(i) Regional integration is a process in which states
enter into a regional agreement in order to enhance regional
cooperation through regional institutions and rules.
(ii) Regional Integration as an association of states
based upon location in a given geographical area, for the
safeguarding or promotion of the participants, an
association whose terms are fixed by a treaty or other
• Strengthening of trade integration in the region
• Enabling environment for private sector development
• Economic growth
• Development of strong public sector institutions and good
• Reduction of social exclusion and the development of an
inclusive civil society
• Contribution to peace and security in the region
• Building of environment programmes at the regional level
• Strengthening of the region interaction with other regions of
Most Favoured Nation (MFN)
• Most favoured nation (MFN), is a status awarded by one
nation to another in international trade.
• It means that the receiving nation will be granted all trade
advantages, such as low tariffs, that any other nation also
• In effect, a nation with MFN status will not be treated worse
than any other nation with MFN status.
MFN relationships contrast with reciprocal relationships, since in
reciprocal relationships a particular privilege granted by one party
only extends to other parties who reciprocate that privilege, rather
than to all parties with which it has a most favoured nation status
• The members of the World Trade Organization (WTO), which
include all developed nations, must accord MFN status to
• Exceptions allow for preferential treatment of developing
countries, regional free trade areas and customs unions.
• Together with the principle of national treatment, MFN is one
of the cornerstones of WTO trade law.
Most Favoured Nation (MFN)
Benefits of MFN
• A country that grants MFN on imports will have its imports
provided by the most efficient supplier, which may not be
possible incase tariffs differ between countries.
• MFN allows smaller countries to participate in the advantages
that larger countries often grant to each other, whereas on
their own, smaller countries would often not be powerful
enough to negotiate such advantages by themselves.
• Granting MFN has domestic benefits: having one set of tariffs
for all countries simplifies the rules and makes them more
• It also lessens the problem of having to establish rules of
origin to determine which country a product (that may
contain parts from all over the world) must be attributed to
for customs purposes.
• MFN restrains domestic special interests from obtaining
For eg. Butter producers in country A may not be able to
lobby for high tariffs on butter to prevent cheap imports from
developing country B, because, as the higher tariffs would
apply to every country, the interests of A's principal ally C
might get impaired.
• MFN clauses promote non-discrimination among countries,
they also tend to promote the objective of free trade in
Benefits of MFN
Regional Trade Agreement (RTA)
• A regional trade agreement (RTA) is an economic trade
agreement to reduce tariffs and restrictions on trade
between two or more nations within a certain region.
• A total of 300 RTAs have been reported to the World Trade
• There are a variety of RTAs; with some being quite complex
(European Union), while others are far less intensive (North
American Free Trade Agreement)
RTAs are preferential trade agreements. RTAs come in
• An Free Trade Agreement (FTA) is a group of two or more
customs territories which has eliminated tariffs and other
trade restrictions on substantially all trade.
• A Customs Unions is two or more customs territories which
have an FTA and which also apply a common external tariff on
goods from non-members.
• A regional economic integration agreement is the next step: it
can include the free movement of capital as well as goods and
services A COMMON CURRENCY AND A COMMON
• Free trade is a type of trade policy that allows traders to act
and transact without interference from government.
• The policy permits trading partners mutual gains from trade
of goods and services.
• Under a free trade policy, prices are a reflection of true
supply and demand, and are the sole determinant of resource
• Free trade differs from other forms of trade policy where the
allocation of goods and services amongst trading countries
are determined by artificial prices that do not reflect the true
nature of supply and demand.
Free Trade – hold back
• Most states conduct trade polices that are to a lesser or
greater degree protectionist.
• One ubiquitous protectionist policy employed by states
comes in the form agricultural subsidies whereby countries
attempt to protect their agricultural industries from outside
competition by creating artificial low prices for their
Some Free Trade Agreements…
• North American Free Trade Agreement or NAFTA
• European Union or EU
• Association of South East Asian Nations or ASEAN
• Central American Free Trade Association or CAFTA
• Latin American Free Trade Association or LAFTA
• South Asian Free Trade Area or SAFTA
• Latin American Free Trade Association (LAFTA) was incepted
in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile,
Mexico, Paraguay, Peru, and Uruguay.
• LAFTA came into effect on January 2, 1962.
• The signatories hoped to create a common market in Latin
America and offered tariff rebates among member nations.
• When the trade association commenced it had seven
members and its main goal was to eliminate all duties and
restrictions on the majority of their trade within a twelve year
• By the late 1960’s LAFTA had a population of 220 million and
produced about US $90 billion of goods and services annually.
• The goal of the LAFTA is the creation of a free trade zone in
Latin America. It should foster mutual regional trade among
the member states, as well as with the U.S. and the European
The LAFTA agreement has important limitations: it only
refers to goods, not to services, and it does not include a
coordination of policies. Compared to the European Union
the political and economic integration is very limited
• NAFTA an agreement signed by the governments of the
United States, Canada, and Mexico creating a trilateral trade
bloc in North America.
• The agreement came into force on January 1, 1994.
• It superseded the Canada-United States Free Trade
Agreement between the U.S. and Canada.
• The trade block is the largest in the world and second largest
by GDP comparison.
• The NAFTA has two supplements, the North American
Agreement on Environmental Cooperation (NAAEC) and the
North American Agreement on Labor Cooperation (NAALC).
• The European Union (EU) is an economic and political union
of 27 member states, located primarily in Europe Committed
to regional integration,
• The EU was established by the Treaty of Maastricht on 1 Nov,
1993 on the foundations of the pre-existing European
• With about 500 million citizens, the EU combined generates
an estimated 30% share of the nominal gross world product.
• The EU has developed a single market through a standardised
system of laws which apply in all member states, ensuring the
freedom of movement of people, goods, services, and capital.
• It maintains common policies on trade, agriculture, fisheries
and regional development.
• 16 member states have adopted the euro, as a common
currency & are known as the Eurozone.
• The EU has a limited role in foreign policy, having
representation at the WTO, G8 summits, and at the UN.
• It has enacted legislation in justice and home affairs, including
the abolition of passport controls between many member
• The EU operates through a hybrid system of supranationalism
and intergovernmentalism. In certain areas, it depends upon
agreement between the member states; in others,
supranational bodies are able to make decisions without
• Important institutions and bodies of the EU include the
European Commission, the Council of the European Union,
the European Council, the European Court of Justice, and the
European Central Bank.
• The European Parliament is elected every five years by
member states' citizens, to whom the citizenship of the
European Union is guaranteed.
• The Association of Southeast Asian Nations or ASEAN was
established on 8 August 1967 in Bangkok by five original
Member Countries, Indonesia, Malaysia, Philippines,
Singapore, and Thailand.
• Brunei Darussalam joined in 1984, Vietnam in 1995, Lao PDR
and Myanmar in 1997, and Cambodia in 1999.
• As of 2006, the ASEAN region has a population of about 560
million, a total area of 4.5 million square kilometers, a
combined gross domestic product of almost US$ 1,100 billion,
and a total trade of about US$ 1,400 billion.
The ASEAN Declaration states that the aims and purposes of
the Association are:
1) To accelerate economic growth, social progress and cultural
development in the region and
2) To promote regional peace and stability through abiding
respect for justice and the rule of law in the relationship
among countries in the region and adherence to the
principles of the United Nations Charter.
• The South Asian Association for Regional Cooperation
(SAARC) is an economic and political organization of eight
countries in Southern Asia.
• In terms of population, its sphere of influence is the largest of
any regional organization.
• It was established on December 8, 1985 by Bangladesh,
Bhutan, Maldives, Nepal, Pakistan, India and Sri Lanka.
The objectives of the Association are:
• To promote the welfare of the people of South Asia and to
improve their quality of life
• To accelerate economic growth, social progress and cultural
development in the region and to provide all individuals the
opportunity to live in dignity and to realize their full potential
• To promote and strengthen collective self-reliance among the
countries of South Asia
• To contribute to mutual trust, understanding and appreciation
of one another's problems
• To promote active collaboration and mutual assistance in the
economic, social, cultural, technical and scientific fields;
• To strengthen cooperation with other developing countries;
• To strengthen cooperation among themselves in international
forums on matters of common interest; and
• To cooperate with international and regional organisations
with similar aims and purposes.
• South Asian Free Trade Area is an agreement reached at the
12th SAARC summit at Islamabad on 6 January 2004.
• SAFTA came into being on 1 January 2006
• It created a framework for the creation of a free trade area
covering India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan
and the Maldives.
• The seven foreign ministers of the region signed a framework
agreement on SAFTA with zero customs duty on the trade of
practically all products in the region by end 2016.
• SAFTA requires the developing countries in South Asia, that is,
India, Pakistan and Sri Lanka, to bring their duties down to
zero in a series of annual cuts.
• Target zero duty by 2012
• The least developed nations in South Asia consisting of Nepal,
Bhutan, Bangladesh and Maldives have an additional three
years to reduce tariffs to zero.