REGIONAL BLOCKS

REGIONAL BLOCKSMCOM(I) BANKING & FINANCE

CHAPTER: 1 INTRODUCTION

1.1 INTRODUCTION:The Internet and technological advances in telecommunications link trade partners across the globe. Yet, this does not mean that trade barriers are non-existent. While the World Trade Organization (WTO) promotes global multilateral free trade, regional trade blocks provide their members with the mechanisms for competing in an aggressive global market.In general terms, regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition. Defense against global competition is obtained through established tariffs on goods produced by member states, import quotas, government subsidies, onerous bureaucratic import processes, and technical and other non-tariff barriers. Since trade is not an isolated activity, member states within regional blocks also cooperate in economic, political, security, climatic, and other issues affecting the region. In terms of their size and trade value, there are four major trade blocks and a larger number of blocks of regional importance.

1.2 OBJECTIVES:

i. To remove trade restrictions among member nations.ii. To improve social, political, economic and cultural relations among member nations.iii. To encourage free transfer of resources.iv. To establish collective bargaining.v. To promote economic growth.

CHAPTER: 2 CONCEPTUAL DATA

2.1 MEANING OF ECONOMIC INTEGRATION:The term 'economic integration' has been interpreted in different ways. Tinbergen defines economic integration as "the creation of most desirable structure of international economy, removing artificial hindrances to the optimum operation and introducing deliberately all desirable elements of coordination or unification". He distinguishes between negative and positive integration. Negative integration relates to those aspects of economic integration which involve the removal of discrimination and restrictions on the movement of goods among the member countries. On the other hand, positive migration involves the modification of existing institutions and policy instruments and adoption of new ones in order to remove market distortions within the economic region. In short, economic integration aims at removal of discriminations among the nations to bring about free movement of goods and factors of production.balassa defines economic integration as "a process and as a state of affairs. Regarded as a process, it encompasses measures designed to abolish ^discrimination between economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies". The main characteristic of economic integration that follows from this definition is the abolition of discrimination within an area.Economic integration, therefore, refers to a process whereby two or more countries combine into a larger economic group by removing discriminations existing along national frontiers.Economic integration can thus be viewed as a spectrum. At one extreme we can envision a truly global economy in which all countries share a common currency and agree to a free flow of goods, services, and factors of production. At the other extreme there would be a number of closed economies, each independent and self-sufficient. The various integrative agreements in effect today he along the middle of this spectrum.

2.2 TYPES OR FORMS OF ECONOMIC INTEGRATION:There are five important types of economic integration. They are:1) Preferential Trading Agreement2) Free Trade Area3) Customs Union4) Common Market5) Economic UnionThe above types of economic integration start at the lowest degree economic integration that is, preferential trading club, and goes through progressively higher stages to the most complete degree of economic integration, that is, economic union. A brief analysis of the above forms economic integration is undertaken below: 1. Preferential Trading Agreement: A preferential trading agreement is the loosest form of economic integration. Under it a group of countries have a formal agreement to allow each other's goods to b traded on preferential terms. These countries usually reduce their respective duties on imports of all goods from each other. However the member countries retain their original tariffs against the outside world. A good example of' preferential trading agreement is the Commonwealth preference system. In 1932, Great Britain and its Commonwealth associates established a system of trade known as t\ Commonwealth Preference System. Under it, the Commonwealth countries lowered their tariff rates on their mutual trade but retained their higher tariff rates on imports from the rest of the world. Often preferential trading agreements are also made between developed and underdeveloped countries primarily to support the economic development of UDCs.2. Free trade Area: It is usually a permanent arrangement between groups of countries. It allows for tariff-free trade among the member countries. There is complete removal of tariffs on goods traded between the members of the free trade area. The member countries are free to levy their own tariffs on imports of goods from other countries outside I ml free trade area. Each member country thus retains autonomy over trade with other countries.Sometimes a free trade area is formed only for certain classes of goods and services. For example, an agricultural free trade area implies the absence of restrictions on trade of agricultural products only.An important problem faced by the countries under the free trade area is that goods from outside the area may enter a high-duty member country through a low-duty member country, and thus avoid the high import duty. This practice will distort the patterns of trade between the member countries and will, in effect, circumvent the external tariff sovereignty of the member countries with higher tariffs.To overcome these problem member countries must maintain customs points at their common borders to make sure that imports into the free trade area do not at all enter through the member that is levying the lowest tariff on each item. They must also agree on rules of origin to establish when a good is made in a member country. This will enable it to pass duty-free across their borders. On the other hand where the good is imported from outside the free-trade areas it is liable to pay duties when it crosses the borders within the free-trade area.A good example of a free-trade area is the European Free Trade Area [EFTA], which was created by the Stockholm convention in 1960. Originally EFTA consisted of seven countries, via; Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK. Later on Finland and Iceland joined EFTA. Since then, the membership to EFTA had been shrieked mainly because several countries joined the European community. It is headquartered in Geneva. It has neither a common external tariff nor a common economic policy. It does not participate GATT negotiations as a single bargaining unit. Other examples of free trade area are the North American Free Trade Agreement (NAFTA) and the ASEAN Free Trade Area (AFTA). The EU has a higher level of integration which incorporates a free trade area, but it has progressed well beyond the simple removal of tariffs.3. Customs Union: A customs union is a free-trade area plus an agreement to establish common barriers to trade with the rest of the World. Since they have a common tariff against the outside world, the members need neither customs controls on goods moving among themselves nor rules of origin. A customs union is also a free-trade area because trade among the member countries is free. But a free-trade area need not be a customs union because a free trade area need not have a common external tariff. A customs union requires a higher degree of political cooperation than it is necessary within a free trade area Agreement is needed on the level of the common external tariff and on the administration of the tariff revenues.A good example of customs union is the European community which was formed by the Treaty of Rome in 1957. The European community originally included six countries: Belgium, France, West Germany, Italy, Luxembourg and the Netherlands. The membership has increased to 12 as Denmark, Ireland and United Kingdom joined the Community in 1977, Greece in 1981, and Spain and Portugal in 1986.4. Common Market: Common Market is a customs union that also has free movement of all factors of production (labor and capital) among the common market countries. The common market countries abolish all trade restrictions on their mutual trade and also establish a common external tariff, as a customs union. The existence of a common market implies that the internal market comprising all the member countries is common to all firms trading within it. The removal of all internal barriers, both tariff and non-tariff, allows all firms access to the entire internal market. Trade in goods may be obstructed by non-tariff barrier such as differences in product standards or testing procedures, customs formalities, and transport restrictions and so on. Non-tariff barriers are often much more of an obstruction to trade than tariff barriers because they are less visible and more difficult to overcome. Removal of such barriers will facilitate trade in goods.Removal of non-tariff barriers also facilitates trade in services and free movement of people and capital. The ability of banks and insurance companies to offer their services across national borders is often restricted by different regulations governing their activities. Similarly. Customs procedures and, more specially, work permit requirements and the failure to recognize qualifications may be a barrier to the free movement of people in general and of labor in particular. The movement of capital is often obstructed by exchange control regulations and investment restrictions imposed by the home or the foreign country. In a common market all such non-tariff barriers are removed. This allows goods, services, people and capital to move freely across the member countries in the common market.The Central American Common Market is working towards becoming a common market. However, it is yet to achieve this goal. The EU has achieved this to some extent. The goal of EU was to create a true common market.5. Economic Union: An economic union is the most complete form of economic integration between countries. It involves a common market and also the harmonization of economic policies, in particular monetary union and coordination of fiscal policies. Monetary union implies there is a fixed exchange rate system between the member countries, a common or single currency, and central control over interest rates and other instruments of monetary policy. Coordination of fiscal policy implies harmonization of tax rates and taxes, and some degree of control over government budgets and budget deficits. There may also be coordination of other economic policies such as regional, industrial and agricultural policies. The member countries in the economic union function as a single economy.The coordination of economic policy requires a high level of cooperation between the member governments, central banks and other institutions. In the area of policy making, there will be high degree of political integration as well as economic integration, though in areas like defense and foreign policy the member countries may act independently.An economic union is the ultimate form of economic integration. The European Union provides the best example.Thus, the degree of economic integration ranges from preferential trade arrangements to free trade areas, customs unions, common markets and economic unions. The important differences and similarities among the last four types are shown in Table 3.1.

2.3 ARGUMENTS SURROUNDING ECONOMIC INTEGRATION:The important arguments surrounding economic integration are discussed in this section.1. Trade Creation and Trade Diversion: Jacob Vainer, by his pioneering study of the customs union, had brought out the economic costs and EL benefits of economic integration. He argued that customs union gives rise to two opposing tendencies. On the one hand, a customs union tends to increase competition among the member countries and this represents a movement towards free trade. On the other hand, a customs union tends to provide relatively more protection against trade and competition from the rest of the world and this represents a movement towards greater protection. Thus, according to Vines study, an economic integration combines elements of freer trade with elements of greater protection, and may either improve or worsen resource allocation and welfare, depending upon the respective strengths of trade creation and trade diversion.Trade creation occurs when some domestic production in a country that is a member of the customs union (or an economic integration) is replaced by lower-cost imports from another member country. This increases the welfare of member countries because it leads to greater.Specialization in production based on competitive advantage. Trade diversion occurs when lower-cost imports from outside the customsUnion (or economic integration) are replaced by higher cost imports from a union member. This results from the preferential trade treatment given to member countries. Trade diversion, by itself, reduces welfare because it shifts production from more efficient producers outside the economic integration to less efficient producers inside the union. Thus, trade diversion worsens the international allocation of resources and shifts production away from comparative advantage.Trade creation give rise to two types of effects, via, production effects and consumption effects.(a)Production Effects: The formation of a customs union (economic integration) causes some products that were formerly produced domestically to be imported from other member country due to the elimination of tariffs. In this case, the shift in production is from a higher-cost domestic producer to a lower-cost producer of a member country. This results in trade creation. Trade creation improves the international allocation of resources by shifting the production from a high-cost producer to a low-cost producer. Thus, trade creation increases welfare by reducing costs or, alternatively by increasing world income. In this sense trade creation increases the welfare.On the other hand, the formation of a customs union (or economic integration) causes some products that were formerly imported from a lowest cost producer in a foreign country to be shifted to a higher cost producer of a member country. This results in trade diversion. Trade diversion worsens the international allocation of resources. Thus, trade diversion reduces welfare by increasing costs or, alternatively, by reducing world income. In this sense, trade diversion is detrimental to welfare.2.Increased Competition: Economic integration is likely to result in increased competition. As trade barriers are eliminated the market expands and the number of potential competitors increases. Oligopolistic and monopolistic market structures become exposed to outside competition. Inefficient firms must either become efficient or close down. The increased level of competition is also likely to stimulate the development and utilization of new technology. This creates a stimulus conducive to managerial efficiency and technological improvements. This creates an environment for faster economic growth. All these efforts will lead to reduction in the costs of production and thus benefit the consumers. However, the bloc countries must be careful that oligopolistic practices like collusion and market-sharing agreements, which might have restricted competition in the country before the formation of the bloc, are not replaced by similar practices after the formation of the bloc by passing and enforcing antitrust legislation.3. Economies of scale: Formation of customs union leads to expansion of the size of the market, increase in competition and greater degree of specialization. Firms will be able to exploit internal and external economies. The firms will be able to utilize fully their plant capacity and reach their optimum size. It may also lead to development of a pool of skilled labor and management. Realization of such economies of scale will result in a reduction of costs.4. Technical change: Increased competition and expansion of the market encourage research and development, innovation and technical change. Economic integration will be conducive to technological improvement since large scale economies can be reaped. Firms and industries which could reap the economies of scale are able to spend more on research and development. This tends to promote faster technical change and economic growth.5. Investment: The formation of customs union may stimulate investment. The increase in competition and technical change leads to additional investment, which is necessary to take advantage of the newly created opportunities. At the same time, some import-competing industries may be hit by the increase in competition coming from more efficient producer located in other union countries. This may result in some disinvestment. This disinvestment must be subtracted from the positive investment activity to determine the net effect on investment.Some countries of the customs union may experience increase in investment from the rest of the world. The foreign firms already operating in the union may expand their activities to take advantage of the newly created opportunities. Apart from this, some foreign firms that in the past used to export to the union country may decide to invest by building plants in the union countries. According to some writers, the massive US investment in Europe after 1955 was due to the formation of European Economic Community.6. Economic Growth: Increased competition, technical changes, economies of scale and increased investment may lead to increase in income and employment among the member countries of the union. This may lead to higher economic growth which could be sustained with continuing changes in business expectations, higher investment and new production technique in the union countries.

7. Better Utilization of Resources: In a common market, the free movement of labor and capital is likely to result in better utilization of the economic resources of the entire community.

2.4THE IMPORTANT AIMS OF EU ARE:1. To establish the foundations of an ever-closer union among I European people.2. To establish a common market and closer economic cooperation between member countries.3. To harmonies national economic policies especially taxation and monetary policies.4. To achieve balanced regional development of the community as whole.5. To establish a common agricultural policy and a commitment to free and fair competition. IMPORTANT POLICIES OF EU:

In order to implement its aims and objectives, the EU has developed number of specific policies. Some of the important policies of the EU discussed below:1. Exchange Rate Policy: The EU aims at exchange rate stability Europe by limiting the fluctuations of participating currencies with a certain range.2. Tax Policy: It remains the prerogative of the Member States. The EU aims at eliminating tax induced distortions of competition within the EU. Thus, it has focused on harmonizing value added and excise taxes; eliminating double taxation of corporate profits, interest and dividends and facilitating cross border mergers and asset transfers.3. Agricultural Policy: The EUs agricultural policy has the objectives of increasing agricultural production, providing certainly in food supplies, ensuring a high quality of life to farmers, stabilizing markets and ensuring reasonable prices for consumers.4. Industrial Policy: The industrial policy measures aim to help industry adjust to structural change, to provide an environment conducive to business development, to encourage cooperation between businesses and to encourage industrial innovation and research and development. It tries to improve the international competitiveness of companies operating in the EU.5. Competition Policy: It is intended to ensure undistorted competition within the single market. It prohibits agreements which lead to prevention, restriction or distortion of competition within the common market.6. Transport Policy: It aims to establish a single market for all forms of transport, allowing free access to the market in each member state, and the creation of an integrated transport system which is safe, reliable, and environmentally sustainable. An efficient transport system is very important for the free movement of goods and people.7. Monetary Union: To bring about monetary union euro was launched, in 1999. As on 1 January 2013, 17 out of 28 member states of European Union are using euro as their sole official currency. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. This is called the euro zone.The euro, and the monetary policies, of those who have adopted it, is under the control of the European Central Bank. The euro is designed to help build the single market. In the recent years holdings of euro have grown. There is some speculation that of euro zone continues to enlarge, and the US dollar continues to fall, the euro could become the main world reserve currency.

2.5 NAFTA:The major functions of NAFTA are:(I) Eliminate trade barriers in various service sectors belonging to its member nations.Reduce high Mexican tariffs and help to promote agricultural exports.iii) Assist firms spanning the three nations to bid on government contracts.iv) Assure fair market value to investors by reducing risk and offering the same legal rights that are enjoyed by local investors.v) Help investors to claim against a government by offering legal help. IMPORTANT NAFTA PROVISIONS:the important provisions are discussed below.1. Elimination of trade barriers: NAFTA eliminated most of the trade most of the trade barriers. Under NAFTA, all non-tariff measures affecting agricultural trade between the US and Mexico were eliminated. On Jan. 1, 1994 many agricultural tariffs between Mexico and the US were immediate eliminated and others will be phased out over a period of 5, 10 or 15 years. In fact, more than half the value of agricultural trade became duty free when the agreement went into effect. Both Mexico and the US protected their import-sensitive sectors larger transition periods, tariff-rate quotas and, for certain product special safeguard provisions. However, once the 15-year transition period is over, free trade with Mexico will prevail for all agricultural products. NAFTA also provides for tough rules of origin to ensure that maximum benefits accrue only to those items produced in North America.2. Protection for Import Sensitive Crops: In addition to a transition period up to 15 years for certain products, NAFTA has special safeguards to protect import-sensitive crops. NAFTA also contain special agricultural provisions to provide relief against import surges. These provisions allow only a specified quantity of a selected product to enter at low or preferential NAFTA duty rates. Higher tariffs are automatically triggered when imports reach a specified level. The.US applies this Special safeguard on imports of onions, tomatoes eggplants, chili peppers and watermelons. Mexico, in turn, applies this special safeguard on three groups of products, i: e., live swine and most pork products, apples and potato products.3. Sanitary and Phytosanitary Measures: The NAFTA imposes disciplines on the development, adoption and enforcement of sanitary and phytosanitary measures. These are measures taken to protect human, animal or plant life or health from risks that may arise from animal or plant pests or diseases, or from food additives or contaminants. Disciplines contained in the NAFTA are designed to prevent the use of sanitary and phytosanitary measures as disguised restrictions on trade, while still safeguarding each country's right to protect consumers from unsafe products, or to protect domestic crop and livestock from the introduction of imported pests and diseases.4. Export subsidies: The three NAFTA countries have agreed to work toward the elimination of export subsidies in North America in pursuant of the broader objective of eliminating such subsidies worldwide. The US and Canada will be allowed to provide export subsidies into the Mexican market to counter subsidized exports from other countries. Neither Canada nor the US is allowed to use direct export subsidies for agricultural products being sold to the other, and both countries are required to consider the export interests of the other whenever subsidizing agricultural exports to third countries. 5. Rules of Origin: NAFTA provides incentives for buying within the North American region and ensures that North American producers receive the primary benefits of all newly established tariff preferences. Goods not originating from the US, Mexico or Canada must be significantly transformed or processed in that country before they receive NAFTA's lower duties for shipment to one of the two other countries. The NAFTA rules of origin for agricultural products were constructed to prevent Mexico from becoming an export platform for processed products made from subsidized raw materials originating in non-NAFTA countries. There are also strong rules of origin for import-sensitive commodities.5. Rules of Origin: NAFTA provides incentives for buying within the North American region and ensures that North American producers receive the primary benefits of all newly established tariff preferences. Goods not originating from the US, Mexico or Canada must be significantly transformed or processed in that country before they receive NAFTA's lower duties for shipment to one of the two other countries. The NAFTA rules of origin for agricultural products were constructed to prevent Mexico from becoming an export platform for processed products made from subsidized raw materials originating in non-NAFTA countries. There are also strong rules of origin for import-sensitive commodities.

PROCEDURES FOR IMPLEMENTATION:The NAFTA has established procedures for handling disputes and a nondiscrimination rule granting the trade partners the same treatment provided to nationals. To improve investment flows, each member must accord investors and investments from the other two countries the same treatment provided to its own citizens in all aspects of the investment process. Thus, the following committees were established for the smooth implementation.1. The NAFTA Committee on Agricultural Trade: It monitors and promotes cooperation on the implementation and administration of the agricultural provisions. The Committee provides a forum for the three countries to consult regularly on trade issues and other matters related to the implementation of the agreements.2.The NAFTA Committee on Sanitary and Phytosanitary (SPS) measures: It promotes the harmonization and equivalence of SPS measures. It also facilitates technical cooperation including consultations regarding disputes involving SPS measures. This committee meets periodically to review and resolve issues in the SPS area.3.THE NAFTA Advisory Committee on Private Commercial Disputes regarding Agricultural Goods: It provides recommendations to the three governments for resolving private commercial disputes that arise in connection with transactions in agricultural products. The aim is to achieve prompt and effective resolution of commercial disputes,with special attention to perishable items. The committee is composed primarily of private sector representatives but also has government participants.

ACHIEVEMENTS OF NAFTA:NAFTA created a free trade area among developed and developing economies. It is one of the first agreements to include agriculture as well as other industries. NAFTA created the world's largest free trade area. the implementation of NAFTA has not always proceeded smoothly and disputes continue to affect trade in some commodities. However, NAFTA has had significant impact on agricultural trade among the NAFTA countries.The important achievements are explained below.1. Access to markets of member countries: It has facilitated greater exports by increasing access to the US, Mexican and Canadian markets and by ensuring a climate of greater openness, stability and certainty for producers, importers, exporters and investors throughout the region2. Increased trade in all goods and services: Trade between the NAFT signatories more than quadrupled, from $ 297 billion in 1993 to $ 1.6 trillion in 2009. Exports from the U.S. to Canada and Mexico grew from $ 142 billion to $ 452 billion in 2007, and then declined to $ 397 billion in 2009, due to the 2008 financial crisis. Exports from Canada and Mexico to the U.S. increased from $ 151 billion to $ 568 billion in 2007, then down to $ 438 billion in 2009.3. Removed trade barriers in services: NAFTA eliminated trade barriers in nearly all service sectors, which are often highly regular NAFTA requires governments to publish all regulations, lower in hidden costs of doing business.4. Increased Foreign Direct Investment: Since NAFTA was enacted U.S. foreign direct investment (FDI) in Canada and Mexico more 4 tripled to $ 357 billion in 2009, up from $ 348.7 billion in 20QJ Canadian and Mexican FDI in the U.S. grew to $ 237.2 billion, from $ 219.2 billion in 2007.5. Real GDP growth: The dismantling of trade barriers and opening of markets have led to economic growth and rising prosperity in the US, Mexico and Canada. During the period 1993 to 2005, real GDP growth in US was 48%, Mexico 40% and in Canada 49 percent.6. Rise in productivity: The productivity has risen in the 3 countries during 1993 to 2003. Productivity rose 28% in US, 55% in Mexico and23% in Canada.7. Intangible benefits: NAFTA has encouraged commitment to reforms and led to major advances in government procurement and intellectual property rights.8. Environmental provisions: NAFTA was the first trade agreement to explicitly include environmental provisions. For this purpose the North American Agreement on Environmental Cooperation was developed to address environmental concerns. Since then, all three countries have benefited from coordination on environmental issues.

2.6 ECONOMIC BENEFITS TO US, MEXICO AND CANADAECONOMIC BENEFITS TO US:

1. Created Trade Surplus in Services: More than 40% of U.S. GDP is services, such as financial services and health care. These aren't easily transported. NAFTA boosted U.S. service exports to Canada and Mexico from $ 25 billion in 1993 to $ 106.8 billion in 2007, which dropped to $ 63.5 billion in 2009. Imports of services from the two countries were only $ 35 billion. Thus there was trade surplus in services. Trade in services with NAFTA (exports and imports) totaled $ 99 billion in 2009. Services exports were $ 63.8 billion. Services imports were $ 35.5 billion. The U.S. services trade surplus with NAFTA was $ 28.3 billion in 2009.2. Reduced Oil and Grocery Prices: The US imports of oil from Mexico and Canada as shale oil led to reduction in US reliance on oil imports from the Middle East and Venezuela. The US no longer imports oil from Iran. Since NAFTA eliminates tariffs, oil prices have become lower in US. The same is true for food imports. Without NAFTA, Price for fresh vegetables, chocolate, fresh fruit (except bananas) and beef would have been higher.3. Boosted US Farm Exports: Due to NAFTA, agricultural exports toCanada and Mexico grew from 22% of total US farm exports in 1993 to 30% in 2007. Agricultural exports to Canada and Mexico were greater than exports to the next six largest markets combined. ExportsTo the two countries nearly doubled, growing 156% compared to a 65% growth to the rest of the world. NAFTA increased US farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for US grown beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest export destination for corn soybean and oils. The United States exported $ 136.5 billion worth of goods to Mexico in 2007, up 242 percent since 1993.4. Increase in Efficiency: Investment in Mexico has helped increase the efficiency of US domestic production. Many manufacturing companies were able to reduce costs by shifting assembly of their products to the Mexico. This has helped boost US manufacturing output, which rose by almost 60 percent from 1993 to 2006. Contrast, output increased only 42 percent in the 13 years before NAFTA.5. Increase in Jobs: The greatest opposition to NAFTA came from belief that foreign competition hurts US employment. this misconception stems from the fact that the greater benefits of free trade are often dispersed relatively evenly across an economy, losses tend to be concentrated in a few sectors of industries. But job losses are balanced by other jobs created in more productive sectors of the economy, and the new jobs usually pay more than the lost ones. For instance, US employment rose from 110.8 million in 1993 to 137.6 million in 2007, an increase of 24 percent. Further, the fl unemployment rate averaged 5.1 percent from the first 13 years after NAFTA, compared to 7.1 percent during the 13 years prior to the agreement.6. Increase in Trade: Trade between the United States and its NAFTA partners has risen since the agreement entered into force. WE good and services trade with NAFTA totaled $ 1.6 trillion in 2009. Exports totaled $ 397 billion. Imports totaled $ 438 billion the goods and services trade deficit with NAFTA was $ 41 billion in 2009. The US goods trade deficit with NAFTA was $ 94.6 billion in 2010, a 36.4% increase over 2009. The US goods trade deficit with NAFTA accounted for 26.8% of the overall US goods trade deficit in 2010. The United States had a services trade surplus of $ 28.3 billion with NAFTA.7. Increase in Investment: US foreign direct investment (FDI) in NAFTA countries was $ 357.7 billion in 2009, up 8.8% from 2008. US direct investment in NAFTA countries is largely in non bank holding companies, and in the manufacturing, finance /insurance, and mining sectors.NAFTA countries FDI in the United States were $ 237.2 billion in 2009, up 16.5% from 2008. NAFTA countries direct investment in the US is in the manufacturing, finance insurance and banking sectors.

ECONOMIC BENEFITS TO MEXICO:Mexico's intention in entering NAFTA was to increase export diversification by attracting FDI, which would help create jobs, increase wage rates, and reduce poverty. While NAFTA may have brought economic and social benefits to the Mexican economy as a whole, the benefits have not been evenly distributed throughout the economy. The agricultural sector experienced a higher amount of worker displacement after NAFTA, in part because of increased competition from the United States but also because of Mexican domestic agricultural reforms. Some of the important benefits of NAFTA to Mexico are the following:

1. Increased bilateral economic relationship between Mexico and US: The North American Free Trade Agreement (NAFTA) plays a very strong role in the bilateral economic relationship between Mexico and the United States. The two countries are also closely tied in areas not directly related to trade and investment such as security, environmental, migration and health issues. Over the last decade, the economic relationship between the United States and Mexico has strengthened significantly and the two countries continue to cooperate on issues of mutual concern.2. Increase in Trade: Mexico's trade with the United States has grown considerably since 1994. Mexico had a trade deficit of $ 1.3 billion with the United States in 1994, the year of NAFTA implementation. In subsequent years, the trade balance shifted to a surplus as exports to the United States increased. While imports from the United StatesAlso increased after NAFTA, the rate of growth was not as high in2008, Mexico had a trade surplus of $ 84.8 billion with the UnityStates. US imports from Mexico totaled $ 216.3 billion in 2008 while exports to Mexico totaled $ 131.5 billion. In 2009, however, US Mexico trade declined due to the economic slowdown resulting from the global financial crisis. In 2008, Mexico's exports as a percent of GDP equaled 31% up from 10% twenty years ago, and over 80% of Mexico's exports went to the United States. The value of Mexican goods exported to the United States grew from $ 39.9 billion in 1993 to $ 210.8 billion in 2007, an increase of 437 percent.3. Increase in Investment: The United States is the largest source of; foreign direct investment (FDI) in Mexico, accounting for over half of the $ 19 billion invested there in 2006. In addition, US companies contribute around 50 percent of the investment funds for Mexico's factories that assemble products (such as apparel, auto part and electronic goods) from imported US components for export back to the United States. These firms account for almost half of Mexican exports. The World Bank study estimates that FDI in Mexico would have been approximately 40% lower without NAFTA.4. Rise in Employment and Wages: Mexican employment levels have| been more volatile since the implementation of NAFTA. But, as of 2005, the Mexican affiliates of U.S. companies employed nearly 840,000 people who contributed 3.3 percent to Mexico's GDP. Wag for Mexican workers have grown steadily since the 1994 peso crisis In addition, Mexican industries that export goods or are located regions with a high level of foreign investment also pay higher wage According to Mexico's Secretariat of Economy, exporting companies pay salaries 37 percent higher than those that don't export.5. Higher Development: NAFTA helped Mexico get closer to the levels of development in the United States and Canada. NAFTA had help Mexican manufacturers to adopt to US technological innovations more quickly and this had positive impacts on the number and quality jobs. Since NAFTA went into effect, the overall macroeconomic volatility, or wide variations in the GDP growth rate, has declined in Mexico. Business cycles in Mexico, the United States and Canada have had higher levels of synchronicity since NAFTA. NAFTA has reinforced the high sensitivity of Mexican economic sectors to economic developments in the United States Economic recovery.NAFTA contributed to Mexico's economic recovery directly and indirectly after the 1995 currency crisis. Mexico responded to the crisis by implementing a strong economic adjustment program but also by fully adhering to its NAFTA obligations to liberalize trade with the United States and Canada. NAFTA may have supported the resolve of the Mexican government to continue with the course of market based economic reforms, resulting in increasing investor confidence in Mexico.

ECONOMIC BENEFITS TO CANADA:Since NAFTA there has been significant economic growth, increased exports, rise in productivity and prosperity in Canada. Canada's exports to NAFTA partners have grown substantially and have been very successful in high value-added sectors such as automotive equipment machinery and parts and industrial goods. The important benefits to Canada are:1. Increase in Canada's Trade: Canada's NAFTA exports have grown substantially, and have been particularly successful in high value added sectors such as automotive equipment (trucks, cars and parts), machinery and parts and industrial goods. Since the implementation of the NAFTA, Canada's trade with the United States has risen 80%, while trade with Mexico has doubled.2. Improved Access to Mexican Markets: An important benefit of the NAFTA for Canada has been the much improved access to the Mexican market. Canadian firms have been able to expand sales in sectors that were previously highly restricted, such as automotive products, financial services, trucking, energy and fisheries. Also, Canadian exports have become steadily more diversified, with value-added manufactured products accounting for the largest share of total exports to Mexico. Mexico is now Canada's the largest export market and fourth largest import source.3.Rise in Trade in Services : The value of the two-way trade in services (such as travel, freight and shipping and commercial fees) between Canada and the United States has almost doubled since the Canada -US, FTA was concluded in 1988. Following NAFTA implementation, Canadian service exports to the United States and imports from the United States have increased. Services trade with Mexico has also been on the rise since the implementation of the NAFTA, due in large part to the increased participation of Canadian firms in the Mexican economy.4. Rise in Investment: Investment is key to economic growth, and since 1993 foreign direct investment (FDI) in Canada has risen. The NAFTA has contributed to enhancing Canada's attractiveness to foreign investors while providing more opportunities for Canadians to invest in NAFTA partners' economies. The Agreements' provisions ensure greater certainty and stability for investment decisions by guaranteeing fair, transparent and non-discriminatory treatment of investors and their investments throughout the free trade area. The NAFTA's contribution to increased competitiveness has also generated greater capital investment in Canada. This investment has generated job growth and has led to valuable high-tech knowledge transfers. A large part of foreign direct investment in Canada comes from NAFTA partners.Since the implementation of the NAFTA, there have been notable investment gains in Canada in the area of financial services, transportation equipment, automobile equipment, chemicals, etc. The United States remains the largest foreign investor in Canada.The United States also remains the largest destination for Canadian foreign direct investment. Canadian companies are increasingly using outward investment (through mergers, acquisitions, partnerships, joint ventures, strategic alliances or new investment) to strengthen their operations, penetrate new markets and acquire new technologies, resources and skills. Such investment abroad brings concrete benefits to Canada in terms of R & D activities, growth and export opportunities, leading to job creation back in Canada.The implementation of the NAFTA also led to significant increases in FDI between Canada and Mexico. Current Canadian investment Mexico is concentrated in mining, banking and telecommunications further potential exists in sectors such as gas and energy. Mexican investment in Canada is growing, but remains small.

2.7 APEC:Asia-Pacific Economic Co-operation (APEC) was established in 1989 to further enhance economic growth and prosperity for the region. APEC the premier forum for facilitating economic growth, co-operation, trade and investment in the Asia-Pacific region.APEC has 21 member countries, viz., Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Paupa New Guinea, Peru, Philippines, Russian Federation Singapore, Chinese Taipei, Thailand, United States and Vietnam. These member countries account for 40% of the world's population, about 54 per cent of world GDP, and about 44 percent of world trade. It is also the most economically dynamic region in the world having generated about 70 percent of global economic growth in its first 10 years. APEC has become the pre-eminent economic forum in the Asia Pacific, the world's fastest growing and most economically dynamic region APEC is the only inter governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants. Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis.India has requested membership in APEC and has received initial support from US, Japan and Australia. Officials from the member countries are in the process of discussing whether to allow India to join. There is a concern among Western Countries that India's entry might tilt the balance of power in favor of Asia.In addition to India, Mongolia, Pakistan, Laos, Bangladesh, Costa Rica, Columbia, Panama and Ecuador are also seeking membership of APEC.

GOALS AND OPERATION: GOALS OF APEC:APEC was established in 1989 to further enhance economic growth and prosperity for the region and to strengthen the Asia-Pacific community. Since its inception, APEC has been driven by three core principles:I) Promotion of sustainable economic growthii) Developing and strengthening the multilateral trading systemiii) Increasing the interdependence and economic prosperity of its members.The above principles have led to creation of Bogor Goals. They are:1. Free and Open Trade and Investment: The Bogor Goals, agreed by APEC leaders in 1994, sought to achieve "free and open trade and investment in the region by 2010 for developed economies and 2020 for developing members. Since its inception, APEC has worked to reduce tariffs and other trade barriers across the Asia-Pacific region, creating efficient domestic economies and increasing exports. The important goals of APEC are specified in the "Bogor Goals" of free and open trade and investments in the Asia-Pacific by 2010 for industrialized economies and 2020 for developing economies. These goals were adopted by Leaders at their 1994 meeting in Bogor, Indonesia. According to Bogor goals, free and open trade andInvestment helps economies to grow, creates jobs and provides greater opportunities for international trade and investment. In contrast protectionism keeps prices high and fosters inefficiencies in certain industries. Free and open trade helps to lower the costs of production and thus reduces the prices of goods and services.2. Safe Environment: APEC also tries to create an environment for the safe and efficient movement of goods, services and people across borders in the region through policy alignment and economic and technical co-operation.3. Counter-Terrorism: APEC leaders meeting in Bangkok, Thailand in 2003 has considered counter-terrorism as a complimentary mission to Bogor Goals.4. Other Goals: It has also agreed to strengthen efforts to build knowledge-based economies and to promote sound and efficient financial systems and to accelerate regional structural reform.APEC members pursue the Goals through a range of channel including unilateral measures, APEC collective action plans, global trade talks (in the World Trade Organization) and free trade agreements. Progress towards the Goals by member economies is monitored through a peer review process.Operation of APECThe APEC secretariat is based in Singapore and it operates as the cc support mechanism for the APEC process. It provides co-ordination technical and advisory support as well as information management communications and public outreach services.The APEC secretariat performs a central project management role, assisting APEC Member Economics and APEC for a with overseeing more than 230 APEC funded projects. APEC's annual budget is also administered by APEC secretariat.The APEC secretariat is headed by an Executive Director and a Deputy Executive Director. These positions are filled by officers of Ambassadorial rank from the current and incoming host economies respectively. The positions rotate annually.The APEC secretariat is staffed by a small team of 22 Program Directors. In addition around 27 permanent staff fulfill specialist and support functions at the APEC secretariat. Its headquarter is in Singapore.

2.8 ASSOCIATION OF SOUTH EAST ASIAN NATIONS (ASEAN):

The Association of South East Asian Nations (ASEAN) was established on 8 August, 1967 in Bangkok by five original member countries namely, Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999. Thus, ASEAN is a geo-political and economic organization of 10 countries. ASEAN encompass almost the whole of South-East Asia. As on 2010, the ASEAN has a population of about 600 million, a total area of 4.5 million square kilometres, a combined gross domestic product of US $ 1.8 Trillion, total trade of US $ 1400 billion. ASEA contains several of the so called Asian "tiger-economies", most of which have suffered in the Asian financial crisis. Its member nations lay lose to the sea lanes between Europe and China and Japan. ASEAN is sometimes seen as political counter weight to China's dominance in the region. ASEAN does not function as a regional trade arrangement, but it has become an effect means for cooperation in economic matters and foreign affairs with Organization for Economic Cooperation and Development (OECD) The economic growth rate of the ASEAN has been very high. This region in endowed with Organization for Economic Cooperation and Development (OECD) The economic growth rate of the ASEAN has been very high. This region in endowed with natural resources and account for larger share of the world natural rubber, palm oil and tin. Most of the countries of South-East Asia belong to ASEAN. The cultural characteristics of the countries of South-East Asia are not very similar.There are significant political and religious differences among the country of ASEAN. Democracy is well established in the Philippines but more restricted in Malaysia and Indonesia. Authoritarian leaders still hold sway in several countries. Newer members of ASEAN range from Vietnam, with its communist regime, to Burma (now Myanmar), with its military dictatorship. The region's religions are also varied, consisting of Islam, Buddhism, Christianity and animism. Several countries have a less homogenous population. For example, Malaysia has significant Chinese and Indian minorities as well as its native Malay People.Despite their political, economic and cultural diversity, the countries of ASEAN are close neighbors. They recognize their mutual need to promote the regions developments while generally preferring to respect each others independence in internal politics.In 2007, ASEAN has celebrated its 40th anniversary since its inception On August 26, 2007 ASEAN has also stated that it aims to complete all its free trade agreements with China, Japan, South Korea, India, Australia and New Zealand by 2013.On 27 February 2009 a Free Trade Agreement with the ASEAN regional block of 10 countries and New Zealand and Australia was signed. It is estimated that this FTA would boost aggregate GDP across the 12 country by more than US $ 48 billion over the period 2000-2020. AIMS, OBJECTIVES AND PRINCIPLES:Aims and ObjectivesAs set out in the ASEAN Declaration, the aims and objectives of ASE are:1. Economic growth and social progress: To accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations.2. Regional peace and stability: To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter.3. Collaboration and assistance: To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields.4. Training and research: To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres.5. Overall improvements: To collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples.

6. Studies: To promote Southeast Asian studies.7. Cooperation: To maintain close and beneficial cooperation with existing international and regional organizations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves. FUNDAMENTAL PRINCIPLES:At the First Asian Summit in Bali in February 1976 the member countries signed the Treaty of Amity and Co-operation in Southeast Asia. It spelled out the basic principles for their relations with one another and the conduct of the association's programmed for co-operation. The fundamental principles are the following:(I) Mutual respect for the independence, sovereignty, equality, territorial integrity and national identity of all nations,ii) The right of every state to lead its national existence free from external interference, subversion or coercion,iii) Non interference in the internal affairs of one another,iv) Settlement of difference or disputes by peaceful means,v) Renunciation of the threat or use of force, and (vi) Effective co-operation among themselves.The treaty envisaged these principles as the foundation of a strong Southern Asian Community. It stated that ASEAN political and security dialogue and co-operation should aim to promote regional peace and stability by enhancing regional resilience. This resilience shall be achieved by co operation in all fields among the member countries. These principles gave rise to the 'ASEAN Way'. The ASEAN Way ASEAN member-states approve of the term 'ASEAN Way' to describe their 'own' method of multilateralism . According to Amitav Acharya, ASEAN Way indicates "a process of 'regional interactions and cooperation based on discreteness, informality, consensus building and non-confrontational bargaining styles". It is based on ASEAN's fundamental principles.The 'ASEAN way' is what contributed to the durability and longevity of the organization by promoting regional identity and enhancing a spirit of mutual confidence and cooperation. The important features that constitute the ASEAN Way are non-interference, informality, minimal institutionalisation, consultation and consensus, non-use of force and non-confrontation, and the principle of non-interference in the domesticaffairs of one another.

ASEAN CommunityIn 2003, the ASEAN leaders resolved that an ASEAN Community shall be established by 2015 comprising three pillars, namely, (1) ASEAN Security Community, (2) ASEAN Economic Community and (3) ASEAN Socio-Cultural Community. The general objective of the ASEAN Community is to build ASEAN into stronger and more close-knit intergovernmental organization, but it will not become a super-national and closed organization because it opens doors for cooperation with external partners.1 .ASEAN Security Community (ASC): The ASC shall aim to ensure that countries in the region live at peace with one another and with the world in a just, democratic and harmonious environment. The members of the community pledge to rely exclusively on peaceful processes in the settlement of intra-regional differences. They regard their security as fundamentally linked to one another and bound by geographic location, common vision and objectives.In recognition of security interdependence in the Asia-Pacific region, ASEAN established the ASEAN Regional Forum (ARF) in 1994. As on July 2007, there are 27 participants in the ARF. India is one of the participants in ARF. The objectives of ARF are to foster dialogue and consultation, and promote confidence-building and preventive diplomacy in the region. The ARF discusses major regional security issues in the region including relationship among the major powers, non-proliferation, counter-terrorism, and so on.2. ASEAN Economic Community (AEC): ASEAN is aiming to create AEC by 2015. The goal of AEC is to create a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and a free flow of capital, equitable economic development and reduced poverty and socio-economic disparities in year 2020.3. ASEAN Socio-Cultural Community: It envisages a Southeast Asia bonded together in partnership as a community of caring societies, The Community shall foster cooperation in social development aimed at raising the standard of living of disadvantaged groups and rural population. It shall also seek the active involvement of all the sectors of society, especially, woman, youth, and local communities. ASEAN will intensify cooperation in the area of public health, inducing in the prevention and control of infections and communicable diseases.

External Relations:Cooperations between the Southeast Asia and Northeast Asian countries has accelerated with the holding of an annual summit among the leaders ofASEAN, China, Japan and the Republic Of Korea (ROK) with the ASEAN plus Three Processes. ASEAN plus Three is a meeting between ASEAN, china, Japan and South Korea, and is primarily held during each ASEAN submittedASEAN Plus Three relations continue to expand and deepen in the areas of security dialogue and cooperations, transnational crime, trade and investment, environment, energy, tourism, health, labor, and so on. There are now 13 ministerial-level meetings under the ASEAN plus Three processes. ACHIEVEMENTS AND FUTURE PROSPECTS: AchievementsASEAN is recognized by international community as one of the most successful regional grouping in the world. The important achievements are explained below.1. Peace and Stability: The main achievement of ASEAN has been the maintenance of an uninterrupted period of peace and stability during which the individual Member Countries have been able to concentrate on promoting rapid and sustained economic growth and modernization.2. Rise in GDP: For about 25 years from 1970 to 1995, ASEAN's GDP grew at an average annual rate of 7.0 percent. Today, Southeast Asia has a total market of about 600 million people and a combined GDP of more than US $ 1.8 trillion.3. Rise in Trade: Over the years, ASEAN's overall trade grew from US $ 10 billion in 1967, US $ 14 billion in 1970, US $ 134 billion in 1980, and US $ 302 billion in 1990 to US $ 1400 billion in 2006.4. Political Co-operation: Since 1967 ASEAN has forged major political accords that have contributed greatly to regional peace and stability, and to its relations with other countries, regions and organizations. The ASEAN security community is envisaged to bring ASEAN's political and security co-operation to a higher plane to ensure that countries in the region live at peace with one another and with the world at large in a just, democratic and harmonious environment.In 1994, the ASEAN Regional Forum (ARF) was established. ARF has taken the following approaches:I) the promotion of confidence building among participants;Ii) The development of preventive diplomacy; andiii) The elaboration of approaches to conflicts.This approach enables ARF participants to deal constructively with -political and security issues that bear on regional peace and stability, including new issues that have emerged as a result of globalization.5. Economic Co-operation: When ASEAN was established trade among the Member countries was insignificant. To tackle this, the Preferential trading Agreement (PTA) of 1977 accorded tariff preferences for trade among ASEAN countries. The ASEAN Summit in Singapore in 1992Launched a scheme toward an ASEAN Free Trade Area (AFTA). The strategic objective of AFTA is to increase the ASEAN region's competitive advantage as a single production unit. The elimination of tariff and non-tariff barriers among the member countries is expected to promote greater economic efficiency, productivity and competitiveness. The ASEAN Summit in 1995 decided to accelerate the realization of AFTA from the original 15-year timeframe to 10 years,In 1997, the ASEAN Leaders adopted the ASEAN Vision 2020. The vision statement aimed at forging closer economic integration within the region. It is also aimed at creating a stable, prosperous and highly competitive ASEAN Economic Region, in which there is a free flow of goods, services, investments, capital and equitable economic development and reduced poverty and socio-economic disparities.In addition to trade and investment liberalization regional economic integration is being pursued through the development of Trans-ASEAN transportation network consisting of major inter-state highway and railway networks, principal ports, and sea lanes for maritime traffic, inland waterway transport and major civil aviation links. Building of Trans-ASEAN energy networks consisting of the ASEAN Power Grid and the Trans-ASEAN Gas pipeline projects are being pursued.Today, ASEAN economic co-operation covers many areas such as trade, investment, industry, services, finance, agriculture, forestry, energy, transportation and communication, intellectual property, small and medium enterprises and tourism.6. Reduction in Tariffs: As on 1 January 2005, tariffs on almost 99 percent of the products in the Inclusion List of the ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have been reduced to no more than 5 percent. More than 60 percent of these products have zero tariffs. The average tariff for ASEAN-6 has been brought down from more than 12 percent where AFTA started in 1992 to 2 percent in 2005. For the new member countries, namely, Cambodia, Laos, Myanmar, and Vietnam tariff on about 81 percent of their Inclusion List have been brought down to within the 0 - 5 percent ranges.7.Expanded Cooperation: The ASEAN has expanded cooperation within the block to different areas, including politics, security environment. ASEAN is also expanding its relations with external partners with the common goal of peace stability and cooperation for mutual benefits in the region.

2.9 SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION (SAARC):The South Asian Association for Regional Cooperation (SAARC) is an organization of South Asian nations, founded in December 1985. Its seven founding members are Sri Lanka, Bhutan, India, Maldives, Nepal, Pakistan, and Bangladesh. Afghanistan joined the organization in 2007. It is dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance. Currently, there are 9 observers and they are Australia, China, European Union, Japan, Iran, Mauritius, Myanmar, South Korea and United States.Thus, today SAARC is an economic and political organization of eight countries in Southern Asia. The combined population of its member state is about 1.5 billion, which is the largest of any regional organizations headquarters is in Kathmandu, Nepal.Objectives:SAARC was established to achieve the following objectives:(I) to promote the welfare of the peoples of South Asia and to improve their quality of life.(ii) 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.(iii) To promote and strengthen collective self- reliance among the countries of South Asia.(iv) To contribute to mutual trust, understanding and appreciation of one another's problems.(vi)To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields.!b strengthen cooperation with other developing countries.(vii)To strengthen cooperation among themselves in international forums on matters of common interests.(viii) To cooperate with international and regional organisations with similar Aims and purposes.

PRINCIPLES:The important principles which govern the SAARC are:(I)Respect for sovereignty, territorial integrity, political equality and independence of all members states.

2.10 SAPTA AND SAFTA: SAPTA:The SAPTA Agreement entered into force on 7th December 1995. SAPTA contains provisions giving special and favorable treatment to the LDCs in the SAARC region. Additional measures in favor of LDCs including provisions for safe-guard action and balance of payment measures are also incorporated in SAPTA to protect the interests of member states during critical economic circumstances. A number of products are enjoying preferential treatment. The basic principles underlying SAPTA are:1.Overall reciprocity and mutuality of advantages so as to benefit Equitably all Contracting States, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems.2. Negotiation of tariff reform step by step, improved and extended in successive stages through periodic reviews.3. Recognition of the special needs of the Least Developed contracting States and agreement on concrete preferential measures in their favor4. Inclusion of all products, manufactures and commodities in their raw semi-processed and processed forms. Most of the products of export interest to the regional countries were excluded from preferential treatment. It reflects mistrust and unwillingness of the South Asian countries to increase their interdependence.The progress of co-operation on economic matters is very slow among the members of SAARC. The realization of the need for greater co-operation has made the SAARC countries to sign a framework agreement for SAFTA (South Asian Free Trade Area) in January 2004. This agreement on setting up of a SAFTA by the SAARC member countries is likely to provide a fillip to trade growth within the region.

SAFTA (South Asian Free Trade Area):The agreement on SAFTA is an agreement reached at the 12th SAARC Summit at Islamabad on 6th January 2004. It creates a framework for the creation of a free trade area among SAARC countries.SAFTA came into effect on 1st January 2006 with the aim of reducing tariffs for intraregional trade among 7 SAARC countries. SAFTA requires that India, Pakistan and Silence to bring down their duties to 20 percent in the 1st phase of two years period ending in 2007. In the final five year phase trading 2012, the 20 percent duty will have to be reduced to zero in a series of annual cuts. The least developed country group in South Asia consisting of Nepal, Bhutan, Bangladesh, Maldives and Afghanistan gets an additional 3 years to reach zero duty.ObjectiveThe objective of the agreement is to promote good competition in the free trade area and to provide equitable benefits to all the countries involved in the contracts. Its aim is to benefit the people of the country by bringing transparency and integrity among the nations. SAFTA was also formed in order to increase the level of trade and economic cooperation among the SAARC nations by reducing the tariff barriers and also to provide special preference to the Least Developed Countries (LDCs) among the SAARC nations.

CHAPTER: 3 CONCLUSIONS

3.1 CONCLUSION:Since the formation of the union, the EU has developed into a huge single market with the euro as its common currency. What began as a purely economic union has evolved into an organization spanning all policy areas, from development aid to environment.It has delivered half a century of peace, stability and prosperity, helped raise living standards and launched a single European currency. The EU is based on the rule of law. This means that everything that it does is founded on treaties, voluntarily and democratically agreed by all member countries.At the same time the unification of Europe can be a danger to many firms in other countries. While Europe dismantles internal barriers, it will raise external ones, making access to the European market difficult for non-EU firms.NAFTA could cause difficulties for exports of the developing countries to the US and Canada as Mexico, a developing country, by virtue of being a member of NAFTA would get a considerable edge over other countries in selling in the US and Canada.Composed of the fastest growing economies of the world, APEC is an economic powerhouse and an acknowledged global engine of growth. It is a vehicle for trade facilitation and cooperation across economies and regions. More importantly for developing economies, it provides a venue to discuss and collaborate on issues and technical matters that will enhance growth and cooperation with the leading developed economies in the Pacific region.APEC provides a platform for small economies in Asia and the Pacific to engage the United States in a dialogue on regional issues. APEC should pool in more resources for its ECOTECH programs in the next years as it is through such capability building programs that APEC can further help developing economy members to participate more meaningfully in regional dialogues and economic partnerships. ECOTECH plays an important role as it provides an opportunity for developed economy members to directly extend support programs and efficiency enhancing interventions to better equip developing economies to participate in the global economy and to address the socio-economic disparity in the regionThere has to be suitable political and economic environment within the region, without which SAARC would not be able to achieve these challenges. The SAARC nations need to work together towards the creation of a suitable political and economic environment so that SAARC become a vibrant regional organization which can help to improve the well being of more than one billion people of South Asia, whose social and economic condition is still marred by poverty.To achieve economic integration in South Asia, it is necessary for member countries to give priority to the serious socio-economic problems and at the same time reducing the political tensions. India can help the other members by providing technology in all the sectors, especially in agriculture and service sector and the required administration expertise. By sinking their political differences they can earmark the areas of specialization based on comparative advantage.A serious attempt is required by all the member countries to make the SAARC an effective economic region rather than only a political and cultural gathering.

CHAPTER: 4 APPENDIXES

4.1 BIBLIOGRAPHY:

ECONOMIC OF GLOBAL TRADE AND FINANCE( JOHNSON,MASCARENHAS) http://www.preservearticles.com/2013082933390/the-meaning-and-objectives-of-trading-blocs-656-words-business.html https://www.google.co.in/search?q=objectives+of+trade+blocks&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=sb&gfe_rd=cr&ei=_AQtVL7JE4KDvASot4DIBA

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