Free Trade Agreements FTA Regional Integation Agreements /RIAs

Free Trade Agreements FTA Regional Integation Agreements /RIAsRegional Integration Agreements (RIA) and Regional Trading Blocks Regional Economic GroupingsA) Definition:

Integration is the creation and maintenance of intense and diversified patterns of interaction among autonomous unit.

Two forms of IntegrationEconomic integration often involves Free trade areaCustoms unionsCommon market

Political Integration Formation of political institutional mechanismDecision making proceduresShared values and expectations (Foreign policy)

What elseNot only geographical process Historical experiencePower and wealth distribution within and outside the groupingCultural and ideological or political preferences and implementationSecurity and military co-operations and quaranties B) Actors

- Governments or States- Corporate and economic welfare- C) Goal/ Vision- Maximize economic welfare- Gains intra-regional trade and investment- Defense and security- Protect social and cultural traditionsFive types of regionalism

1.Informal linkages and transactions derived primarily from economic activity (include political and social aspects also)

2.Regional awareness and identity; mixture of historical, cultural and social traditions Belonging to a particular community

3.Regional interstate co-operation; States or governments may sponsor agreements and co-operation amongst themselves to manage common problems and enhance the role of the state and power of the government

4.State promoted regional economic integration:-Most common form of regionalism. Governments and business interests pursue economic integration (Differ in terms and depth Mercantilism VS. Liberalism)

5. Regional cohesion Combination of these four processes might lead the emergence of cohesive and consolidated regional unit (EU, internal affairs and global politics)

Economic Integration

Any type of arrangement in which countries agree to coordinate their trade, fiscal and/or monetary policies is referred to as economic integration.

A regional trading arrangement is an agreement among governments to liberalize trade and possibly to co-ordinate other trade related activities. There are four (five) principal types of regional trading arrangements.

There are several different degrees of integration

1. Preferential trade agreement (PTA)

2. Free Trade agreement (FTA)3. Customs Union (CU)4. Single Market

5. Economic and Monetary Union

Economic integration emerged after WWII

PREFERENNTIAL TRADE AGREEMENT

Weakest form of economic integration

It is the trade block which gives preferential access to certain products from the participant countries

APTA can be established through a trade pact

The line between PTA and Free Trade Agreement (FTA) may be blurred, as almost ant PTA has a main goal of becoming a FTA in accordance with the general Agreement on Tariffs and trade

Example EU and ACP countries (African, Caribbean and Pacific Group)

Free trade Agreement (FTA)

Treaty (such as FTAA or NAFTA) between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or hindrances but in contrast to a common market capital or labor may not move freely. Member countries usually impose a uniform tariff (called common external tariff) on trade with non-member countries.

FTAForm of economic integration, when a designated group of countries agree to eliminate tariffs, quotas and preferences on most (if not all) goods and services between them.

Members of the FTA do not have common tariff rates.

To avoid evasion ( through re - exportation) the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material and inputs and local transformation adding value to the goods

Example NAFTA, EEA

Custom Union

more territories and having in its ultimate state the following characteristics:

- a common customs tariff and a common or harmonized customs legislation for the application of that tariff;

- the absence of any customs duties and charges having equivalent effect in trade between the countries forming the customs union in products originating entirely in those countries or in products of other countries in respect of which import formalities have been complied with and customs duties and charges having equivalent effect have been levied or guaranteed and if they have not benefited from a total or partial drawback of such duties and charges

- the elimination of restrictive regulations of commerce within the customs union

Custom UnionA custom union is a type of trade block which is composed of free trade area with common external tariff.

The participant countries set up common external trade policy, but in some cases they used different import quotas.

Examples MERCOSUR, CARICOM

Single Market

Common market is a custom union, establish to eliminate progressively all tariff and quotas on trade among its members, and to establish to a common tariff on imports from outside the community.

Group formed by countries within a geographical area to promote duty free trade and free movement of labor and capital among its members. European community (as a legal entity within the framework of European Union) is the best known example. Common markets impose common external tariff (CET) on imports from non-member countries.

Common MarketA common market is a type of trade block which is composed of a customs union with common policies on product regulation, and freedom of movement of the factors of production ( capital and labor) and of enterprises.The goal is the movement of capita, labor goods, and a service between members is as easy as within them.For both business within the market and consumers a single market is a very competitive environment, making the existence of monopolies more difficult.Example EU

Economic and Monetary Union

An economic and monetary union is type of trade block which is composed of single market with a common currency.It is the distinguished from a mere currency union The last stage of economic integration. EMU is established through a currency related trade pactExample EMU

Levels of Economic Integration

Type of BlockFree Trade among members Common* external TariffFree movement of factors of ProductionHarmonization of all economic policiesFTAXCustom UnionXXCommon MarketXXXEconomic UnionXXXX*Common trade policy, centralized system to control and evaluate policies

17Intra Regional Trade ShareRegion198019851990199520002004East Asia 34,637,143,15252,255,2ASEAN1820,318,924,124,723,9NAFTA33,838,737,943,248,846,4MERCOSUR11,17,210,919,220,315,2Old EU (15)60,759,866,264,262,362,1New EU61,359,86767,466,867,9WHY RIAs Economic development through co-operation and integration becomes a more important issue in world politics and international economy in every part in the world over the last three decade (Park, 2001) at least. There has been a rapid increase of Regional Integration agreements since 1990, this creating a new division of trade and economic cooperation. East Asian economic integration has made significant progress together with high and sustainable economic growth, particularly in relation to trade.Why RIAsDespite the economic growth and trade in East Asia, ASEAN integration had been less than remarkable in the economic, financial, trade or political sectors. Regardless of deepening and widening and more formal ASEAN integration, intra trade or financial co-operation has not has shown significant increase among ASEAN members within last 20 years. This raises the question of the roles and impact of efficacy of ASEAN institutions or absence of supranational institutions ASEAN