(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 arrangements.
Strengthening of trade integration in the region
Enabling environment for private sector development
Development of strong public sector institutions and good governance
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 the world
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 receives.
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 each other.
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 transparent.
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 protectionist measures.
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 general.
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 Organization (WTO).
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 different forms:
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 ECONOMIC POLICY
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 allocation.
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 agricultural goods.
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 period.
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 Union
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 LAFTA
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 Economic Community.
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 states
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 unanimity.
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:
To accelerate economic growth, social progress and cultural development in the region and
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.