1. 1
International Business
Rakesh Mohan Joshi
Professor & Chairperson, IIFT New Delhi
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
3. Learning Objectives
To provide an overview of international
economic integration
To make clear the theoretical framework
of special 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
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
4. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
5. Trade-Creation Impact
Formation of an FTA results in the
expansion of consumption opportunities
by making available low-cost goods.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
6. 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 nonmembers,
even
at
the
cost
of
production
efficiency.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
7. Forms of International Economic
Integration
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
8. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
9. Free Trade Agreement (FTA)
Form of economic integration in which
member countries seek to remove all
tariffs and non-tariff barriers for crossborder trade of goods and services among
themselves e.g. NAFTA, LFTA., etc.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
10. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
11. 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 crossborder investments, movement of labour,
technology
transfer,
sharing
capital
of
management,
resources,
e.g.
COMESA, MERCOSUR, etc.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
12. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
13. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
15. European Union (EU)
Aimed at promoting regional co-operation among
countries in Europe, in addition to trade and
economy,
the
EU
deals
with
subjects,
such
as
citizens’
many
rights;
other
ensuring
freedom, security, and justice; job creation;
regional development; environmental protection;
and promoting globalization
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
16. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
17. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
18. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
19. Asia-Pacific Economic Cooperation (APEC)
Established
in
1989,
APEC
aims
to
enhance economic growth and prosperity
for the region and to strengthen the AsiaPacific 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
20. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
21. India’s Participation in PTAs
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
22. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
23. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
24. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
25. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
26. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
27. Indo-Sri Lanka Free Trade Agreement
(ISLFTA)
An FTA between India and Sri Lanka was
signed
on
agreement
28
December
envisages
1998.
phasing
out
The
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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
28. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
29. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
30. 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 nonreciprocity.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
31. 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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
32. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
33. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
34. India-Chile Framework Agreement on
Economic Cooperation
Signed
on
20
January
2005,
the
agreement envisages a PTA between the
two countries.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
35. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
36. 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.
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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
37.
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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International Business
R. M. Joshi
Chapter 6: International Economic
Integrations
38. 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
Chapter 6: International Economic
Integrations