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International Business Management

Unit 6

Unit 6

Regional Integration

Structure: 6.1 Introduction Objectives 6.2 Overview of Regional Integration Need for integration Impact of integration 6.3 Types of Integration Preferential trading agreement Free trade area Custom Union Common market Economic union Political union 6.4 Regional Trading Arrangements The European Union (EU) European Free Trade Association (EFTA) North American Free Trade Agreement (NAFTA) South Common Market (MERCOSUR) ASEAN Free Trade Area (AFTA) Asia-Pacific Economic Cooperation (APEC) Gulf Cooperation Council (GCC) South Asian Free Trade Area (SAFTA) 6.5 India and Trade Agreements Asia-Pacific Trade Agreement (APTA) Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Framework Agreement on Comprehensive Economic Cooperation between India and the Association of South East Asian Nations India-MERCOSUR Preferential Trade Agreement (PTA) 6.6 Summary 6.7 Glossary 6.8 Terminal Questions 6.9 Answers 6.10 Case-let

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6.1 Introduction
By now you must be familiar with international business and some of its facets including FDI and FII. In the previous unit, you learned about the different types of foreign investments and their roles. In this unit, we shall discuss about the need and importance of regional integration. Regional integration is the bonding between nations and states through political, cultural and economic cooperation. The cooperation is overseen by rules and regulations decided upon by the states entering into an understanding. This unit covers the need, process and different types of integration among countries. It also discusses various trading blocs in existence, its importance, structure and functioning. This unit also includes Indian participation in the regional trading blocks and trade agreements that Indian Government has with other nations and regions. Objectives: After studying this unit, you should be able to: explain the need for regional integration. analyse the impact of different types of integration amongst countries. describe several regional trade arrangements. evaluate different trade agreements of India.

6.2 Overview of Regional Integration


Regional integration can be defined as the unification of countries into a larger whole. It also reflects a countrys willingness to share or unify into a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of participating countries. It should aim to improve the general quality of life for the citizens of those countries. In recent years, we have seen more and more countries moving towards regional integration to strengthen their ties and relationship with other countries. This tendency towards integration was activated by the European Union (EU) market integration. This trend has influenced both developed and developing countries to form customs unions and Free Trade Areas (FTA). The World Trade Organisation (WTO) terms these agreements of

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integration as Regional Trade Agreements (RTA). Table 6.1 gives a list of regional trade integration initiatives taken by India.
India's Trade Agreements at a Glance Existing Ongoing FTAs/PTAs under Study and Consideration 1. Gulf Cooperation Council (GCC) 2. China 3. South Korea 4. Japan 5. Malaysia 6. Pakistan 7. Southern African Customs Union (SACU) 8. Egypt 9. Israel 10. Russia 11. Australia

1. Bangkok Agreement 2. Global System of Trade Preferences (GSTP) 3. SAARC Preferential Trading Agreement (SAPTA) 4. India - Sri Lanka FTA 5. India - Thailand FTA 6. India Singapore Comprehensive Economic Cooperation (CECA) 7. Indo-Nepal Trade Treaty 8. India-Mauritius PTA 9. India-Chile PTA

1. Indo-ASEAN CECA 2. South Asian Free Trade Agreement (SAFTA) 3. BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical & Economic Cooperation) 4. India - MERCOSUR PTA

Table 6.1: India's Trade Agreements Source: www.indianindustry.com

6.2.1 Need for integration Regional integration can be achieved with different approaches. To some extent, each country and region will find its own way. But typically there are some common ideas/reasons for achieving regional integration. Some of these are to: Facilitate trade growth. Achieve conducive climates for investment. Surmount the regulatory and administrative barriers to transit zones. Ensure safe and reliable trade routes. Enhance infrastructure physical and institutional. Encourage economic expansion. Newcomers to industrialisation enjoy some substantial benefits that their ancestors did not. Today, the economic policy makers have a better understanding of the process of industrialisation than their earlier
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counterparts. They have the comprehension of microeconomic inputs and market opportunities. Therefore, policy makers can make use of this knowledge made possible by the rise of the global economy. On the long run, regional integration may transform the regions. The initiative of regional integration should perform at least the following functions: Strengthen regional trade integration. Create a conducive environment to enable private sector development. Develop infrastructure programmes to support economic growth and regional integration. Develop strong public sector institutions and good governance. Reduce social disparities and develop an inclusive civil society. Contribute to the peace and security of the region. Build environmental programmes at the regional level. Strengthen the regions interaction with other regions of the world. 6.2.2 Impact of integration Regional integration results in the creation and diversion of trade. It supports overall growth of the region, coupled with efficient trading practices. Trade creation increases production and income and also leads to new entrants in the market and, therefore, results in tougher competition. The transfer of technology is also faster. Regional integration induces reduction on tariffs and prohibitions. It spreads goodwill among member countries and also helps in reducing the chances of conflict. Self Assessment Questions 1 1. Regional integration can be defined as the unification of countries. (True/False) 2. Promoting ____________________ is a need of regional integration. 3. Identify the correct answer. Regional integration should not ________________. a) Build environmental programmes at the regional level b) Strengthen trade integration in the region c) Contribute to the peace and security of the region d) Break ties with other countries
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6.3 Types of Integration


In the previous section an overview and the need for regional integration was covered. A whole range of regional integrations exist today. Different types of regional integration are discussed in this section. 6.3.1 Preferential trading agreement Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile and South Common Market (MERCOSUR). The introduction of PTA has generated an increase in the market size and resulted in the availability and variety of new products. 6.3.2 Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs and quotas on services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. If countries compete among themselves, they are likely to choose customs union. The importers must obtain product information from all suppliers within the supply chain in order to determine the eligibility for a Free Trade Agreement (FTA). After receiving the supplier documentation, the importer must evaluate the eligibility of the product depending on the rules pertaining the products. The importers product is qualified individually by the FTA. The product should have a minimum percentage of local content for it to be qualified. 6.3.3 Custom union Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. Under customs union agreement, countries generally impose a common external -tariff (CTF) on imports from non-member countries. Such
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common external tariff helps the member countries to reap the benefits of trade expansion, trade creation and trade diversification. In the absence of common external tariff, there is a possibility that countries with lower custom duties may become conduits for members which has higher custom duty. Custom union is third stage in level of economic integration and is followed only after free trade agreement among participating countries.
Table 6.1: Levels of economic integration
Levels of Economic Integration Stages/Level of Economic Integration Preferential Tariff & Highly reduced non tariff barrier Free Movement of Goods & Services Common External Tariff Free Movement of Labour & Capital Common Banking & Monetary Policies Common Foreign & Defence Policy

Preferential Trade Agreement Free Trade Agreement Custom Union Common Market Economic Union Political Union

6.3.4 Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of movement of goods, capital, labour and services, which are known as the four factors of production. This agreement aims at making the movement of four factors of production between the member countries easier. The technical, fiscal and physical barriers among the member countries are eliminated considerably as these barriers hinder the freedom of movement of the four factors of
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production. The member countries must come forward to eliminate these barriers, have a political will and formulate common economic policies. A common market is the first step towards a single market. It may be initially limited to a FTA with moderate free movement of capital and services, but it is not capable of removing the other trade barriers. Benefits and costs A single market has many advantages. The freedom of movement of goods, capital, labour and services between the member countries results in the efficient allocation of these production factors and increases productivity. A single market presents a challenging environment for businesses as well as for customers making the existence of monopolies difficult. This affects inefficient companies and hence, results in a loss of market share and the companies may have to close down. However, efficient companies can gain from the increased competitiveness, economies of scale and lower costs. Single market also benefits the consumers in a way that the competitive environment provides them with inexpensive products, more efficient providers of products and increased variety of products. A country changing over to a single market may experience some short term negative effects on the national economy due to increased international competition. National companies that earlier benefited from market protection and subsidies may find it difficult to cope with their efficient peers. If these companies fail to improve their methods, they may have to close down leading to migration and unemployment.
Level of Integration Free Trade Area Main Features of Regional Economic Grouping 1. Free movement of goods & services among countries 2. No tariffs or non tariff barriers 3. Countries are free to decide their trade policies towards non-members 1. Second stage of economic integration 2. Common external tariff for non member countries 3. Ensures orderly & balanced economic development of Examples 1. India Srilanka Free Trade Agreement 2. India Asean Free Trade Agreement 3. North America Free Trade Agreement, etc. 1. Southern African Customs Union (SACU) 2. Andean Pact; 3. Southern Common Market (MERCOSUR) Page No. 120

Customs Union

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member countries 4. Promotes regions as single trading areas for all tariff & non tariff purposes for non member countries with single customs policy Common Market 1. Third stage of economic integration of countries 2. Free movement of labour and capital among participating countries 3. No restrictions on migration of people with economic grouping 1. Fourth stage of economic integration of countries 2. Common currency with aligned banking & monetary policy 3. Single trade policy 4. Harmonisation of tax rates 5. Common fiscal, banking & interest rate policy with common bank 1. Fifth stage of economic integration 2. Treaty of Lisbon provides for such framework for European Countries 3. If implemented, EU will have single defence & Foreign policy

4. EU- Turkey 5. Customs Union of Belarus, Kazakhstan and Russia

1. Caribbean Common Market ( Carricom); 2. Association of South East Asian Nations (ASEAN) 3. Central American Common Market (CACM)

Economic Union

Only example is European Union (EU)

Political Union

No living example however; European Union will become first political union if treaty of Lisbon is ratified by member countries

6.3.5 Economic union Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product regulations and a common external trade policy. The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries.
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Economic unions are established by means of a formal intergovernmental legal agreement among independent countries with the intention of fostering greater economic integration. The members of an economic union share some elements associated with their national economic jurisdictions. These include the free movements of: Goods and services within the union along with a common taxing method for imports from non-member countries. Capital within the economic union. Persons within the economic union. Some forms of cooperation usually exist while framing fiscal and monetary policies. 6.3.6 Political union A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union. Self Assessment Questions 2 4. Countries under a political union do not have a common government. (True/False) 5. Countries under a Common External Tariff on imports from non members are known as Common Market. (True/ False) 6. The purpose of an economic union is to promote closer __________ and _____________________ ties. 7. Identify the factor of production. a) Capital. b) Consumers. c) Market. d) Policy maker. Activity 1 Analyse the reasons that lead to the formation of economic unions and common markets. Hint: Economic regionalism, taxation and regional integration.

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6.4 Regional Trading Arrangements


After learning the various types of integration, we will now discuss the regional trading arrangements required for integration. The different regional trading agreements that are in existence today among various countries spread across different continents are discussed in this section. 6.4.1 The European Union (EU) The European Union (EU) is an economic and political union established in 1993. This came into effect because of the Treaty of Maastricht, signed on 7th February 1992 by the European Communities. The EU comprises of 27 member states committed to regional integration. The EU has developed a single market for all the member states and sixteen member states have adopted a common currency called the Euro. The member states sign an agreement called Schengen Agreement, which ensures the free movement of people, goods, capital and services, including the abolition of passport controls. The agreement enacts legislation in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development. EU has also devised a common foreign and security policy for its member states. It has established diplomatic missions around the world and represent the member states at the United Nations, WTO, G8 and G20 summits. EU ambassadors head the EU delegations. Important organisations of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The EU citizens elect the European Parliament every five years. 6.4.2 European Free Trade Association (EFTA) The European Free Trade Association (EFTA) is a free trade organisation established in 1960 between four European counties, Norway, Switzerland, Iceland and Liechtenstein. The EFTA was formed at the Stockholm Convention between seven countries, presently only four countries remain as the members of EFTA. The EFTA was formed as an alternative to EU, allowing countries to join EFTA if they were not willing to join EU. It operates parallel to the EU. The Stockholm Convention was replaced by the Vaduz

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Convention. This Convention provides a framework for a free and liberal trade amongst its member states. 6.4.3 North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments, Canada, Mexico and the United States. This trade agreement is the largest in the world in terms of combined purchasing power parity Gross Domestic Product (GDP) and second largest by nominal GDP comparison. The NAFTA is divided into two sections, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC). The North American Agreement on Environmental Cooperation (NAAEC) was established in 1994. It is an environmental agreement between the United States of America, Mexico and Canada. The agreement comprises of a declaration of objectives and principles regarding conservation and the protection of the environment. The Commission for Environmental Cooperation (CEC) was set up as part of the agreement. North American Agreement on Labour Cooperation (NAALC) was also established in 1994 to achieve the following goals: Improve working conditions and living standards. Promote a set of guiding labour principles. Encourage cooperation to promote innovation. Improve the levels of productivity and quality. NAALC provides various benefits such as exchanges of information, technical assistance and consultations for achieving the above goals. 6.4.4 Southern Common Market (MERCOSUR) MERCOSUR is a trade pact between Argentina, Brazil, Paraguay and Uruguay. It was established in 1991 to promote free trade and a smooth movement in currency, goods and people between these nations. The pact helps reduce tariffs between the nations by 90 percent. MERCOSUR was initiated in 1985 when the Presidents of Argentina and Brazil signed the Argentina-Brazil Integration and Economics Cooperation Program. Since then, other countries like Bolivia, Chile, Columbia, Ecuador and Peru have become members in this pact. In the 2004 presidential summit, it was
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agreed that it should have 18 representatives from each country by 2010. The only non-South American partners are Egypt and Israel. 6.4.5 ASEAN Free Trade Area (AFTA) AFTA is a trade agreement formulated by the Southeast Asian Nations association that supports local manufacturing in all the ASEAN countries. The AFTA agreement was signed in Singapore on 28th January, 1992. Initially when the AFTA agreement was signed, ASEAN comprised of six members: Thailand, Singapore, Philippines, Malaysia, Indonesia and Brunel. Then Vietnam joined the AFTA agreement in 1995, followed by Myanmar and Laos in 1997 and Cambodia in 1999. Now, AFTA consists of ten ASEAN countries. The four latecomers had to sign the AFTA agreement to join ASEAN; however, they were given longer time duration to meet the tariff reduction obligations of AFTA. The AFTAs primary goals seek to: Enhance the competitive edge of ASEAN as a production base in the world market by eliminating the ASEANs non-tariff and tariff barriers. Fascinate more overseas direct investment to ASEAN. Common Effective Preferential Tariff (CEPT) scheme is the prime source for attaining the goals mentioned above. The CEPT scheme established a schedule for its initiation in 1992 with their self-described goal to enhance the competitive advantage of the region as a production base for world market. The Association of Southeast Asian Nations (ASEAN) is an economic and geo-political organisation of ten countries situated at Southeast Asia. The ASEAN organisation was formulated by Thailand, Singapore, Philippines, Malaysia and Indonesia on 8th August, 1967. From then on, the membership has extended to comprise Vietnam, Laos, Cambodia, Burma (Myanmar) and Brunei. The ASEAN organisation aims to accelerate cultural development, social progress, economic growth among their members, protection of stability and peace of the region, and offer opportunities for member countries for discussing differences peacefully. ASEAN spans across 4.46 million kilometres area, three percent of the overall land area of the Earth with a population of approximately 600 million, that is, 8.8 percentage of the worlds population. If ASEAN was the only
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country, it would rank as the ninth largest economy worldwide and third largest in Asia, as per nominal GDP. 6.4.6 Asia-Pacific Economic Cooperation (APEC) The Asia-Pacific Economic Cooperation (APEC) is the best forum for assisting investment, trade, cooperation and economic growth in the AsiaPacific region. APEC is the sole inter-governmental grouping in the world functioning on the basis of equal respect, open dialogue and non-binding commitments for the views of its participants. Unlike WTO and the other multilateral trade bodies, APEC does not have any treaty obligation for their participants. The decisions within APEC are finalised by commitments and consensus undertaken on voluntary basis. The 21 Member Economies of APEC are Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, USA and Vietnam. APEC came into existence in 1989 to further enhance the prosperity and economic growth of the region and to uphold the Asia-Pacific community. From its initiation, APEC has worked to bring down the tariffs and other kinds of trade barriers around Asia-Pacific region. They have also worked towards increasing the exports dramatically and for creating efficient domestic economies. The key to achieve APECs vision is what is referred to as Bogor Goals of free and open trade and investment in the AsiaPacific by 2010 for industrialised economies and 2020 for developing economies. In fact, these goals were embraced by the leaders in their meeting in Indonesia and Bogor in 1994. Let us consider more about Bogor Goals in 1994 Leaders Declaration. The free and open trade investment assists economies to grow, generates jobs and offers greater prospects for international investment and trade. In contrast to this, protectionism maintains higher price tags and fosters inefficiencies in few industries. Free and open business assists in lowering the production costs and in reducing the prices of services and goods which is a direct advantage for everyone.

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APEC also functions to create a safe and efficient environment for the movement of people, services and goods across the borders with the help of technical and financial collaboration and policy alignment. Objectives: In order to meet Bogor Goals, the APEC functions in three prime areas: technical and financial collaboration. trade assistance. investment and business liberalisation. 6.4.7 Gulf Cooperation Council (GCC) On 25th May, 1981, GCCs leaders of United Arab Emirates like State of Kuwait, State of Qatar, Sultanate of Oman, Kingdom of Saudi Arabia and State of Bahrain met in Abu Dhabi. Here, the leaders formulated a framework to join the six states for effective inter-connection, integration and coordination among member states in every field for achieving unity as per article four of GCC Charter. Article four highlightes the strength and depth of cooperation, links and relations among their citizens. In fact, the underpinnings that are clearly provided in the GCC charters preamble confirms the similar systems, common qualities and special relations founded on the creed of Islamic faith, in sharing a common goal and to cooperate among these states to serve the objectives of the Arab nation. GCC on one hand is an institutionalisation, evolution and continuation of the old prevailing realities. On the other hand, it is a practical solution to challenges of economic development and security in those areas. Also, GCC is a fulfilment of aspirations of their citizens towards certain kind of Arab regional unity. Objectives: GCC charter helps to inter-connect, integrate and coordinate between the member states in every field. The GCC also known as Cooperation Council for the Arab States of the Gulf (CCASG) is an economic and political union that involves six Arab states of Persian Gulf with various social and economic objectives. Few of the stated objectives are to: Formulate similar kind of regulations in several fields like administration, legislation, tourism, customs, trade, finance and economy.
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Foster technical and scientific progress in animal, water, agriculture, mining and industry resources. Formulate scientific research centres. Establish joint ventures. Encourage cooperation of private sector. Strengthen relationship among the people. Formulate a mutual currency by 2010.

However, on December 2006, Oman announced that they would not be able to comply with the target date. Then in May 2009, UAE announced their withdrawal from monetary union project. This happened just after they had announced that their monetary union central bank would be situated at Riyadh instead of UAE. They have proposed the currency name to be Khaleeji. Recently, the Council leaders had to face lots of issues for combating the economic downturn. The GCC countries were the first to be hit by the downturn and the prime ones to react to the crisis. Their programs had lots of disparities which deepened the crisis. The recovery plans were present in the private sector which failed to set concise priorities for development and failed to restore confidence in the investor and weak consumer. 6.4.8 South Asian Free Trade Area (SAFTA) South Asian Free Trade Area (SAFTA) agreement was initiated at the 12th SAARC summit on 6th January, 2004 in Pakistan. This agreement envisaged the creation of a free trade zone model in its seven member nations. The seven member nations consist of nearly 1.4 billion people from various countries like: Nepal. Maldives. Bhutan. Bangladesh. Pakistan. India. SAFTA agreement was formulated to levy zero customs duty for trading products by 2012. This agreement was implemented after confirming its compliance by governments of seven member nations. Also, the agreement
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might facilitate healthy trades and investment relationship across the borders to bring about several structural reforms in economy of seven countries. But there are a few obstacles that hinder trade across the South Asian countries, thereby, the trade across the South Asian borders accounts for just five percentage of the overall trade. In fact, the reason could be attributed to the following two prominent factors like: Political causes: During the late 1940s, most nations of South Asia were a part of the British India. During this period, there was considerable trade between many South Asian countries. But in 1947 when Pakistan and India became independent, Pakistan started importing most of their important articles from India. Pakistan also exported many of their commodities to India. Because of the conflicts happening in various spheres, trade activities started declining sharply between Pakistan and India. Protectionism: Almost all the South Asian countries started stressing on their import activities rather than promoting their export activities. Such a tendency lowered the productivity in various sectors of economy. However, things are not the same now. Various economies have started cooperating among themselves, which is evident from the fact that both India and Pakistan lowered their trade tariffs in 2005.

Self Assessment Questions 3 8. The European Free Trade Association (EFTA) was established in the year: a) 1950. b) 1960. c) 1970. d) 1980. 9. ____________ is a trade pact between Argentina, Brazil, Paraguay and Uruguay. 10. The EU comprises of ____________ member states 11. SAFTA agreement was initiated at the 12th SAARC summit held in Bangladesh. (True/False) 12. The Gulf Cooperation Council (GCC) is also known as Cooperation Council for the Arab States of the Gulf (CCASG). (True/False)

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Activity 2 Find out how the Bogar goals set by APEC are being pursued by APEC member countries. Hint:http://www.apec.org/apec/news__media/media_releases/08_pe_sin gaporeiap.html

6.5 India and Trade Agreements


After learning about regional trading arrangements in the previous section, we shall now discuss the trading agreements conducted by India. India considers Regional Trading Arrangements (RTA's) as the building blocks towards the objective of trade liberalisation. Therefore, India participates in a number of RTAs, which include Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs) and so on. These agreements take place bilaterally or in a regional grouping. We shall now discuss some of the major agreements signed by India. 6.5.1 Asia-Pacific Trade Agreement (APTA) The Asia-Pacific Trade Agreement (APTA), previously known as the Bangkok Agreement, was signed on 31st of July 1975, as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is the regional development arm of the United Nations for the Asia-Pacific region. It focuses on issues that are most effectively addressed through regional cooperation and includes issues oft: All or a group of countries in the region face, for which it is necessary to learn from each other. Benefit from regional or multi-country involvement. Cut across boundaries, or that would benefit from collaborative intercountry approaches. Are sensitive or emerging and require further advocacy and negotiation. The first agreement on trade negotiations among the developing member countries of ESCAP was the APTA/ Bangkok agreement. It is basically a preferential tariff agreement that aims at promoting intra-regional trade
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through exchange of mutually agreed concessions by the members of the ESCAP region. The first signatories to the agreement were Bangladesh, India, Lao Peoples Democratic Republic, the Republic of Korea and Sri Lanka. China's accession to the agreement was accepted at the 16th Session of the Standing Committee of the Bangkok Agreement in April 2000. The objective of this agreement is to encourage economic development gradually through trade expansion among the developing member countries of ESCAP and to further international economic cooperation through the adoption of mutually beneficial trade liberalisation measures. The following general principles govern the agreement: The Agreement shall be based on overall cooperation and mutuality of advantages in such a way, to benefit all participating states equally. The principles of transparency, national treatment and most-favourednation treatment shall apply to the trade relations among the participating states. The special needs of least developed country participating states shall be clearly recognised and concrete preferential measures in their favour shall be agreed upon.

6.5.2 Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Bangladesh India Myanmar Sri Lanka and Thailand Technical and Economic Cooperation (BIMSTEC), a sub-regional economic cooperation grouping, was formed in Bangkok in June 1997. Myanmar joined the grouping later in December 1997. Bhutan and Nepal too joined in February 2004. Five members of SAARC (India, Bangladesh, Bhutan, Nepal and Sri Lanka) and two members of ASEAN (Thailand, Myanmar) are members of this agreement. Thus, it is considered as a bridging link' between the two major regional groupings that is, ASEAN and SAARC. The chairmanship of BIMSTEC rotates among the member countries in alphabetical order. The immediate priority of the grouping is to merge its activities to make it attractive for economic cooperation.

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Initially, cooperation was proposed into six sectors. But, during the 11th Senior Official Meeting in New Delhi on August 2006, it was agreed that the areas of cooperation should be expanded to 13 sectors and each sector will be led by members in a voluntary manner. The member countries proposed cooperation in the following sectors: Trade and Investment (Bangladesh). Technology (Sri Lanka). Energy (Myanmar). Transport and Communication (India). Tourism (India). Fisheries (Thailand). Agriculture (Myanmar). Cultural Co-operation (Bhutan). Environment and Disaster Management (India). Public Health (Thailand). People-to-People Contact (Thailand). Poverty Alleviation (Nepal). Counter-Terrorism and Trans-national Crimes (India). BIMSTEC member countries agreed to establish the BIMSTEC Free Trade Area Framework Agreement in order to encourage trade and investment in the countries party to the agreement, and attract outsiders to trade with and invest in BIMSTEC at a higher level. The Framework Agreement on the BIMST-EC FTA was signed on 8th February, 2004 in Phuket, Thailand. 6.5.3 Framework Agreement on Comprehensive Economic Cooperation between India and the Association of South East Asian Nations Look East Policy led India to engage with the Association of South East Asian Nations (ASEAN) and it started in the year 1991. The ASEANs political economic and strategic importance in the larger Asia-Pacific Region and its capability to become a major partner of India in trade and investment made India to join association with ASEAN. While, ASEAN looks to utilise and access Indias technical and professional wealth, India and ASEAN look forward to strengthen the security in the region.

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ASEAN was established on 8th August 1967 in Bangkok by the five original member countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Now, it has a membership of 10 countries namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. India is one of the four 'Summit level Dialogue Partners' of ASEAN. An agreement on Comprehensive Economic Cooperation between ASEAN and India was signed on 8th October 2003 in Bali (Indonesia). The key elements of the agreement are, FTA in services, goods and investment as well as in the areas of economic cooperation. The objectives of this agreement are to: Promote and strengthen trade, economic and investment co-operation between the parties. Progressively liberalise and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime. Explore new areas and develop appropriate measures for closer economic co-operation between the parties. Facilitate the more effective economic integration of the new ASEAN Member States and bridge the development gap among the parties.

The areas where economic cooperation is required are when appropriate parties: Agree to strengthen their cooperation in the following areas: Trade facilitation. Sectors of cooperation. Trade and investment promotion. Agree to implement capacity building programmes and technical assistance, particularly for the New ASEAN Member States, in order to adjust their economic structure and expand their trade and investment with India. Establish other bodies, which may be necessary to coordinate and implement any economic cooperation activities undertaken pursuant to this Agreement.

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6.5.4 India-MERCOSUR Preferential Trade Agreement (PTA) India and MERCOSUR signed a framework agreement on 17th June 2003. The objective of this agreement is to create an environment for negotiations in the first stage, by granting mutual tariff preferences, and in the second stage, to negotiate a FTA between the two parties in conformity with the rules of the WTO. As a follow up to the framework agreement, a Preferential Trade Agreement (PTA) was signed in New Delhi on January 25, 2004. The aim of this PTA is to expand and strengthen the existing relations between MERCOSUR and India and promote the expansion of trade by granting mutual fixed tariff preferences with the ultimate objective of creating a free trade area between the parties. Other agreements include: India and Singapore Comprehensive Economic Cooperation Agreement (CECA). India-Sri Lanka Free Trade Agreement (ISFTA). India-Chile Preferential Trade Agreement (PTA). India-Afghanistan Preferential Trade Agreement (PTA). India-Bhutan Trade Agreement. India-Nepal Trade Treaty. Framework Agreement for Establishing Free Trade between India and Thailand. Free Trade Agreement (FTA) between India and Gulf Cooperation Council (GCC). India- Japan Trade Agreement. Joint Study Group between India and Korea. Trade Agreement between India and Bangladesh. Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius. Self Assessment Questions 4 13. India and MERCOSUR signed a Framework Agreement on ________. 14. The association of India and ASEAN started in the year 1991. (True/False)

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6.6 Summary
Let us summarise the points covered in this unit: Regional integration is necessary to improve the relationship between countries and to promote trade. The overall development of the region is the principal behind regional integration. There are different types of regional integration such as free trade area, customs union, common market, economic union, political union, preferential trading agreement and free trade area. These are the basic ideas behind the different regional integration agreements existing in the world. The different regional integration agreements are NAFTA, APEC, EU, EFTA, AFTA, MERCOSUR, GCC and SAFTA. India also considers RTSs to be the basis for trade liberalisation. Therefore, India has entered into various agreements with many countries spanning many continents.

6.7 Glossary
GDP: Gross Domestic Product is the amount of goods and services produced in a country every year. Trade bloc: It is an agreement between countries to reduce tariffs and other trade barriers. Preferential Trade Agreement: Trade agreement whereby negotiating countries offer each other tariff & non tariff preference on all tariff line or on select tariff lines. Custom Union: Regional economic engagement of countries with a single mutually agreed common external tariff. Transit zone: It is a free trade area and goods passing through a transit zone are normally not subject to any customs formalities, duties, or import restrictions of the host country.

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6.8 Terminal Questions


1. What is the need for regional integration? 2. Write short notes on common market, economic union and free trade area. 3. Write short notes on NAFTA and APEC. 4. How has India reacted towards regional integration?

6.9 Answers
Self Assessment Questions 1 1. True 2. Economic diversification 3. d) Break ties with other countries Self Assessment Questions 2 4. False 5. True 6. Cultural and political 7. a) Capital Self Assessment Questions 3 8. b) 1960 9. MERCOSUR 10. 27 11. False 12. True Self Assessment Questions 4 13. 17th June 2003 14. True Terminal Questions 1. Regional integration facilitates the growth of trade, ensures peace and security of the region and binds different countries together. These are explained in section 14.2 of this unit. Refer the same for details. 2. Common market is a group of countries within a particular geographical area, whereas, FTA is a trade bloc that has agreed to reduce tariffs. An economic union comprises of a common market and a custom union. These are explained in sub-section 14.3.2, 14.3.3 and 14.3.4 of this unit. Refer the same for details.
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3. NAFTA is largest in the world in terms of purchasing GDP. APEC is a best form for trade cooperation in the Asia-Pacific region. These are explained in sub-section 14.4.3 and 14.4.6 of this unit. Refer the same for details. 4. India considers RTAs as building blocks towards the objective of trade liberalisation. Therefore, India is participating in a number of RTAs. This is explained in section 14.5 of this unit. Refer the same for details.

6.10 Case-let
Role of Integration in Maintaining Peace The war in the Balkans proved to be the motivation behind the development of European Foreign policy to establish stability and security in the region. The policy proposed to integrate the Western Balkans through political and economic assistance especially provided by a regional approach and by the Stabilisation Association Process and the Stability Pact. In the context of the policy towards the Balkans, Siberia was charged with the responsibility to oversee the transition of democracy and participate in the integration process. The role of Siberia is crucial as it has to take care of its own political and economic progress in the process of integration. Therefore, the policy emphasise that the process of the integration is not mainly related to security and economic interests, but also with a normative ambition that is most importantly building and enforcing the rules needed to guarantee democratic development and political stability. The EUs more rationale interests such as economic development and security are correlated and also embedded in the EUs normative concerns. The strategies employed by the EU towards Serbia particularly had the ambition to create political stability and in turn, increase the security throughout the Balkans, and thereby decrease the risk for further conflict around Europes borders. For instance, the support towards the democratic entities and the promotion of European norms and rules is of high priority. Discussion questions 1. Analyse the role of Siberia in integrating the Balkans. (Hint: Political and economic participation) Source: http://www.essays.se/essay/f468debd57/
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References: Bernadette Androsso-O'Callaghan (2005), Regional integration: Europe and Asia compared. Ashgate Publishing. Rouhollah K. Ramazani, Joseph A. Kechichian (1988), The Gulf Cooperation Council: record and analysis. University Press of Virginia. Hill; International Business-competing in Global Market Place; fourth Edition; Tata McGraw-Hill Sisir Gupta (1981), India and regional integration in Asia. Asia Publishing House.

E-References: http://business.gov.in/trade/trade_agreements.php, retrieved on 10th November, 2010 http://en.wikipedia.org/wiki/Regional_integration, retrieved on 6th November 2010 www.indianindustry.com, retrieved on 22 April 2012

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