The WTO and Regional Economic Integrations

The 20 th to the 21 st Century Worldwide economic depression First World War Second world war Cold war and divide between communist- socialist-capitalist approach to economic development Marshall Plan for rebuilding Europe in

The 20 th to the 21 st Century Role of the Agency for International Development to foster economic growth in the underdeveloped world Financial and industrial development assistance to rebuild Japan Greater demand for U.S. goods and services Greater cooperation among trading nations through reduction of tariffs and trade barriers via GATT GATT replaced by the WTO and new era of free trade

How different is the WTO from the GATT? The General Agreement on Tariffs and Trade (GATT), established in 1947, was a provisional agreement, while the World Trade Organization (WTO), established in 1995, is a full-fledged international organization. The GATT applied only to trade of goods, while the WTO included rules on trade of services in the General Agreement on Trade in Services (GATS) and on international application of property rights in the Trade Related Intellectual Property Rights (TRIPS). The WTO has a new “dispute settlement” legal procedure designed to reach judgments in a much shorter time. WTO prohibits the imposition of: Export Subsidies ( except for agricultural products) Import quotas (except when imports threaten ‘market disruption’) Tariffs (any new tariff or increase in a tariff must be offset by a reductions in other tariffs to compensate the affected exporting countries)

WTO and Preferential Trading Agreements – The WTO follows the principle of non-discrimination called the ‘Most Favored Nation (MFN)’ and ‘National Treatment (NT)’. MFN does not mean that some of the countries will get more favors. But it means that every country will be treated as the most favored without discrimination as to enter foreign markets. NT principle treats the foreign and local products equally. Foreign products once enter in local market, should be treated no less favorably then ‘like’ or ‘directly competitive’ to domestic products. – Regional Trade Agreement is a departure from MFN, if Regional agreements discriminates between ‘members of RTA’ vis-à-vis other third countries Facilitate trade between constituent territories Not to raise barriers to the trade of others with such territories – Nations can establish preferential trading agreements under which they lower tariffs and integrate regionally with respect to each other

Levels of Economic Integrations Free Trade Area (FTA) – All barriers to trade of goods/services are removed – No internal tariffs among members, but each country imposes its own external tariffs to the third country. Customs Union – No internal tariffs – Adopts common external tariff policy for other countries Common Market – No internal tariffs and common external tariffs – Allows factors of production to mover freely among members Economic Union – Common market plus common currency – Requires common currency, harmonization of tax rates, common monetary & fiscal policy Political Union – Central political system coordinates economic & foreign policies.

Regional Integrations in force Around the World As of 8 th July 2005 – FTAs: 117 – Customs Unions : 11 – Economic Union : 1 Evolution of RTAs

Few Major FTAs in the World North American Free Trade Agreement [NAFTA] – Canada, Mexico & USA European Free Trade Agreement [EFTA] – 25 states of EC, Iceland, Liechtenstein and Norway Southern African Development Community [SADC] – Angola, Botswana, Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe Closer Economic Relations [CER] – Australia, New Zealand European Commission [EC] has entered into separate agreements with many countries – Lebanon, South Africa, Morocco, Israel, Mexico, Syria, etc.

Regionalism in South Asia Geopolitical Context: Conflict as a major feature –Continuous degradation of inter-state relations –Difficulties in coping up with conflict situations South Asian Association for Reg. Cooperation –Victim of distrust, suspicion and intra-regional tensions –Economic Integration not foreseen until 1990s South Asian Preferential Trade Agreement (SAPTA) –Established in 1993, reduce the barriers to trade South Asian Free Trade Area (SAFTA) –Started in 2004, Governed by the principles of WTO –Small in terms of economic size and share of world exports –High level of protectionism, restrictive measures –Low level of implementation impeding meaningful economic cooperation, largely due to India - Pakistan rivalries.

SAFTA: Road Map of South Asian Economic Integration Economic Integration Preferential Trading Arrangement (SAPTA) Free Trade Area (SAFTA) Customs Union Common Market Economic Union Internal Tariff Reduction Internal Tariff Removal Common External Tariff Internal Capital and Labour Mobility Common Currency / Economic Policies

European Union The European Union (EU) is an economic and political union of 27 member states, located primarily in Europe After 2 nd world war- Rebuilt of Europe in terms of economically, politically and culturally End of War – powerless and economic crisis – US helped Europe through Marshall plan OEEC was formed in 1947 then OCED in Benelux ( Belgium, Netherlands and Luxemburg) 1948 Western European Union ( UK, France, Belgium, Netherlands and Luxemburg) 1949 NATO (USA, Canada and 10 Western European countries) 1957 – European Economic Community (EEC): (Belgium, France, Germany, Italy, Netherlands and Luxemburg) 1973 – UK, Ireland and Denmark Joined in EEC Expanded in 1980s and 1990s and still expanding.

Member States pre-Enlargement

Enlargement - New Members

Institutions: Economic Union Single Market The single market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU - individuals, consumers and businesses - to make the most of the opportunities offered to them by having direct access to 480 million people of EU countries European Central Bank and Common Currency The Euro has been introduced in: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Slovenia and Finland. Harmonized Tax system Through partial harmonization of indirect taxes (value-added tax and excise duties), the EU has reached a considerable degree of fiscal neutrality.

Institutions: Political union European Council – Heads of State & President of European Commission – Deals with common foreign and security policy issues– sit twice a year European Commission – Brussels, Belgium – Proposing, implementing & monitoring compliance - EU laws – Commissioners appointed by each country – 5 year terms – Commissioners regulate the competition and M&A Council of the European Union – Ultimate controlling authority – approves proposed laws – 1 representative from each state – varies with topic – Use majority voting rules rather than unanimous agreement European Parliament – Strasbourg, France – Directly elected by population – 732 members – Debates legislation – Consultative body Court of Justice, Luxembourg – Supreme appeals court for EU law – 1 judge from each state – required to act as independent officials

Some Key Questions Does South Asia offer adequate pre-conditions for establishing and sustaining a preferential trading arrangement? Will the SAFTA regime create unequivocal gains for all its members? Would it be better to promote multilateral non- discriminatory trade liberalization in this region? Does a preferential arrangement in the like of SAPTA or SAFTA promote unilateral trade liberalization? How far it is for South Asia be an economic union?