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  • 2. What is a trade bloc? European Union(EU) • Member states • Future membership • Objectives of European Union • Organizational Structure • Evolution of European Union as trade bloc • Factors that European Union must consider South Asian Association for Regional Cooperation (SAARC) • History: • Member States: • Future membership • SAARC: Formation and objectives • Areas of Cooperation • Secretariat • Ineffectiveness • Political issues • Free trade agreement • The EU and South Asian Association for Regional Co-operation Latin American Free Trade Association (LAFTA) • Objectives: • Methods • The LAFTA agreement has important limitations North American Free Trade Agreement (NAFTA) • History of implementation • Objectives • Economic Relationship among NAFTA Nations • Effects on NAFTA nations • NAFTA Trade Policies What is a trade bloc?
  • 3. A trade bloc is type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade (tariffs and non- tariff barriers) are reduced or eliminated among the participating states. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted under the auspices of regional trade blocs. Trade blocs can be stand-alone agreements between several states (such as NAFTA) or part of a regional organization (such as the European Union). Depending on the level of economic integration, trade blocs can fall into different categories, such as: Preferential trading areas • Free trade areas • Customs unions • Common markets • Economic and monetary unions • Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade. Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system. Advantages/ benefits of Joining a Trading Blocs • Access to larger markets leads to internal economies of scale. • External economies of scale due to improved infrastructure (e.g. transport and telecoms links). • Greater international bargaining power. • Increased competition between members. • More rapid spread of technology Disadvantages /risks of Joining a Trading Blocs • Country may lose resources to more efficient members, or to geographical centre, and become depressed region. • Firms may co-operate, collude and merge, leading to greater monopoly power. • Diseconomies of scale if firms become very large. • High administrative costs of trading bloc. European Union
  • 4. Introduction The European Union or EU is an international organisation of European states, established by the Treaty on European Union (the Maastricht treaty). The European Union is the most powerful regional organisation in existence, in some ways it resembling a state. The European Union (EU) is a political and economic union of 27 member states, located primarily in Europe. It was established by the Treaty of Maastricht in 1993 upon the foundations of the pre-existing European Economic Community. With almost 500 million citizens, the EU combined generates an estimated 30% share of the world's nominal gross domestic product (US$16.8 trillion in 2007). Member states The European Union is composed of 27 independent sovereign countries which are known as member states: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. Future membership There are three official candidate countries, Croatia, the Former Yugoslav Republic of Macedonia, and Turkey. The western Balkan countries of Albania, Bosnia and Herzegovina, Montenegro, and Serbia are officially recognised as potential candidates. Kosovo is also listed by the European Commission as a potential candidate but the Commission does not list it as an independent country because not all member states recognise it as an independent country, separate from Serbia. To join the EU, a country must meet the Copenhagen criteria, defined at the 1993 Copenhagen European Council. These require a stable democracy which respects human rights and the rule of law; a functioning market economy capable of competition within the EU; and the acceptance of the obligations of membership, including EU law. Evaluation of a country's fulfillment of the criteria is the responsibility of the European Council. The current framework does not specify how a country could exit the Union (although Greenland, a Territory of Denmark, withdrew in 1985), but the proposed Treaty of Lisbon contains a formal procedure for withdrawing. Four Western European countries that have chosen not to join the EU have partly committed to the EU's economy and regulations: Iceland, Liechtenstein, and Norway are a part of the single market through the European Economic Area, and Switzerland has similar ties through bilateral treaties.The relationships of the European microstates Andorra, Monaco, San Marino, and Vatican City include the use of the euro and other co-operation.
  • 5. Objectives of European Union Economic integration is a mechanism through which a group of countries try to improve their level of welfare through higher growth. A single market arrangement, the highest form of regional cooperation (as adopted by the European Union), requires that all residents (producers and consumers) should be governed by exactly the same rules. This form of integration implies that all participants must be treated equally in all parts of the market. The guiding principle behind economic integration/ economic union is the concept of convergence in per capita income and/or per worker income among participating nations. The EU has developed a single market through a standardised system of laws which apply in all member states, guaranteeing the freedom of movement of people, goods, services and capital. It maintains a common trade policy, agricultural and fisheries policies, and a regional development policy. Fifteen member states have adopted a common currency, the euro. It has developed a role in foreign policy, representing its members in the World Trade Organisation, at G8 summits and at the United Nations. Twenty-one EU countries are members of NATO. It has developed a role in justice and home affairs, including the abolition of passport control between many member states under the Schengen Agreement. According to the neo-classical models of economic growth, “the technology is such that, all things equal, poor countries/regions in terms of GDP per capita and/or per worker, grow faster than rich ones. If poor and rich countries differ only by their initial level of per capita GDP and they face identical technology and preferences, then, inequality eventually disappears in the long-run. If countries differ in other aspects too, then convergence takes the form of the stabilization of the distribution of relative income per capita across territories European Union was created with this basic principle in mind. The EU operates through a hybrid system of intergovernmentalism and supranationalism. In certain areas it depends upon agreement between the member states. However, it also has supranational bodies, able to make decisions without unanimity between all national governments. Important institutions and bodies of the EU include the European Commission, the European Parliament, the Council of the European Union, the European Council, the European Court of Justice and the European Central Bank. EU citizens elect the Parliament every five years. The EU traces its origins to the European Coal and Steel Community formed among six countries in 1951 and the Treaty of Rome in 1957. Since then the union has grown in size through the accession of new countries, and new policy areas have been added to the remit of the EU institutions By making conditions equal across Europe, EU will be able to bridge the gap between the rich and poorer nations. Over the last twelve years, EU has tried to create equal
  • 6. opportunities for the poorer nations and we try to find out if it helped poorer nations get richer and closer to rich nations in terms of GDP per capita as well as in terms of absolute amount of GDP. The study evaluates if EU delivered growth to member nations by creating equal conditions in terms of lower inflation through monetary policy coordination and lower budgetary deficits, lower currency volatility through single currency, promotion of democratic institutions through respect for human rights and peace on borders of the participating nations. Organizational Structure The EC, which is the core of the EU, originally referred to the group of Western European nations that belonged to each of three treaty organizations—the European Coal and Steel Community (ECSC), the European Economic Community (EEC), and the European Atomic Energy Community (Euratom). In 1967 these organizations were consolidated under a comprehensive governing body composed of representatives from the member nations and divided into four main branches—the European Commission (formerly the Commission of the European Communities), the Council of the European Union (formerly the Council of Ministers of the European Communities), the European Parliament, and the European Court of Justice. Although the EU has no single seat of government, many of its most important offices are in Brussels, Belgium. The European Commission, which has executive and some legislative functions, is headquartered there, as is the Council of the European Union; it is also where the various committees of the European Parliament generally meet to prepare for the monthly sessions in Strasbourg, France. In addition to the four main branches of the EU's governing body, there are the Court of Auditors, which oversees EU expenditures; the Economic and Social Committee, a consultative body representing the interests of labor, employers, farmers, consumers, and other groups; and the European Council, a consultative but highly influential body composed primarily of the president of the Commission and the heads of government of the EU nations and their foreign ministers Evolution of European Union as trade bloc The history of the EU began shortly after World War II, when there developed in Europe a strong revulsion against national rivalries and parochial loyalties. While postwar recovery was stimulated by the Marshall Plan, the idea of a united Europe
  • 7. was held up as the basis for European strength and security and the best way of preventing another European war. In 1950 Robert Schuman, France's foreign minister, proposed that the coal and steel industries of France and West Germany be coordinated under a single supranational authority. France and West Germany were soon joined by four other countries—Belgium, Luxembourg, the Netherlands, and Italy—in forming (1952) the ECSC. The EEC (until the late 1980s it was known informally as the Common Market) and Euratom were established by the Treaty of Rome in 1958. The EEC, working on a large scale to promote the convergence of national economies into a single European economy, soon emerged as the most significant of the three treaty organizations. The Brussels Treaty (1965) provided for the merger of the organizations into what came to be known as the EC and later the EU. Under Charles de Gaulle, France vetoed (1963) Britain's initial application for membership in the Common Market, five years after vetoing a British proposal that the Common Market be expanded sinto a transatlantic free-trade area. In the interim, Britain had engineered the formation (1959) of the European Free Trade Association. In 1973 the EC expanded, as Great Britain, Ireland, and Denmark joined. Greece joined in 1981, and Spain and Portugal in 1986. With German reunification in 1990, the former East Germany also was absorbed into the Community. The Single European Act (1987) amended the EC's treaties so as to strengthen the organization's ability to create a single internal market. The Treaty of European Union, signed in Maastricht, the Netherlands, in 1992 and ratified in 1993, provided for a central banking system, a common currency to replace the national currencies (the euro, see European Monetary System), a legal definition of the EU, and a framework for expanding the EU's political role, particularly in the area of foreign and security policy. The member countries completed their move toward a single market in 1993 and agreed to participate in a larger common market, the European Economic Area (est. 1994), with most of the European Free Trade Association (EFTA) nations. In 1995, Austria, Finland, and Sweden, all former EFTA members, joined the EU, but Norway did not, having rejected membership for the second time in 1994. A crisis within the EU was precipitated in 1996 when sales of British beef were banned because of “mad cow disease”. Britain retaliated by vowing to paralyze EU business until the ban was lifted, but that crisis eased when a British plan for eradicating the disease was approved. The ban was lifted in 1999, but French refusal to permit the sale of British beef resulted in new strains within the EU. In 1998, as a prelude to their 1999 adoption of the euro, 11 EU nations established the European Central Bank. The euro was introduced into circulation in 2002 by 12 EU nations; additional EU nations have since adopted it. The EU was rocked by charges of corruption and mismanagement in its executive body, the European Commission (EC), in 1999. In response the EC's executive commission including its president, Jacques Santer, resigned, and a new group of
  • 8. commissioners headed by Romano Prodi was soon installed. In actions taken later that year the EU agreed to absorb the functions of the Western European Union, a comparatively dormant European defense alliance, thus moving toward making the EU a military power with defensive and peacekeeping capabilities. The installation in Feb., 2000, of a conservative Austrian government that included the right-wing Freedom party, whose leaders had made xenophobic, racist, and anti- Semitic pronouncements, led the other EU members to impose a number of sanctions on Austria that limited high-level contacts with the Austrian government. Enthusiasm for the sanctions soon waned, however, among smaller EU nations, and the issue threatened to divide the EU. A face-saving fact-finding commission recommended ending the sanctions, stating that the Austrian government had worked to protect human rights, and the sanctions were ended in September. In 2003 the EU and ten non-EU European nations (Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Cyprus, and Malta) signed treaties that resulted in the largest expansion of the EU the following year, increasing the its population by 20% and its land area by 23%. Most of the newer members are significantly poorer than the largely W European older members. The old and new member nations at first failed to agree on a constitution for the organization; the main stumbling block concerned voting, with Spain and Poland reluctant to give up a weighted system of voting scheduled for 2006 that would give them a disproportionate influence in the EU relative to their populations. In Oct., 2004, however, EU nations signed a constitution with a provision requiring a supermajority of nations to pass legislation. The constitution, which needed to be ratified by all members to come into effect, was rejected by voters in France and the Netherlands in 2005, leading EU leaders to pause in their push for its ratification. Meanwhile, in 2003 the EU embarked, in minor ways, on its first official military missions when EU peacekeeping forces replaced the NATO force in Macedonia and were sent by the United Nations to Congo (Kinshasa); the following year the EU assumed responsibility for overseeing the peacekeepers in Bosnia. EU members also took steps toward developing a common defense strategy independent of NATO, and agreed in 2004 to admit Bulgaria and Romania in 2007. José Manuel Barroso succeeded Prodi as president of the European Commission late in 2004. Accession talks with Turkey were partially suspended in Dec., 2006, over the issue of Turkish relations with Cyprus because Turkey was unwilling to open its ports to Cypriot trade unless the EU eased its trade restrictions on North Cyprus. The EU opted for incremental reforms over a new constitution in 2007, when member nations signed the Lisbon Treaty. The treaty, slated to come into force in 2009 after ratification by all EU nations, would reorganize the European Council, establish a single EU foreign policy official, and reform the EU's system of voting, among other changes. (The reforms would be phased in through 2017.) In June, 2008, however, Irish voters—the only national electorate given the opportunity to ratify the treaty— rejected it in a referendum, a potentially fatal setback.
  • 9. Factors that European Union must consider Globalization is here to stay and it has changed everything with extremely harsh consequences for some participants. Globalization has resulted in migration of jobs to new cheap locations in China and India, resulting in complaints about outsourcing and delocalization. The creation of the single market and enlargement of the European Union has further intensified the pain to the existing residents of the Eurozone by displacing many people out their existing jobs. Also, open internal borders have attracted criminals and illegal immigrants that are threatening to erode the social fabric of the European society and their existing way of life. Therefore, residents of the Eurozone feel left out of the promises of higher competitiveness, more jobs, and better living standards. If the European Union is to survive and expand, the member nations, especially the original 15 founder nations must listen to their citizens and deliver on the promise of better economic life for them; otherwise the very survival of the EU may be at risk. European Union was founded with a promise of higher growth, lower inflation, and higher job creation. Some of the policy initiatives that the European Union should implement include: i European Union must promote economic growth. With exchange rate stability, single currency, and low interest rates, participating nations need to introduce necessary flexibility in the labor markets so that economic growth in the Eurozone can be regenerated5. With low interest rates, corporations can borrow easily, hire labor at favorable terms across the Eurozone, and bring economic growth all over Europe. E European Union must enforce fiscal discipline among its participating nations by strictly adhering to budgetary deficit not exceeding 3 percent of the GDP. Countries that borrow beyond the limit must be penalized to keep public borrowing and, consequent, inflation under control. c European Union should encourage the member nations to do fundamental reforms in the form of removal of subsidies, tax reforms, and labor market reforms that will encourage competitiveness, increase output, and create jobs instead of public borrowing to solve their problems. b Make European Union more democratic and open to the citizens so that they do not believe that this is a just a project of the politicians without any regard for the ordinary citizen. Residents of the Eurozone must be made to participate and their opinions and voices must be incorporated in the decisions of the European Union instead of leaving the decision making in the hands of a few bureaucrats and politicians, which can be blamed for any pain their citizens are going through. This only undermines the credibility of the uni