for the workers in
terms of maximum working week, right to collective
bargaining & fair pay for employment
• EU have raised the quality of sea water & beaches
by implementing regulations on water standards
• EU has committed to reduce the global warming
emissions & also spend $375 million per year to cut
greenhouse gas emissions
• EU has reduced the price of making phone calls
abroad

• EU has agreed with 14 mobile phone manufacturing

companies to create a standard design for chargers
to make life easier for consumers & reduce
wastages

• Consumers are free to shop in any EU countries

without paying any tariffs or excise duties when
they return home
 NAFTA
• On January 1, 1994, the North American Free Trade
Agreement (NAFTA) between the United States,
Canada & Mexico entered into force.

• NAFTA created the world’s largest free trade area.

• Trade between the United States & its NAFTA

partners has raised since the agreement entered
into force.
 Provisions of NAFTA
• Aim of NAFTA – to eliminate barriers to trade &
investment between USA, Canada & Mexico
• Implementation of NAFTA brought the immediate
elimination of tariffs on more than half of Mexico’s
exports to USA & more than 1/3 of USA’s exports to
Mexico
• It is estimated that within 10 years all USA-Mexico
tariffs would be eliminated except for some USA’s
agricultural exports to Mexico
• NAFTA also seeks to eliminate non-tariff trade
barriers & to protect the IPR of the products.
 Role of NAFTA
• NAFTA eliminates all tariffs between the three
countries
• This reduces inflation by decreasing the costs of
imports
• It creates agreements on international rights for
business investors
• This reduces the cost of trade, which encourages
investment & growth of small businesses
• It provides the ability for firms in member countries
to bid on government contracts
• This creates an equality among all the companies
within its borders
• It helps to cut government budget deficits by
allowing more competition & low cost bids
• It protects IPRs
• This helps to increase profits for innovative
businesses by discouraging piracy
• It promoted FDI as companies are aware that their
rights will be protected by international law
NAFTA has been successful in promoting growth in
various areas like:-
•Manufacturing – NAFTA has allowed the three
countries to take the advantage of manufacturing
facilities. The high-tech products are built in California
& sent to Mexico for assembling into finished product.
NAFTA has helped these three nations to remain
competitive in the world market.
•Jobs – NAFTA has created a huge employment
opportunity which helps each country to use its talent
& set a platform for future job growth. due to the
manufacturing facilities provided, the country required
high skilled laborers which is supplied by USA & Canada
• Less Expensive Goods – NAFTA has helped reduce
the cost of consumer goods in all the three
countries, which indirectly has affected the price of
the product. This allows the companies to achieve
better economies of scale.

• Agriculture – Agriculture has been a huge gain for

all the nation of NAFTA. American exports of
agricultural products to Canada & Mexico have
increased tremendously since NAFTA came into
force.
 SAFTA
• South Asian Free Trade Area – SAFTA – an
agreement signed at the 12th SAARC summit in
Islamabad, Pakistan on 6th January, 2004.

• It created a free trade area in Afghanistan,

Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan & Sri Lanka.

• This agreement was signed to reduce custom duties

of all traded goods by to 0 by the year 2016
• The SAFTA Agreement came into force on 1st
January, 2006 & was approved by 7 governments.

• SAFTA required that, the developing countries like

India, Pakistan & Sri Lanka to reduce their duties to
20% in the first phase of two-year period 2016 &
2017.

• In the final five-year phase, the 20% duties should

be reduced to 0 in the series of annual cuts.
• SAFTA also requires that, the least developed
nation of South Asia like Nepal, Bhutan,
Bangladesh, Afghanistan & Maldives should reduce
their duties to 0 in a three-year period.

• India & Pakistan approved the treaty in 2009

• Afghanistan, the 8th member state of the SAARC,

approved the SAFTA Agreement on 4th May, 2011
 Objectives of SAFTA
• To promote competition in the area
• To provide equitable benefits to the countries
involved
• To benefit the people by bringing transparency &
integrity among the nations
• To increase the level of trade & economic co-
operation among the SAARC nations by reducing
tariff barriers
• To provide special preference to the Least
Developed Countries among SAARC nations
 Role of SAFTA
• Eliminates market access restrictions within the
region

• Provides free access to huge markets of India &

other countries

• Promotes economic growth & investment, creates

jobs & raises income

• Takes people out of poverty

• Leads to development of foreign investment among
SAARC nations

• Helps to make sure that the investment doesn’t

harm the domestic industries of member nations

• Helped developing countries to grow much faster

• Helps bring increased prosperity for all the

countries
 APEC
• Asia Pacific Economic Cooperation – formed in
1989, in Canberra, Australia with 12 members.
• It now consists of 21 member countries – Brunei
Darussalam, Canada, Chile, China, Hong Kong,
Indonesia, Japan, Korea, Malaysia, Mexico, New
Zealand, Papua, New Guinea, Peru, Philippines,
Russia, Singapore, Taipei, Thailand, Unites States &
Vietnam.
• It operates as a cooperative, multilateral economic
& trade forum
• The only international intergovernmental trading
group committed to reducing barriers to trade &
investment without requiring its members to enter
into legally binding commitment.
• APEC was formed to encourage a growing &
prosperous regional economy through:
Trade & investment liberalization & facilitation
Reduced costs of cross border trade to assist
businesses
Economic & technical cooperation
Exchanges of best practice information on trade &
investment

Simplified regulatory & administrative processes

Improved institutional capacity to implement &

take advantage of the benefits of trade &
investment reform
 Role of APEC
• Better competition policy
• Lowered restrictions on government control
• Reduced business costs
• Expansion of trade agreements
• Tariff reduction & non-tariff barriers
• Improved market access
• Improved tax condition & legal stability
• Improved customs procedures
 Pillars of APEC
APEC works on three pillars –

1. Trade & Investment – This has helped APEC

achieve its goal of free trade. It works on the basis
of liberalization i.e. each APEC member voluntarily
agree to liberalize in a particular area of trade &
investment. It has developed a tool to achieve this
pillar – IAP (Individual Action Plan). Each regions of
APEC are required to prepare & regularly update
these IAPs. Each IAP includes the following areas:
• Tariff & non tariff barriers
• Investment & services
• Standards & policies
• Customs procedures & IPRs
• Competition policy & Government control
• Dispute intervention
• Mobility of businessmen
• Information gathering
2. Trade Facilitation – it aims at making business
easier & less costly. APEC has made substantial
progress in many areas like standards, customs, E-
Commerce, travel & telecommunications, energy,
fisheries & government control.

3. Economic & Technical Co-operation – also called as

‘ecotech’. It includes the activities & programs of
APEC aimed to achieving the goals of attaining
sustainable growth, improvement of economic &
social well being.
 ASEAN
Association of South East Asian Nations
• Established on 8th August, 1967 in Bangkok, Thailand.
• Includes 10 member states namely – Brunei
Darussalam, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore, Thailand, Vietnam
etc.
• The ASEAN Charter entered into force on 15 th
December, 2008 through which ASEAN got its legal
identity as an international organization & took
major step in its community building process.
 Three Pillars of ASEAN
1. ASEAN Political-Security Community – its main
objective is to make sure that the people &
member states of ASEAN live in peace with one
another & the world in democratic & pleasant
environment

2. ASEAN Economic Community – its main objective

is to transform ASEAN into a region with free
movement of goods & services, investment, skilled
labor & free flow of capital.
3. ASEAN Socio-Cultural Community - it
contributes to the areas like culture, arts &
information, disaster management, education
health & environment, rural development,
poverty eradication, social welfare &
development, youth & civil service co-
operation
 Objectives of ASEAN

• To accelerate the economic growth, social progress

& cultural development in the region through joint
ventures in order to strengthen the foundation for
peaceful community of South East Asian Nations

• To promote regional peace & stability through

sustaining respect for justice & the rule of law
 Fundamental Principles
• Mutual respect for the independence, power, equality,
territorial integrity & national identity of all nations.
• The right of every state to lead its national existence
free from external interference, or cruelty.
• Non-interference in the internal affairs of one another.
• Settlement of disputes peacefully.
• Rejection of the threat or use of force.
• Effective co-operation among themselves
 Aim/Functions/Role of ASEAN
• To promote collaboration & mutual assistance in
the field of economics, social, culture, technology,
science & administration
• To provide training to each other & assist in
research facilities in education, profession,
technology & administration
• To have effective collaboration for utilization of
agricultural industries, expansion of its trade,
improvement in transportation & communication
facilities & improving the standard of living of the
people
Role of ASEAN –Free Trade Agreement
• Elimination of tariffs resulting in price reduction
which is then beneficial to consumers
• Encourage high market competition
• To help the products of ASEAN nations gain access
to regional markets
• Processing factories enjoy cheaper imported raw
material
• ASEAN will be integrated into a single market,
which will make the market strong & large with
high population
• The export & investment sectors will generate high
potential in the long run

• ASEAN encourages free flow of goods, services,

investment, capital & skilled labor

• ASEAN promotes a culture of fair competition,

which includes protection of consumers &
guarantees for IPRs
 MERCOSUR

Mercado Comun del Cono Sur – Common Market of the

Southern Cone

• A sub-regional bloc consisting of Argentina, Brazil, Paraguay,

Uruguay & Venezuela.

• Main aim – to promote free trade & smooth flow of goods,

people & currency
• It promotes –
Free movement of goods, services & other production
factors

Elimination of restriction over common trade

Establishment of single external tariff

Adoption of common trade policies that do not belong

to this group

Co-ordination of macroeconomic & sectoral policies

 Organizational Institutions
• Common Market Council – the highest decision
making body. It conducts the policies & makes sure
the rules & regulations are followed. Its members
include – foreign affairs & economy ministers who
meet at least a year & as & when the need arises
• Common Market Group – controlled by foreign
affairs & economy members & also Central Banks.
the group co-ordinates macroeconomic policy
between the members & negotiates trade with
non-member countries. It administers the
implementation of decisions made by CMC
• Trade Commission – deals with day to day trade
matters between the countries. 5 members from
each country meet every month. The group can
propose changes to the common external tariff. The
group can also refer any trade disputes to the
higher bodies for resolution.

• Mercosur Parliament – created in 2004 & first

convened in Montevideo in 2007. the parliament
consists of 18 representatives from each member
countries. It has no powers but only to advice on
decision making.
 Role of MERCOSUR
• Helped an increase in intraregional trade &
investment

• Developed a common external tariff structure

• Helped in bringing together the macroeconomic

policy

• Helped in consolidation of democracy among

member nations
 BRICS
• A multilateral summit started in 2009 with the
membership of Brazil, Russia, India, China & South
Africa (joined in 2010)

• One of the most important group formed among

the developing nations

• It consists of 41% of world population & 22% of

world GDP
 Role & Objectives of BRICS
• To bridge the gap between developed & developing
countries
• To become the lucky charm for developing countries
so that they can fulfill the demands of developing
world
• To discuss & resolve common issues jointly
• To improve market access opportunities & facilitate
market inter linkages
• To promote mutual trade & investment & create
business friendly environment for the investors in
member nations
• To enhance & diversify trade & investment
cooperation that will add value to member nations
• To strengthen macroeconomic policy &
coordination & build flexibility to external shocks
• To try hard for economic growth to drive out
poverty, reduce unemployment, & promote social
enclosure
• To seek interaction & cooperation with the non-
BRICS nations for business
• To assist the developing countries to overcome the
problems of climate change & issues relating to
exports
 Advantages of BRICS for India
• India’s presence in the global politics would gain
more attention
• India is a service sector economy & other countries
are strong in manufacturing, so that they can
complement each other
• India can explore more export sectors by improving
the tie-ups with member countries, which would
support other schemes like Make In India, Start-up
India etc.
• With the involvement in BRICS, India would acheice
its long term objectives
• BRICS would help India to be neutral between the
growing relationship among China-Pakistan-Russia

• India can use Brazil & South Africa relations as an

entry to expand its relations with South America &
Africa

• BRICS would help India to find out its monopoly in

trade & diplomacy
 Challenges Faced by BRICS
• The dominance of China in BRICS is problem for
others. The Chinese economy is not only the second
largest in the world, but also larger than the
economies of all the BRICS together
• China’s manipulation of its currency has resulted in
significant problems for the manufacturing sectors
of their emerging powers. Central Banks of other
countries have registered protest against
undervalued Yuan.
• BRICS have the same interest areas, but follow
different rules
• There is volatility of the national currency in each of
the member countries
• Lack of proper infrastructure in member nations
• Increase in corruption rates
• Difference in demography
• Lack of uniformity in inflation rates
• Differences in exports of goods & services
 SAARC
South Asian Association for Regional Cooperation

- Established on 8th December, 1985

- an economic & geopolitical organization consisting
8 countries of South Asia.
- Based in Kathmandu, Nepal
- member nations include – Bangladesh, India,
Maldives, Nepal, Pakistan & Sri Lanka. Afghanistan
was included later
- Main aim is to promote welfare economies, self-
reliance among the countries of South Asia, & to
accelerate socio-cultural development

- The official meetings of the leaders of each nation

are held annually while the foreign ministers meet
twice a year.
 Role of SAARC
• Helps to increase the investment prospects in the
region
• Helps in Joint Venture & Technology transfers
among the nations
• Helps to develop Physical Infrastructure
• Helps in development of tourism
• Helps in energy co-operation
• Helps in regional co-operation
• Helps in collective self interest
 OPEC
Organization of the Petroleum Exporting Countries

- An international organization whose mission is to

coordinate the policies of the oil producing
countries
- Its goal is to secure a steady income to the member
states
- It is an intergovernmental organization that was
created at the Baghdad Conference in September,
1960 by Iraq, Kuwait, Iran, Saudi Arabia &
Venezuela
 Role of OPEC

• Unifies Different Countries

• Regulates oil prices

• Enables Economic Growth

• Ensures market stability