REGIONAL BLOCKSIntroduction After the Second World War, regional economic integration of trading blocks emerged as a new idea for expansion of foreign trade among the developing countries.Economic integration:The term economic integration is commonly used to refer to agreements between countries which remove artificial trade barriers, like tariffs and quantitative restrictions and leads to liberalization of trade and investment between countries. At their deepest they have the objective, judicial and legislative institutions.Objectives of economic integration:

Economic integration schemes have several objectives they are.To obtain economic benefits from achieving a more efficient production structure by exploiting economies of scale through spreading fixed costs over larger regional markets. Increased economic growth from foreign direct investment (FDI) etc.To pursue non-economic objectives such as strengthening political ties and managing migration flows.To ensure increased security of market access for smaller countries by forming regional blocks with larger countries.Objectives of economic integration:

To improve members bargaining strength in multilateral trade negotiations or to protest against the slow pace of trade negotiations.To promote regional infant industries, this cannot be viable without a protected regional market.Regional agreements frequently have political objectives and non-economic dimensions, including national security and enhancement of bargaining power {Economic and political}Forms of integration:

There are different degrees or levels of economic integration. Bela balassa in the theory of economic integration [1961] perceived the following five possible levels or degree of economic integrations.Free trade area/ association.Customs union.Common market.Economic union.Economic integration.1-Free trade area / association:Free trade area, which is a grouping of countries to bring about fee trade between them. It abolishes all restrictions on trade among the member but each member is left free to determine its own commercial policy with non-members. North American Free Trade Agreement2-Customs union:It is more advanced level of economic integration than the free trade area. It not only eliminates all restrictions on trade among members but also adopts a uniform commercial policy against the non-member. ( Common external tariff) Mercosur in South America3-Common market:A common market allows free movement of labour and capital within the common market, besides free trade among members and uniform tariff policy towards outsiders.EU4-Economic union:The economic union achieves some degree of harmonization on national economic policies, through a common central bank, unified monetary and fiscal policy etc. example: Belgium- Luxumberg Economic Unionnull5.POLITICAL UNIONThe political union achieves further more degree of harmonization in the form of political integration along with national economic policies, through a common central bank, unified monetary and fiscal policy etc. example: 13 separate colonies operating under the Article of Confederation grew into uSAAdvantages of regional blocks or groupingThe positive effects of regional economic integration are as follows.1-Economics of scale: A regional trading block provides much larger market as compared to the domestic market of a single country. When the markets of several countries are integrated, economics of scale, both internal and external, become possible with the widened size of the marketAdvantages of regional blocks or grouping2-High degree of specialization: Large scale production to fulfill the demands of the integrated markets would lead to optimum utilization of resources. Optimum utilization of resources requires that each country specialized according to the relative comparative advantage. If free trade is allowed within the region each country will specialize in a certain sector or area where it enjoys maximum comparative advantageAdvantages of regional blocks or grouping3-Cost and price structure: The increase in volume of trade as a result of regional groupings a favourable change in cost and price structure can also be effected along with favourable change in the structure and composition of foreign trade.4-Increased efficiency: Regional blocks lead to increased specialization and maximum utilization of resources, the local inefficiencies are removed and leads to increased efficiency in productions and other areasAdvantages of regional blocks or grouping5-Trade creation: Trade creation means substitution of in efficient domestic production in one country by cheaper imports from another member country. Better production and enhanced competition and a rise in real income generated by overall growth and development lead to general welfare of people and substitution by a less efficient internal producer by a more efficient external producer.Implications of regional blocks in international business:

The following are several ways in which the regional trading blocks can influence the international business.Regional groupings lead to substantial trade creation. The resultant increase in income and investment can lead to an increase in the imports of the grouping as whole.Conversely, if the regional lead to trade diversions the export prospects of the grouping As a whole are adversely affected. Implications of regional blocks in international business:

It may be possible that exporters of certain products find it easier to enter the regional markets which were inaccessible under the national tariff walls.

The exporting country will have the benefit of a larger and extended market. Implications of regional blocks in international business:

Greater uniformity in the marketing approach will provide economies of scale in product development, pricing, distributions and promotion

Despite the economic groupings the regional differences arising out of language culture and marketing practices do continue.

The European Union (EU)The Worlds Strongest Supranational OrganizationEuropean Union/ European Economic Community.

EEC also known as the European Common Market European community {EC} European Union [EU] is the most successful of the regional economic integration schemes. Because of the political and economic destruction left by world war II European political leaders realised that greater co-operation among their countries would help speedy european recovery and thus European Union was formed. EEC which originally comprised 6 nations namely, Belgium, France, Federal Republic of Germany, Italy, Luxembourg and Netherlands was brought into being on 1st January 1958, by treaty of Rome, 1957. European Union/ European Economic Community.

EEC also known as the European Common Market European community {EC} European Union [EU] is the most successful of the regional economic integration schemes. EEC which originally comprised 6 nations namely, Belgium, France, Germany, Italy, Luxembourg and Netherlands was brought into being on 1st January 1958, by treaty of Rome, 1957. European Union/ European Economic Community.

The ECC was expanded in 1973 with the inclusion of the United Kingdom, Denmark and Ireland. Greece joined the community in 1981 Spain and Portugal was admitted on 1st January 1986. The community in was further expanded in January 1995 with the admission of Australia ,Finland and Sweden.At present the EU has 28 members and is regarded as the worlds biggest and richest super national block.1951

Founding Members

BelgiumFranceGermanyItalyLuxembourgNetherlands

The European Union1973

DenmarkIrelandUnited Kingdom

The European Union1981

Greece

The European Union1986

PortugalSpain

The European Union

November 1989

Fall of theBerlin Wallsets thestage forunifyingEurope andEU enlargement

The European Union1995

AustriaFinlandSweden

The European Union2004

CyprusCzech RepublicEstoniaHungaryLatviaLithuaniaMaltaPolandSlovakiaSlovenia

The European Union2007

BulgariaRomania

The European UnionCandidate Countries CroatiaFormer Yugoslav Republic of MacedoniaTurkey

Potential Candidate Countries

AlbaniaBosnia & HerzegovinaMontenegroSerbia including Kosovo under UN Security Council Resolution 1244

The European Union

GROWTH OF THE EUAdmission of Romania and Bulgaria 2007Major debates about TurkeyCroatia and Macedonia are new candidatesEuropean Union/ European Economic Community.

The requirement for joining EU as member are.

The country must be European country and

It must be democratic country with a combined population of 38 million and with a GDP of 8.6 Trillion.European Union/ European Economic Community.

Main objectives of ECC are:Elimination of tariffs, quotas and other barriers on intra community trade.Devise a common internal tariff policy for imports from the ret of the world.Progressive reduction and removal of all fiscal and physical restrictions on the free movement of goods, capital and labour between member countries.Harmonization of economic policies of the member states in order to eliminate competition among the member countries.Three key playersThe Council of the European UnionVoice of the Member StatesThe European ParliamentVoice of the peopleThe European CommissionPromoting the common interestThe European UnionOrganization of EUTo be successful in Europe, International manager must understand the organisation of EU along with the knowledge about individual European Countries in which they are doing business.The governing bodies of EU areEuropean Commission : This is the executive body of EU. It assist the council. the members are appointed for a period of 4 yrs. the commission manages annual budget of EU and also negotiates trade agreements.28 Commissioners, each responsible for specific policy areas, representing the common European perspective.Proposes legislation and enforces laws. Negotiates trade agreements.Manages Europes multilateral development cooperationnullEuropean Council It consist of different ministers of the member countries. there are more then 25 councils e.g. : foreign Affairs, Agriculture etc. Agriculture council comprised f ministers of agriculture of all member countries. This special council decides issues relating to agriculture.The council is presided over by President, this presidency rotates between member countries every 6 months.nullEuropean Parliament:It is comprised of 626 members who are elected every 5 years and its membership is based on country population. 3 major responsibilities are legislative power, control over budget and supervision of executive decisions.European Court of Justice : The court of Justice ensures the consistent application of EU treaties , member states, EC institutions or individuals and companies may bring cases to the court.Highest EU judicial authority.Ensures all EU laws are interpreted and applied correctly and uniformly.Can act as an independent policy maker but unlike the U.S. Supreme Court, the ECJ can only deal with matters covered by the Treaties.nullEuro is the common currency in Europe and is administered by the European central Bank. Initially involved all EU member countries except UK, Denmark, Sweden and Greece. It was established on January 1 , 1999,resulted in new bank notes in 2002.nullCouncil of the European Union voice of the member statesThe European Commissionpromoting the common interestThe European Court of Justice upholding the lawThe European Court of Auditors getting value for your moneyThe European Central Bankmanaging the euronullNAFTA - NORTH AMERICAN FREE TRADE AREAnull

NAFTA - NORTH AMERICAN FREE TRADE AREAMembers - Canada , USA & MexicoCame into effect on January 1 1994Large Trading Block and include country of different sizesUS-Canadian trade is the largest bilateral trade in the worldUS is Mexicos and canadas largest trading partnerNAFTA is a good example for trade diversion. After the formation of this regional block, USA s trade and investment in Asia is diverted to Mexico.nullNAFTA objectives Elimination of tariff and non tariff barriers,Harmonisation of Trade rules (Subsidies, anti dumping etc)Liberalisation of restrictions on services and Foreign InvestmentEnforcement of Intellectual Property and Dispute settlement processnullnull

Important components of NAFTARules of Origin - Goods and services must originate in North America to get access to lower tariffs Regional content -Atleast 50% of net cost of most products must come from NAFTA region. Exceptions - 55%- Footware60% - Vehicles62.5% - Passenger automobilesnullOther ProvisionsProtection of labour rightsImproving working conditionsproviding dispute resolution mechanismnullnull

APEC - ASIA PACIFIC ECONOMIC COOPERATION

APEC came into existence in 1994 and had 21 members to promote multilateral economic co-operation in trade and investment in the acidic rim. All the member countries are in the border of Pacific rim both Asia as well as America.Include countries like USA, Japan,china,Australia, canada, Russia, singapore, Hong kong, Malaysia etc. member states account for 55% of worlds GNP, and 49% of world trade null3 pillars of APEC areTrade and Investment LiberalizationBusiness FacilitationEconomic and Technical co-operation.ADVANTAGESEconomic GrowthBenefits to people

nullTo accomplish its objective APEC leaders committed themselves to achieving free and open trade by 2010 for industrial nations (which generates 85% of the regional trade) and by 2020 for the rest of the members

Problem is its size. Also many countries with diverse interests. nullASEAN - Association of South East Nationsnull

The Association of Southeast Asian Nations (ASEAN, 1967)currently includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Myanmar, Laos, and Cambodia.wants to foster freer trade between member countries and to achieve some cooperation in their industrial policiesnullASEAN member countries have developed economically at a faster rate in the globe. their strength is well educated and skilled human resources. Their strength enabled them to achieve faster industrialisation. Further the member countries are rich in oil, mineral resources, agricultural goods and modern industrial products. nullAn ASEAN Free Trade Area (AFTA) between the six original members of ASEAN came into effect in 2003

ASEAN and AFTA are moving towards establishing a free trade zone. AFTA was able to cut tariffs on all intrazonal trade by about 5% by Jan 2008 and also it encouraged inflow of foreign trade in this region.

ASEAN member countries have a population greater then that of EU or NAFTA, but their per capita GDP is smaller. However economic growth rates of ASEAN members are among the highest in the worldnullDrawback of ASEAN is that some of the member countries like Malaysia, Singapore, Thailand are still following the protectionist measures which decreased the effectiveness of AFTA.nullMERCOSURoriginated in 1988 as a free trade pact between Brazil and Argentina.was expanded in 1990 to include Paraguay and Uruguay and in 2005 with the addition of Venezuela It has been slow in developing a common external tariff and economic problems of member countries have hampered growth.Obj Establishment of Free trade ZoneA common external tariff Free movement of capital, labour and services.nullSAARC - SOUTH ASIAN ASSOCIATION FOR REGIONAL CO-OPERTION.null

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CURRENT MEMBERS

Afghanistan (joined the organization in 2007)BangladeshBhutanIndiaMaldivesNepalPakistanSri Lankanull

OBSERVERS

AustraliaChinaEuropean UnionJapanIranMauritiusMyanmarS. KoreaUSAnull

POTENTIAL FUTURE MEMBERS

Myanmarhas expressed interest in upgrading it's status from an observer to a full member of SAARC.

Russia has expressed interest in becoming an observer of SAARC.

OTHERS

South Africa has participated in meetings.null

SAARCs Aims and Objectives: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 appreciations of one another problem. 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. To cooperate with International and regional organizations with similar aims and purposes.South Asian Preferential Trading Arrangement (SAPTA):In December 1991, the Sixth Summit held in Colombo approved the establishment of an Inter-Governmental Group (IGG) to formulate an agreement to establish a SAARC Preferential Arrangement (SAPTA) by 1997. Given the consensus within SAARC, the Agreement on SAPTA was signed on 11 April 1993 and entered into force on 7 December 1995 well in advance of the date stipulated by the Colombo Summit. The Agreement reflected the desire of the Member States to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.nullSouth Asia Free Trade Agreement (SAFTA)The Agreement on the South Asian Free Trade Area is an agreement reached at the 12th South Asian Association for Regional Cooperation (SAARC) summit at Islamabad, capital of Pakistan on 6 January 2004. It creates a framework for the creation of a free trade zone covering 1.4 billion people in 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.nullSAARC countries are low-income developing economies. The relevant economic question of the hour for these nations is whether agricultural development or industrial development is the appropriate strategy for accelerating their economic development. SAARC nations lean or tend to lean more towards industrial development than agricultural development, because of the belief that rich countries are believed to be rich because they are industrialised; and poor countries are believed to be poor because they are primary-producing. Thus, SAARC nations are keen in expanding and developing the industrial sectors of their economies.nullCommodity Agreements These are inter governmental arrangements concerning the production of certain primary products and trade in certain primary products with a view to stabilising their prices.Countries producing the same products and exporting to the same countries enter into an agreement to avoid competition among themselves.It may take any of the 3 formsQuota Agreements : They prevent fall in community prices.under Quota agreement, export quotas are determined and allocated to member countries according to some mutually agreed formula and they undertake to restrict the export or production by a certain percentage of basic quota decided by the central committee. nullnullBuffer Stock Agreements

They stabilise commodity prices by maintaining the demand - supply balance. Buffer stock agreements stabilise the prices by increasing the market supply by the sale of the commodity when the price tends to rise and by absorbing the excess supply to prevent a fall in the price. International agency has to set a range of prices and it has to buy the commodity at minimum price and sell it at a maximum price.nullnull