WTO

1. Introduction

 WTO: Global international organization overseeing trade rules between

nations.
 Established: January 1, 1995, replacing GATT (1947–1994).
 Members: 164 countries (as of 2023), representing 98% of global trade.

2. Historical Background

 GATT (1947–1994): Provisional agreement to reduce tariffs post-WWII.

o Conducted 8 negotiation rounds (e.g., Kennedy Round, Tokyo Round).

o Uruguay Round (1986–1994): Culminated in the Marrakesh Agreement,
establishing the WTO.
 WTO Expansion: Broadened scope beyond goods to services (GATS) and
intellectual property (TRIPS).

3. Structure of the WTO

1. Ministerial Conference: Supreme body; meets biennially.

2. General Council: Executes daily operations and acts as Dispute Settlement
Body (DSB).
3. Subsidiary Councils:

o Goods Council, Services Council, TRIPS Council.

4. Secretariat: Administrative arm led by the Director-General (e.g., Ngozi
Okonjo-Iweala).

4. Core Functions

 Forum for Negotiations: Facilitates trade agreements (e.g., Doha Round).

 Dispute Settlement: Enforces rules via panels and Appellate Body
(currently challenged).
 Monitoring: Trade Policy Review Mechanism (TPRM).
 Capacity Building: Assists developing nations via technical assistance.

5. Fundamental Principles

1. Non-Discrimination:

o Most-Favored Nation (MFN): Equal treatment for all trading partners.

o National Treatment: Foreign goods treated equally post-entry.
2. Transparency: Members publish trade regulations.
3. Predictability: Bound tariffs and no arbitrary trade barriers.
4. Fair Competition: Anti-dumping, subsidies regulation.

6. Key Agreements

 GATT 1994: Tariff reductions, non-discrimination in goods.

 GATS: Rules for trade in services (e.g., banking, tourism).
 TRIPS: Intellectual property rights protection.
 Agriculture Agreement: Reduces subsidies and trade barriers.
 SPS & TBT: Standards for food safety and product regulations.

7. Role in International Trade

 Trade Liberalization: Reduced tariffs (avg. from 22% in 1947 to 5% post-

WTO).
 Stability: Rules-based system minimizes trade conflicts.
 Development Support: Special & Differential Treatment (SDT) for
developing countries.

8. Challenges & Criticisms

 Doha Round Stalemate (2001–): Deadlock over agriculture, SDT.

 Dispute Settlement Crisis: US blocking Appellate Body appointments
since 2019.
 Developing Nations’ Concerns: Marginalization in decision-making;
inequitable benefits.
 New Issues: Digital trade, climate change, labor standards not fully
addressed.
 Criticism: Prioritizes trade over environmental/social concerns (e.g.,
deforestation, labor rights).

9. Recent Developments

 MC12 (2022): Agreements on fisheries subsidies, COVID-19 vaccine patents

(TRIPS waiver).
 E-Commerce Moratorium: Extended prohibition on digital tariffs.
 WTO Reform Proposals: Restoring Appellate Body, integrating
sustainability.

10. Conclusion

 Significance: Central pillar of global trade governance, promoting

cooperation.
 Adaptation Needs: Must address digitalization, environmental
sustainability, and inclusivity.
 Future Outlook: Reform essential to maintain relevance amid geopolitical
shifts and protectionism.
 Key Takeaways

 WTO ensures a rules-based trading system but faces structural and political
challenges.
 Balancing developed and developing country interests remains critical.
 Evolution required to tackle 21st-century issues like digital trade and climate
change.

WTO PPT
 1. Presented By:- SAURABH NEGI 014-I-150 PGDM 3RD Sem
 2. IN THE PRESENTATION  Understanding of WTO  WTO in beginning and Fact file of
WTO  Why WTO and functions and principle of WTO  Structure of WTO  Role of WTO 
Relevance of WTO  TRIPs, TRIMs of WTO  Agreements done under WTO guidance  Role of
WTO in developing countries  Current issues of WTO
 3. WORLD TRADE ORGANIZATION Intergovernmental organisation which regulates the
international trade • Officially commenced on 1st Jan 1995 under the Marrakesh Agreement •
Signed by 123 nations in 1994 • WTO had replaced GATT (General agreement on tariffs and
trade) • They deal with: agriculture, textiles and clothing, banking, telecommunications,
government purchases, industrial standards and product safety, food sanitation regulations,
intellectual property and much more.
 4. WTO: THE BEGINNINGS  The World Trade Organization (WTO) came into being on
January 1st 1995.  It extended GATT in two major ways. First GATT became only one of the
three major trade agreements that went into the WTO  Second the WTO was put on a much
sounder institutional footing than GATT
 5. FACT FILE OF WTO  Location - Geneva, Switzerland  Established - 1 January 1995 
Created by - Uruguay Round negotiations (1986-94)  Membership - 162 countries since 30
November 2015  Head - Roberto Azevêdo (Director-General)  Secretariat staff - 625
 6. WHY WTO?  To arrange the implementation, administration and operations of trade
agreements  Settlement of disputes  Trade relations in issues deal with under the agreements. 
To provide a framework for implementing of the results arising out of the deliberations which
taken place at ministerial conference level.  To manage effectively and efficiency the trade
 policy review mechanism (TRIM).  To create more together relationship with all nations in
respect of global economic
 7. FUNCTIONS OF WTO  Administering WTO trade agreements  Forum for trade
negotiations  Handling trade disputes  Monitoring national trade policies  Technical assistance
and training for developing countries  Cooperation with other international organizations
 8. PRINCIPLES OF WTO The basic principles of the WTO (according to the WTO):  Trade
Without Discrimination 1. Most Favoured Nation (MFN): treating other people equally 2.
National treatment: Treating foreigners and locals equally  Freer trade: gradually, through
negotiation  Predictability: through binding and transparency  Promoting fair competition 
Encouraging development and economic reform.
 9. STRUCTURE OF WTO
 10. ROLE OF WTO  The main goal of WTO is to help the trading industry to become smooth,
fair, free and predictable. It was organized to become the administrator of multilateral trade and
business agreements between its member nations. It supports all occurring negotiations for latest
agreements for trade. WTO also tries to resolve trade disputes between member nations.  Multi-
lateral agreements are always made between several countries in the past. Because of this, such
agreements become very difficult to negotiate but are so powerful and influential once all the
parties agree and sign the multi-lateral agreement. WTO acts as the administrator. If there are
unfair trade practices or dumping and there is complain filed, the staff of WTO are expected to
investigate and check if there are violations based on the multi-lateral agreements.
 11. TRIMS, AND TRIPS OF WTO 1) Agreement on Trade-Related Investment Measures
(TRIMs)  TRIMs refers to certain conditions or restrictions imposed by a governments in
respect of foreign investment in the country  The agreement on TRIMs provides that no
contracting party shall apply any TRIM which is inconsistent with the WTO Articles. 2)
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)  The Agreement
on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement
administered by the World Trade Organization (WTO) that sets down minimum standards for
many forms of intellectual property (IP) regulation as applied to nationals of other WTO
Members
 12.  TRIPS contains requirements that nations' laws must meet for copyright rights, including
the rights of performers, producers of sound recordings and broadcasting organizations;
 geographical indications, including appellations of origin; industrial designs; integrated circuit
layout-designs; patents; monopolies for the developers of new plant varieties; trademarks; trade
dress; and undisclosed or confidential information.  Specifies enforcement procedures,
remedies, and dispute resolution procedures.
 13. THE RELEVANCE OF WTO  The system helps promote peace.  The system allows
disputes to be handled constructively.  A system based on rules rather than power makes life
easier for all.  Freer trade cuts the cost of living.  It gives consumers more choice and a broader
range of qualities to choose from.  Trade raises incomes.  Trade stimulates economic growth
and that can be good news for employment.  The basic principles make the system economically
more efficient, and they cut costs.
 14. THE AGREEMENTS  The WTO is ‘rules-based’; its rules are negotiated agreements 
Overview: a navigational guide  Plurilateral agreement  Further changes on the horizon, the
Doha Agenda.  Some of the agreements of WTO: -Tariffs: more bindings and closer to zero -
The Agriculture Agreement: new rules and commitments -Textiles: back in the mainstream -
Intellectual property: protection and enforcement
 15. The agreement covers five broad issues:  How basic principles of the trading system and
other international intellectual property agreements should be applied  How to give adequate
protection to intellectual property rights  How countries should enforce those rights adequately
in their own territories  How to settle disputes on intellectual property between members of the
WTO  Special transitional arrangements during the period when the new system is being
introduced
 16. RECENT ISSUES • Twenty-four participants from around the world are attending a two-
month Advanced Trade Policy Course (ATPC) from 18 January to 11 March 2016 • Lamy calls
for addressing macro-economic imbalances through cooperation • Transparency mechanism for
preferential trade arrangements set for approval • Market access for LDCs (Least Developing
Countries) • Trade agreements between developing countries • Trade policy reviews: ensuring
transparency • TRIPS Agreement aimed at facilitating access to essential medicines in poor
countries.
 17. CONCLUSION  It is the place where the member country comes and talks together and
shares their grievance in order to resolve their problem related to International trade.  The
countries make their decisions through various councils and committees, whose membership
 consists of all WTO members.  The system helps promote peace, by handling Dispute of
member countries. It provides free trade which cuts the costs of living and provides more choice
of products and qualities and stimulates economic growth.
 18.  The WTO agreements cover goods, services and intellectual property. They spell out the
principles of liberalization, and the permitted exceptions. They include individual countries’
commitments to lower customs tariffs and other trade barriers, and to open and keep open
services markets. They set procedures for settling disputes. They prescribe special treatment for
developing countries. They require governments to make their trade policies transparent  WTO
deals with the special needs of developing countries as two thirds of the WTO members are
developing countries and they play an increasingly important and active role in the WTO
because of their numbers, because they are becoming more important in the global economy, and
because they increasingly look to trade as a vital tool in their development efforts.

Lecture Notes: World Trade Organization (WTO)

1. Introduction to WTO
What is the WTO?

 The World Trade Organization (WTO) is an international organization that deals with
the global rules of trade between nations.
 Its main goal is to ensure that trade flows as smoothly, predictably, and freely as
possible.
Establishment
 Established: January 1, 1995
 Headquarters: Geneva, Switzerland
 Replaced: General Agreement on Tariffs and Trade (GATT), which was established in
1947.
 Membership: 164 members as of 2024, covering over 98% of world trade.
2. Objectives of WTO
 Promote free and fair trade globally.
 Provide a forum for trade negotiations.
 Settle trade disputes between nations.
  Monitor national trade policies.
 Assist developing and least-developed countries in trade policy issues through technical
assistance and training.
3. Functions of WTO
1. Trade Negotiation
o Facilitates multilateral trade negotiations through rounds (e.g., Uruguay Round,
Doha Development Round).
2. Implementation and Monitoring
o Ensures the proper implementation of trade agreements.
o Monitors members' trade policies through the Trade Policy Review Mechanism
(TPRM).
3. Dispute Settlement
o Provides a legal and institutional framework for settling trade disputes.
4. Building Trade Capacity
o Offers technical assistance and training for developing countries.
5. Cooperation with Other International Organizations
o Works with IMF, World Bank, and UN to achieve broader development goals.
4. Principles of the WTO
1. Most-Favored-Nation (MFN) Principle
o No discrimination between trading partners.
2. National Treatment Principle
o Foreign and domestic products should be treated equally after entering the market.
3. Free Trade through Negotiation
o Gradual removal of trade barriers.
4. Binding and Enforceable Commitments
o Tariff commitments are legally binding.
5. Transparency
o Trade policies and regulations must be clear and publicly available.
6. Promoting Fair Competition
o Discourages unfair practices like dumping and subsidies.
5. Organizational Structure of WTO
1. Ministerial Conference
 Highest decision-making body; meets every 2 years.
2. General Council
 Operates daily and reports to the Ministerial Conference.
 Acts as:
o Dispute Settlement Body (DSB)
o Trade Policy Review Body (TPRB)
3. Councils and Committees
 Council for Trade in Goods
 Council for Trade in Services
 Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS)
 Various specialized committees

6. Key WTO Agreements

1. GATT (General Agreement on Tariffs and Trade)
o Covers international trade in goods.
2. GATS (General Agreement on Trade in Services)
o Covers trade in services (e.g., banking, insurance, telecommunications).
3. TRIPS (Trade-Related Aspects of Intellectual Property Rights)
o Establishes minimum standards for IP regulation.
4. Agreement on Agriculture
o Focuses on market access, domestic support, and export subsidies.
5. Agreement on Sanitary and Phytosanitary Measures (SPS)
o Addresses food safety and animal/plant health standards.
6. Technical Barriers to Trade (TBT) Agreement
o Prevents standards and regulations from creating unnecessary trade obstacles.
7. WTO and Developing Countries
 Special and Differential Treatment (SDT) provisions allow developing countries:
o More time to fulfill obligations.
o Greater flexibility in implementing rules.
  WTO supports capacity building and infrastructure development.
 Least Developed Countries (LDCs) receive duty-free, quota-free access to developed
markets.

8. Dispute Settlement Mechanism

 A unique feature of WTO.
 Based on legal rules and procedures.
 Includes:
1. Consultations
2. Panel establishment
3. Appeal (Appellate Body)
4. Implementation of rulings
 Recent Issue: Appellate Body has been non-functional since 2019 due to appointment
blockage.

9. WTO Trade Rounds

Major Negotiation Rounds:

 Uruguay Round (1986–1994):

o Led to the creation of the WTO.
o Included agriculture, services, and intellectual property.
 Doha Development Round (2001–present):
o Focus on development issues.
o Stalled due to disagreements between developed and developing countries.

10. Criticisms of WTO

1. Favoring Rich Countries
o Alleged bias toward developed nations and multinational corporations.
2. Lack of Transparency
o Complex negotiation processes often exclude smaller nations.
3. Limited Consideration for Environment and Labor
o Accused of ignoring sustainability and labor rights.
 4. Stalled Negotiations
o Doha Round failure shows difficulty in consensus-building.

11. WTO and Current Global Challenges

 Trade Wars: e.g., U.S.-China tensions
 Climate Change and Sustainable Trade
 Digital Trade and E-commerce
 COVID-19 and Trade Resilience
 Reforming the WTO dispute settlement system

12. Conclusion
 The WTO plays a vital role in the global trading system.
 Despite criticisms and challenges, it remains the cornerstone of international trade
governance.
 Ongoing reforms and negotiations are crucial to making it more inclusive, transparent,
and responsive to modern global issues.

Lecture Notes: Major Trade Agreements in Africa

1. Introduction
Trade agreements in Africa are designed to:

 Promote economic integration,

 Reduce trade barriers, and
 Stimulate intra-African trade for sustainable development.

African trade agreements operate at both regional and continental levels, with many countries
belonging to multiple Regional Economic Communities (RECs).

2. Objectives of African Trade Agreements

 Promote intra-African trade by reducing tariffs and non-tariff barriers.
 Enhance regional integration and cooperation.
 Improve infrastructure and connectivity.
 Encourage investment, industrialization, and economic growth.
  Achieve economies of scale and strengthen bargaining power in global trade.

3. Major Trade Agreements in Africa

A. African Continental Free Trade Area (AfCFTA)

Overview
 Launched: January 1, 2021
 Agreement signed: March 2018 (Kigali, Rwanda)
 Members: 54 out of 55 African Union (AU) member states
 Secretariat: Accra, Ghana

Objectives
 Create a single continental market for goods and services.
 Promote free movement of people, capital, and investments.
 Expand intra-African trade (currently less than 18% of Africa’s total trade).
 Enhance competitiveness and promote industrial development.

Key Features
 Tariff liberalization: Reduce tariffs on 90% of goods.
 Rules of origin: Define products that qualify for preferential treatment.
 Dispute settlement mechanism.
 Protocol on trade in services.

Benefits
 Expected to boost Africa’s GDP by $450 billion by 2035 (World Bank).
 Increase intra-African trade by over 50%.
 Enhance economic diversification and reduce reliance on external markets.

B. Regional Economic Communities (RECs)

Africa recognizes 8 official RECs under the African Union framework. Below are the major
ones:

1. Economic Community of West African States (ECOWAS)

Established: 1975 (Treaty of Lagos)
Members: 15 West African countries
Objectives:
 Achieve economic integration and monetary union.
 Establish a common market and customs union.
 Promote peace and political stability in West Africa.

Trade Features
 ECOWAS Trade Liberalization Scheme (ETLS):
o Allows duty-free access for goods produced in member states.

2. East African Community (EAC)

Established
 Originally in 1967, re-established in 2000

Members
 7 countries: Burundi, Kenya, Rwanda, South Sudan, Tanzania, Uganda, and DR Congo

Objectives
 Deep integration through a common market, customs union, and eventual political
federation.

Trade Features
 Common External Tariff (CET)
 Free movement of goods, people, services, and capital

3. Southern African Development Community (SADC)

Established
 1992 (Treaty of Windhoek)

Members
 16 Southern African countries
Objectives
 Promote socio-economic development and regional integration

Trade Features
 SADC Free Trade Area (FTA) launched in 2008
 Aims to remove tariffs on 85% of trade among member states.

4. Common Market for Eastern and Southern Africa (COMESA)

Established
 1994

Members
 21 countries from Eastern and Southern Africa

Objectives
 Establish a large economic and trading unit to overcome trade barriers.

Trade Features
 COMESA FTA launched in 2000
 Plans for a Customs Union and Common Investment Area

5. Arab Maghreb Union (AMU)

Established
 1989

Members
 5 North African countries: Algeria, Libya, Mauritania, Morocco, Tunisia

Challenges
 Political tensions have limited progress on trade and integration.

6. Intergovernmental Authority on Development (IGAD)

Established
 1996, successor to IGADD (1986)

Members
 8 countries in the Horn of Africa and Eastern Africa

Focus
 Initially focused on drought and development, now includes economic cooperation
and trade.

7. Economic Community of Central African States (ECCAS)

Established
 1983

Members
 11 Central African countries

Features
 ECCAS FTA in progress.
 Works with the Central African Economic and Monetary Community (CEMAC).

8. Community of Sahel-Saharan States (CEN-SAD)

Established
 1998

Members
 29 countries (mostly overlapping with other RECs)

Objectives
 Promote free movement of goods and people.
4. Tripartite Free Trade Area (TFTA)
Overview Formed: 2015

 Members: 27 countries from COMESA, EAC, and SADC

Objective

 Harmonize trade policies across the three RECs.

 Serve as a building block for AfCFTA.

5. Challenges Facing African Trade Agreements

1. Overlapping Memberships
o Many countries belong to multiple RECs, causing duplication and policy
conflicts.
2. Poor Infrastructure
o Limits trade integration due to high transport and logistics costs.
3. Non-tariff Barriers
o Border delays, customs inefficiencies, and regulatory differences.
4. Limited Product Diversification
o Many African countries rely on similar raw exports.
5. Weak Implementation
o Political and institutional limitations slow down agreement execution.
6. Security and Political Instability
o Conflicts and governance issues hinder trade.

6. Opportunities and Future Outlook

 Digital trade and e-commerce: Emerging area for continental growth.
 Youth entrepreneurship and industrialization: Key to making trade inclusive.
 Harmonization of trade laws and policies across RECs to improve AfCFTA.
 Sustainable trade practices tied to climate goals.
7. Conclusion
Africa’s trade agreements reflect a strong commitment to regional and continental integration.
The AfCFTA is a landmark initiative aimed at transforming Africa from fragmented markets
into a unified economic bloc. However, realizing its potential requires:

 Effective implementation,
 Infrastructure investment, and
 Addressing policy and institutional challenges.

3 Regional Economic Integration

1. Regional Economic Integration Unit 3
2. You should be able to: • Explain regional economic integration, its
evolution, and its benefits and costs. • Identify how economic geography
helps explain, promote, and segment regional integration blocs. • Identify
the primary reasons why countries are now seeking to pursue regional
integration at the expense of multilateral trade liberalization. • Explain
why the European Union is seen as the most advanced regional
integration bloc.
3. You should be able to: • Describe how NAFTA has affected U.S.–
Mexico bilateral trade in goods and services. • Explain the importance of
ASEAN and indicate why Asia may become the most important free-trade
region for this century. • Explain why regional integration in Latin America
is challenging and why there is potential for a grouping like MERCOSUR to
become more predominant.
4. What Is Regional Economic Integration? • Despite the fact that global
trade and investment liberalization can lead to global benefits—greater
volume of trade and investment across countries, faster economic growth,
job creation, tax revenues, increased competition, and increased
consumer welfare—some countries prefer to work more closely within a
regional setting.
5. What Is Regional Economic Integration? • Regional integration
includes a multitude of economic and/or political steps that may be taken
by member states of a union to increase their global competitiveness—
not only preferential trade access. • Regional integration helps countries
—especially small and medium-sized countries—scale up their supply
capacity through regional production networks and become more globally
competitive. (e.g. agriculture, manufacturing, and services)
6. What Is Regional Economic Integration? • For regional integration to
be successful, member countries need to undertake spatial
transformations i.e. allowing efficient geographic distribution of economic
activities within and among countries. • Furthermore, regional integration
strategies need to be customized to the economic geography (to make
the best use of the size and location) of the countries involved and their
openness to interaction with major world markets.

7. Stages of Regional Integration Free- trade area Customs union

Common market Economic union Political Union
8. Stages of Regional Integration • First, two or more countries may
create a free-trade area by eliminating all barriers to trade, such as tariffs,
quotas, and nontariff barriers like border restrictions, while keeping their
own external tariffs (within WTO guidelines) on members not included in
the free-trade area.
9. Stages of Regional Integration • Second, when countries within a
free-trade area have differential external tariffs, imports will primarily
enter the free-trade area through the country that has the lowest external
tariffs and trade restrictions, thereby causing other free-trade member
countries to lose import business. • This may eventually lead to the
creation of a customs union, in which all free-trade member countries
would need to adopt a common external tariff with nonmember countries.
10. Stages of Regional Integration • Third, within the member countries
of the customs union, investment (hence business and job opportunities)
will flow to countries that have the highest labor productivity and low
capital cost. • This, in turn, may encourage the removal of barriers to
allow free movement of capital and labor within the customs union,
thereby creating a common market or single market.
11. Stages of Regional Integration • Fourth, within the common market,
the free movement of labor and capital may encourage member states to
implement common social programs (on education, employee benefits
and retraining, health care, retirement programs, etc.) and coordinated
macroeconomic policies (e.g., similar fiscal and monetary policies) that
could lead to the creation of a single regional currency and an economic
and monetary union.
12. Stages of Regional Integration • Finally, because member countries
of the economic and monetary union will work closely with each other on
all major business and economic issues, the urge to have common
defense and foreign policies may lead to the creation of a political union
(i.e., a group of countries that will behave as a single country).
14. Pros and Cons of Regional Integration The benefits of regional
integration include: 1. Creating a larger pool of consumers with growing
incomes and similar cultures, tastes, and social values. 2. Encouraging
economies of scale in production, increasing the region’s level of global
competitiveness, and enhancing economic growth through investment
flows. 3. Freeing the flow of capital, labor, and technology to the most
productive areas in the region.
15. Pros and Cons of Regional Integration The benefits of regional
integration include: (cont.) 4. Increasing cooperation, peace, and security
among countries in the region. 5. Encouraging member states to enhance
their level of social welfare to match that of the most progressive states.

16. Pros and Cons of Regional Integration The costs of regional

integration include: 1. Undermining the most-favored-nation status rule
(the lowest tariff applicable to one member must be extended to all
members), an essential principle of the WTO. 2. Imposing laws and
regulations that are uniform and that at times do not take into account
national economic, cultural, and social differences. 3. Eliminating jobs and
increasing unemployment in protected industries.
17. Pros and Cons of Regional Integration The costs of regional
integration include: (cont.) 4. Losing sovereignty, national independence,
and identity. 5. Reducing the powers of the national government. 6.
Increasing the probability of rising crime associated with illegal drugs and
terrorism because of the ease of cross-border labor movements.
18. The Economic Geography of Regional Integration • The removal of
tariff and nontariff barriers across national borders can enable small and
medium-sized firms to consolidate, specialize, and gain economies of
scale in production that will help them achieve competitiveness on a
regional and global scale. • Economic Geography is the study of principles
that govern the efficient spatial allocation of economic resources and the
resulting consequences
19. Steps to Regional Integration Start Small Think Global Compensate
the Least Fortunate World Development Report (WDR)
20. Major Classes and Characteristics of Regional Integration Regional
Blocs Close to World Markets Remote Regions with Large Local Markets
Remote Regions with Small Local Markets
21. Regional Blocs Close to World Markets • Countries close to major
markets have the advantage of connecting to markets, suppliers, and
ideas. • Developed countries seek these regional trading blocs to: 1.
expand their growth potential abroad as domestic markets mature, and 2.
deliver low-cost manufacturing platforms for locally based firms.
22. Regional Blocs Close to World Markets • Regional trading blocs that
are close to world markets— such as the North American Free Trade
Agreement (NAFTA), the Dominican Republic–Central America Free Trade
Agreement (DR-CAFTA), the Caribbean Community (CARICOM), as well as
the bilateral U.S. free trade with Chile and Colombia—have all benefited
from privileged access to U.S. markets
23. Regional Blocs Close to World Markets
24. Remote Regions with Large Local Markets • A large local market
gives countries the advantage of attracting industrial activities. • If the
country’s infrastructure is also well connected to world markets, this
advantage is reinforced. • This second group of countries is far from world
markets, such as the United States, the European Union, and large Asian
economies, like China, India, and Japan.
25. Remote Regions with Large Local Markets
26. Remote Regions with Small Local Markets • International
integration is most difficult for countries in regions that are divided, far
from world markets, and lack the economic size of a large local economy.
• Landlocked/Sea-locked countries • “Bottom Billion” ~ Paul Collier(2007)
- Central Asia; East, Central, and West Africa; and the Pacific Islands
27. Remote Regions with Small Local Markets
28. The European Union (EU) • The EU, headquartered in Brussels,
Belgium, is the most highly evolved example of regional integration in the
world. • The European Union is a political and economic union of 27
member states that are located primarily in Europe. • The origins of the
EU can be traced to the creation of the European Coal and Steel
Community (ECSC), which established a common market in coal, steel,
and iron ore among the six founding member countries: France, West
Germany, Italy, Belgium, the Netherlands, and Luxembourg, in 1951.
29. The European Union (EU) • The second major step was to approve
the Treaty of Rome in 1957, establishing the European Economic
Community (EEC) that called for free trade among members as well as a
common external tariff for nonmembers. • The EU has delivered more
than half a century of peace, stability and prosperity, helped raise living
standards and launched a single European currency: euro.
30. The European Union (EU) • The abolition of border controls between
EU countries helped people to travel freely throughout most of the
continent. And it has become much easier to live, work and travel abroad
in Europe. • The EU's main economic engine is the single market. It
enables most goods, services, money and people to move freely. The EU
aims to develop this huge resource to other areas like energy, knowledge
and capital markets to ensure that Europeans can draw the maximum
benefit from it.
31. The European Union (EU) The objective of ECSC was to encourage
member countries to cooperate in steel production, thereby preventing
these countries from warring with each other. Thus, peace and prosperity
were the primary reasons for the creation of ECSC.
33. The European Union (EU) • Austria • Belgium • Bulgaria • Croatia •
Cyprus • Czechia • Denmark • Estonia • Finland • France • Germany •
Greece • Hungary • Ireland • Italy • Latvia • Lithuania • Luxembourg •
Malta • Netherlands • Poland • Portugal • Romania • Slovakia • Slovenia
• Spain • Sweden
34. The European Union (EU) The goals of the European Union are: 1.
promote peace, its values and the well-being of its citizens 2. offer
freedom, security and justice without internal borders 3. sustainable
development based on balanced economic growth and price stability, a
highly competitive market economy with full employment and social
progress, and environmental protection 4. combat social exclusion and
discrimination
35. The European Union (EU) The goals of the European Union are:
(cont.) 5. promote scientific and technological progress 6. enhance
economic, social and territorial cohesion and solidarity among EU
countries 7. respect its rich cultural and linguistic diversity 8. establish an
economic and monetary union whose currency is the euro.
36. The North American Free Trade Agreement (NAFTA) • The North
American Free Trade Agreement (NAFTA), which was enacted in 1994 and
created a free trade zone for Mexico, Canada, and the United States, is
the most important feature in the U.S.-Mexico bilateral commercial
relationship. • As of January 1, 2008, all tariffs and quotas were
eliminated on U.S. exports to Mexico and Canada. • Canada has always
been the United States’ largest trade partner, and Mexico has ranked
third.
37. The North American Free Trade Agreement (NAFTA) Major
objectives • Expansion of trade in goods and services • Protection of
intellectual property rights. • Creation of institutions to address potential
problems(e.g. unfair trade practices) and the implementation of NAFTA
rules and regulations.
38. The North American Free Trade Agreement (NAFTA) • Way back
2001-2003 and 2008- 2009, when the U.S. economy slides into a
recession, the impact on Mexico is severe, as can be seen by the
decrease in the volume of Mexican exports to the United States and the
decrease in Mexican worker remittances from the United States. • Mexico
initiated steps to safeguard its economy against this risk by signing a
free-trade agreement with the EU • Maintain economic growth
39. Association of South East Asian Nations (ASEAN) • The Association
of Southeast Asian Nations, or ASEAN, was established on 8 August 1967
in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok
Declaration) by the Founding Fathers of ASEAN: Indonesia, Malaysia,
Philippines, Singapore and Thailand. • Brunei Darussalam joined ASEAN
on 7 January 1984, followed by Viet Nam on 28 July 1995, Lao PDR and
Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up
what is today the ten Member States of ASEAN
40. Association of South East Asian Nations (ASEAN)
41. Association of South East Asian Nations (ASEAN) Aims and
purposes • accelerate the economic growth, social progress and cultural
development in the region • promote regional peace and stability; •
promote active collaboration and mutual assistance on matters of
common interest in the economic, social, cultural, technical, scientific and
administrative fields; • provide assistance to each other in the form of
training and research facilities in the educational, professional, technical
and administrative spheres;
42. Association of South East Asian Nations (ASEAN) Aims and
purposes (cont.) • collaborate more effectively to encourage further
growth in the agriculture and industry, and trade sectors; • promote
Southeast Asian studies; and • 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.
43. Association of South East Asian Nations (ASEAN) Three Pillars 1.
Political-Security Community - to ensure regional peace and a just,
democratic, and harmonious environment. 2. Economic Community - the
realization of the region’s end goal of economic integration. It envisions
ASEAN as a single market and product base, a highly competitive region,
with equitable economic development, and fully integrated into the global
economy. 3. Socio-Cultural Community - all about realizing the full
potential of ASEAN citizens.
 44. Mercado Común del Sur (MERCOSUR) • The Southern Common
Market (MERCOSUR) “Mercado Común del Sur” is a regional integration
process, initially established by Argentina, Brazil, Paraguay and Uruguay,
and subsequently joined by Venezuela and Bolivia* -the latter still
complying with the accession procedure. • Since its creation, its main
objective has been to promote a common space that generates business
and investment opportunities through the competitive integration of
national economies into the international market.
45. Mercado Común del Sur (MERCOSUR)
46. Mercado Común del Sur (MERCOSUR) • Established multiple
agreements with countries or groups of countries, granting them, in some
cases, the status of Associated States – this being the situation of the
South American countries. These participate in activities and meetings of
the Bloc and have trade preferences with the States Parties. • Signed
commercial, political or cooperation agreements with a diverse number of
nations and organizations on all five continents.
47. Integration is a basic law of life; when we resist it, disintegration is
the natural both inside and outside of us. Thus we come to the concept of
harmony through through integration.” ~Norman Cousins
International Trade by Dr. A. Royal Edward Williams Unit - III.pptx
1. INTERNATIONAL TRADE: REGIONAL ECONOMIC INTEGRATION
Regional economic integration refers to a way where neighboring nations work to merge
their thrifts by falling barriers to trade, investment, and mobility of labor and capital within
the region.
The goal is for the region to become more useful and roaring through alliance and mutual
support.
Regional economic integration begins with free trade areas that remove tariffs and quotas on
member nations' trade.
What is Economic Integration?
Economic integration is an arrangement among nations that typically includes the reduction
or elimination of trade barriers and the coordination of monetary and fiscal policies.
 Economic integration aims to reduce costs for both consumers and producers and to increase
trade between the countries involved in the agreement.
Objectives of Regional Economic Integration
The goals of regional economic integration have been stated below:
Promote trade
Create larger markets
Specialize in what you do best
Attract more investment
Foster economic growth
Improve living standards
Enhance stability

Effects of Regional Economic Integration

The effects of regional economic integration have been stated below:
 Increased trade and investment within the region
 Specialization and comparative advantage
 Economies of scale
 Competition and innovation
 Growth and development
 Reduced poverty
 Political stability
 Global competitiveness
 Job creation
 Access to larger markets
Advantages of Regional Economic Integration
The advantages of regional economic integration have been stated below:
 Grown trade
 Economies of scale
 Specialization and efficiency
 Increased investment
 Technology transfer
  Political stability
 Reduced poverty
 Global competitiveness
Disadvantages of Regional Economic Integration
The drawbacks of regional economic integration have been stated below.
o Loss of sovereignty
o Increased competition
o Increased economic contrasts.
o Risk of conflicts
o Cost of coordination
o Trade diversion
o Raised barriers to non-members
o Policy imposition
o Slower decision-making
o Spread of economic issues
FREE TRADE AREA
A free trade area (FTA) refers to a specific region wherein a group of countries signs a trade
agreement that seals the economic cooperation among them.
The FTA’s main goals are to bring down barriers in trading, specifically tariffs and import
quotas, and encourage the free trade of goods and services among its member countries.
The key terms of free trade agreements and free trade areas include:
o Import goods are products that were manufactured from a foreign land and are brought
into another country and consumed by its domestic residents.
o Export goods are the opposite of import goods a manufacturer located in one country
sells its products to buyers in a foreign country.
10. FREE TRADE AREA •
A free trade area is concerned with removing tariffs, and regulations that are applied to member
countries who trade with each other.
Members establish a common set of policies that regulate trade terms, tariffs, and quotas.
  Another thing about a free trade area is that imports from outside the area do not confer
the benefit of the free trade agreement.
 For example, two countries that are members of a free trade area, such as the U.S. and
Mexico, refrain from imposing tariffs on each other. However, if a U.S. company
imports bananas from South America, they would be subject to tariffs.
11. Advantages of a Free Trade Area A free trade area offers several advantages, including: • 1.
Increased efficiency • 2. Specialization of countries • 3. No monopoly • 4. Lowered prices • 5.
Increased variety
12. Disadvantages of Free Trade Area Despite all the benefits brought about by a free trade
area, there are also some corresponding disadvantages, including: • 1. Threat to intellectual
property • 2. Unhealthy working conditions • 3. Less tax revenue
13. Customs Union • A customs union is an agreement between two or more neighboring
countries to remove trade barriers, reduce or abolish customs duty, and eliminate quotas. Such
unions were defined by the General Agreement on Tariffs and Trade (GATT) and are the third
stage of economic integration. • Unlike in free trade agreements, a common external tariff is
imposed on non- members of the union. When countries outside the union trade with countries in
the customs union, they need to make a single payment (duty fee) for the goods that have crossed
the border. Once inside the union, they can trade freely with no added tariffs.
14. Purpose of Customs Unions • The purpose of a customs union is to make it easier for
member countries to trade freely with each other. The union reduces the administrative and
financial burden of barrier trading and fosters economic cooperation among nations. • The
member countries are not given the freedom to form their own trade deals. The countries in the
customs union usually restructure their domestic economy and economic policies in order to
maximize their gain from membership in the union. The European Union is the largest customs
union in the world in terms of the economic output of its members. • A customs union generates
trade creation and diversion that helps with economic integration. Below are the advantages and
disadvantages of customs unions.
15. Advantages of Custom Unions Customs unions offer the following benefits: 1. Increase in
trade flows and economic integration 2. Trade creation and trade diversion 3. Reduces trade
deflection
 16. Disadvantages of Customs Unions Along with the advantages, customs unions also come
with a few drawbacks: 1. Loss of economic sovereignty 2. Distribution of tariff revenues 3.
Complexity of setting the tariff rate
17. European Economic Union • The European Union (EU) is a political and economic alliance
of 27 countries. It promotes democratic values in its member nations and is one of the world's
most powerful trade blocs. Nineteen of the countries share the euro as their official currency. •
The EU grew out of a desire to strengthen economic and political cooperation throughout the
continent of Europe in the wake of World War II. • Its Gross Domestic Product (GDP) total sum
of 14.45 trillion euros in 2021. That's about US $15.49 trillion. The GDP of the U.S. for the same
period was about US $23 trillion
18. History of the European Union • The EU traces its roots to the European Coal and Steel
Community, which was founded in 1950 and had just six members: Belgium, France, Germany,
Italy, Luxembourg, and the Netherlands. It became the European Economic Community in 1957
under the Treaty of Rome and subsequently was renamed the European Community (EC) • This
served to deepen the integration of the member nations' foreign, security, and internal affairs
policies. The EU established a common market the same year to promote the free movement of
goods, services, people, and capital across its internal borders. • The EC initially focused on a
common agricultural policy and the elimination of customs barriers. Denmark, Ireland, and the
U.K. joined in 1973 in the first wave of expansion. Direct elections to the European Parliament
began in 1979.
19. Creation of a Common Market • In 1986, the Single European Act embarked on a six-year plan
to create a common European market by harmonizing national regulations. • The Maastricht treaty
took effect in 1993, replacing the EC with the EU. The euro debuted as a common single currency
for participating EU members on January 1, 1999.6 Denmark and the U.K. negotiated "opt-out"
provisions that permitted countries to retain their own currencies if they chose. • Several newer
members of the EU have also either not yet met the criteria for adopting the euro or chosen to opt
out.
20. What is a Common Market? • A common market is a formal agreement where a group is formed
amongst several countries that adopt a common external tariff . In a common market, countries also
allow free trade and free movement of labor and capital among the members of the group. The trade
arrangement is aimed at providing improved economic benefits to all the members of the common
market. • The most famous example of a common market is the European Common Market, which
aims to provide the free movement of goods, capital, services, and labor within the European Union.
21. Target •A Common Market is an agreement between two or more countries removing all trade
barriers between themselves, establishing common tariff and non-tariff barriers for importers, and
also allowing for the free movement of labour, capital and services between themselves.
22. Conditions Required to be Defined as a Common Market To be defined as a common market,
the following conditions must be satisfied: 1. Tariffs, quotas, and all barriers regarding importing
and exporting goods and services among members of the common market are eliminated. 2.
Common trade restrictions such as tariffs on countries outside the group are adopted by all members.
3. Production factors such as labor and capital are able to move freely without restriction among
member countries. If one of the conditions is not satisfied, the resulting market is not a common
market. For example, if production factors such as labor and capital are not able to move freely
without restriction among member countries, then the arrangement would instead be defined as a
customs union.
23. Benefits of a Common Market • Free movement of people, goods, services, and capital •
Efficiency in production
24. Costs of a Common Market • Less competitive countries may suffer • Trade diversion
25. TRADE CREATION AND DIVERSION
In the realm of global economics, trade creation and diversion are a vital aspect which affects how
countries interact under trade agreements.
Trade creation takes place when the reduction in it happens in a group of nations which leads to a
major shift from higher-cost domestic production to lower-cost imports from partner nation, which
increases the economic efficiency and welfare of a place.
26. Trade Creation and Diversion Effects
 Trade creation is one of the key positive outcomes of forming a trade agreement between
countries.
 When countries lower or eliminate tariffs and other trade barriers, trade creation leads to a
more efficient allocation of resources and increased economic activity.
 This phenomenon occurs as a result of cheaper imports from partner countries replacing
more expensive domestic production.
  Understanding the detailed effects of trade creation can help policymakers and economists
gauge (devise) the true benefits of trade agreements.
27. Increased Efficiency and Comparative Advantage
Efficiency Gains: When trade barriers are reduced, countries can specialize in producing goods
where they have a comparative advantage. This specialization means that countries can produce
goods more efficiently and at a lower cost than if each country tried to produce everything
domestically.
Resource Allocation: Resources (labour, capital, land) are redirected to industries where the country
is most efficient, leading to better overall economic performance and productivity.
28. Consumer Benefits
 Lower prices: With tariffs removed or reduced, imported goods become cheaper.
Consumers can then access a wider variety of goods at lower prices, increasing their
purchasing power and welfare.
 Increased Variety: Trade agreements often result in a greater variety of goods available in
the market, as consumers can access products from multiple countries, enhancing their choice
and satisfaction.
29. Effects of Trade Creation
 Increased Efficiency and Comparative Advantage
 Efficiency Gains
 Resource Allocation Consumer Benefits
 Lower Prices
 Increased Variety Impact on Domestic Producers
 Competitiveness
 Market Expansion Economic Growth and Job Creation
 Growth Stimulation
 Job Creation Improved International Relations
 Political Stability
 Regional Integration
30. Trade Diversion Effects
 Less Efficient Resource Allocation
 Suboptimal Production Choices
  Distorted Comparative Advantage Consumer Impact
 Higher Prices
 Reduced Product Variety Impact on Non-Member Countries
 Trade Reduction
 Economic Strain Geopolitical and Strategic Considerations
 Strained Relations
 Retaliatory Measures Economic Welfare Implications
 Mixed Economic Outcomes
 Policymaking Challenges
Trade Integration & Economic Governance
 1. Overview of Trade Integration & Levels of Economic Integration Fadhilah Raihan Lokman
Bachelor of Social Science SLAS, Taylor’s University
 2. What is Trade Integration? Trade integration refers to the process of increasing economic
cooperation and integration among countries, primarily through the reduction or elimination of
barriers to trade, such as tariffs and quotas. This process results in: Increased trade flows Greater
competition Improved allocation of resources Increased economic growth Job creation Increased
living standards for the countries involved Increase cross-border investment
 3. Perspectives on Trade Integration Scholars have different views on the concept of trade
integration. 1) Neoliberal perspective: According to this view, trade integration leads to
economic benefits such as increased trade, investment, and growth. The reduction of trade
barriers and harmonization of trade policies are seen as crucial elements of this process. Increase
in the division of labor Countries specializing in the production of goods and services Economies
of scale Reducing the cost of production and making exports more competitive Increase
competition Promoting innovation and efficiency, and helping to reduce consumer prices
 4. Perspectives on Trade Integration 2) Structuralist perspective: This perspective argues that
trade integration can have unequal impacts on different countries, leading to further
marginalization of developing countries. They believe that trade integration can reinforce
existing power imbalances and exacerbate income inequalities. Unequal bargaining power •
Developed countries have more bargaining power and resources to participate in trade
negotiations Dependency • Developing countries become overly dependent on developed
countries for exports, thereby limiting their ability to diversify their economies. Export-oriented
 growth • Leads to a focus on export-oriented growth in developing countries, which can result in
neglect of the domestic market and unequal distribution of benefits. Competition with Developed
Countries • Increased competition of developing with developed countries, which can lead to the
marginalization of local industries and increase poverty.
 5. Perspectives on Trade Integration 3) Marxist perspective: According to this perspective,
trade integration is a tool used by capitalist states and firms to expand their markets and increase
profits. It is seen as a way of consolidating the dominance of developed countries and
maintaining the exploitation of developing countries. TI serves to reinforce this dominance of
developed countries on global economy by allowing these countries to control the flow of goods,
services, and capital between countries. This control allows developed countries to extract
surplus value from developing countries, which is seen as a form of exploitation. Basically, TI
reinforces the power imbalance between developed and developing countries, rather than
promoting equality and development for all countries involved.
 6. Regional Economic Integration Regional economic integration refers to the growing
economic interdependence that results when two or more countries within a geographic region
form an alliance aimed at reducing barriers to trade and investment. At a minimum, the countries
is an economic bloc become parties to a free trade agreement, a formal arrangement between two
or more countries to reduce or eliminate tariffs, quotas, and other barriers to trade in products
and services. The member nations also undertake cross-border investments within bloc
(Cavusgil, Rammal, & Freeman, 2011)
 7. Regional Economic Integration • Distinct national economies to become economically
linked and interdependent through greater cross- national movement of products, services, and
factors of production. • Allows member states to use resources more productively. The total
output of the integrated bloc is generally greater than the summated output of the individual
states.
 8. Regional Economic Integration Divisions between countries created by geography, poor
infrastructure and inefficient policies are an impediment to economic growth. Regional
integration allows countries to overcome these costly divisions integrating goods, services and
factors’ markets, thus facilitating the flow of trade, capital, energy, people and ideas.
 9. Overview of Regional Economic Integration
 10. Timeline In the 19th and 20th centuries: Formation of organizations such as the European
Coal and Steel Community, the European Economic Community (now the European Union), and
the North American Free Trade Agreement (NAFTA). The trend towards trade integration has
continued into the 21st century, with the formation of regional organizations and trade
agreements such as the General Agreement on Tariffs and Trade (GATT) in 1947, which later
became the World Trade Organization (WTO), and later the Trans-Pacific Partnership (TPP).
The importance of having trade integration has led to many countries and regions pursuing
greater levels of economic integration including FTA, Customs Unions, Common Market,
Economic Union and Political Union. Over the centuries, trade integration has been shaped by
various factors such as technological advancements, political and economic changes, and shifting
global power dynamics.
 11. Levels of Economic Integration Free Trade Area (FTA) • This is the most basic level of
integration, where countries eliminate tariffs and other trade barriers on goods and services
traded between them. Customs Union • A customs union goes further than an FTA by requiring
the countries involved to have a common external tariff on imports from non-member countries.
Common Market • A common market adds to the provisions of a customs union by allowing the
free movement of goods, services, capital, and labor between member countries. Economic
Union • An economic union builds on the provisions of a common market by integrating
economic policies and institutions, such as a common monetary policy, a common competition
policy, and a common external trade policy. Political Union • A political union is the highest
level of integration, where countries go beyond economic integration and merge their political
institutions, creating a federal system of government.
 13. 1) Free Trade Area The free trade area is the simplest and most common arrangement, in
which:  Member countries agree to gradually eliminate formal barriers to trade in products and
services within the bloc  Each member country maintains an independent international trade
policy with countries outside the bloc.  Example: ASEAN Free Trade Area The benefits of free
trade areas include:  Increased access to less expensive and/or higher quality foreign goods 
Lowering of prices as governments reduce or eliminate tariffs  Producers can acquire a greatly
expanded market of potential customers or suppliers  Encourage economic development in
countries as a whole, benefiting some of the population through increased living standards. What
are disadvantages of FTA?
 14. 2) Custom Union The custom union is the second level of regional integration, similar to a
free trade area except that member states harmonize their external trade policies and adopt
common tariff and nontariff barriers on imports from nonmember countries. Example:  The
Southern Common Market or MERCOSUR, an economic bloc in Latin America in 1994 
European Union (EU) established a customs union in 1968 Issues with Custom Union:
https://www.piie.com/blogs/trade-and-investment- policy-watch/can-customs-union-members-
negotiate-bilateral-free-trade
 15. 2) Custom Union Countries that export to the customs union only need to make a single
payment (duty), once the goods have passed through the border. Once inside the union goods can
move freely without additional tariffs. Tariff revenue is then shared between members, with the
country that collects the duty retaining a small share. Example: If Germany imposes a 10% tariff
on Japanese cars, while France imposes a 2% tariff, Japan would export its cars to French car
dealers, and then sell them on to Germany, thereby avoiding 80% of the tariff. With custom
union, this is not possible. Therefore, members must negotiate collectively with non-members or
organizations like the WTO as a single group of countries. While this is essential to maintain the
customs union, it means that members are not free to negotiate individual trade deals.
 16. 3) Common Market Common market is when trade barriers are reduced or removed,
common external barriers are established, and products, services, and factors of production such
as capital, labor, and technology are allowed to move freely among the member countries. Like a
customs union, a common market also establishes a common trade policy with nonmember
countries. Example: EU – Also known in as internal market. It has gradually reduced or
eliminated restrictions on immigration and the cross – border flow of capital. A worker from an
EU country has the right to work in other EU countries, and EU firms can freely transfer funds
among their subsidiaries within the bloc. For a common market to be successful there must also
be a significant level of harmonization of micro-economic policies, and common rules regarding
product standards, monopoly power and other anti-competitive practices.
 17. Conditions for Common Market Tariffs, quotas, and all barriers regarding importing and
exporting goods and services among members of the common market are eliminated. Common
trade restrictions such as tariffs on countries outside the group are adopted by all members.
Production factors such as labor and capital are able to move freely without restriction among
member countries. Challenges to Common Market Require substantial cooperation on labor and
 economic policies Since labor and capital can flow freely inside the bloc, benefits to individual
members vary; skilled labor may move to countries where wages are higher, and investment
capital may flow to countries where returns are greater. Within EU: Germany has seen an influx
of workers from Poland and the Czech Republic, because these workers can earn much higher
wages in Germany than they can in their home countries.
 18. 4) Economic Union Economic union is a term applied to a trading bloc that has both a
common market between members, and a common trade policy towards non-members, although
members are free to pursue independent macro-economic policies. An economic union is
different from a customs union. The members of a customs union enjoy free movement of goods
but do not typically share currency or allow workers to move freely across borders. The
European Union (EU) is the best-known Economic union, and came into force on November 1st,
1993, following the signing of the Maastricht Treaty (formally called the Treaty on European
Union)
 19. 4) Economic Union Other example: The Eurasian Economic Union (EAEU) in central and
northern Asia and Eastern Europe. Established the union by treaty in 2014 and officially
implemented the agreement beginning on Jan. 1, 2015. Members are Russia, Armenia, Belarus,
Kazakhstan and Kyrgyzstan
 20. What are the Challenges to Economic Union?
 21. Challenges to Economic Union Differing levels of economic development between member
states Imbalanced distribution of benefits and costs of integration Political and economic
sovereignty concerns Incompatible regulations and standards Resistance to economic reforms
and austerity measures Limited fiscal and monetary integration Unequal distribution of natural
resources and economic power Interactions between regional integration and global economic
trends Lack of cohesive regional identity and cooperation among member states Tensions
between competing interests and priorities of member states.
 22. 5) Political Union Political union is the ultimate degree of integration among countries,
which no countries have yet achieved. It involves a central political apparatus that coordinates
the economic, social, and foreign policy of member states. The EU is headed toward at least
partial political union, and the United States and Malaysia are examples of even closer political
union.
 23. To Conclude:
 24. The Cost of Economic Integration 1. Diversion of trade. That is, trade can be diverted from
nonmembers to members, even if it is economically detrimental for the member state. 2. Erosion
of national sovereignty. Members of economic unions typically are required to adhere to rules on
trade, monetary policy, and fiscal policies established by an unelected external policymaking
body. 3. Employment shifts and reductions. Economic integration can cause companies to move
their production operations to areas within the economic union that have cheaper labor prices.
Conversely, employees may move to areas with better wages and employment opportunities
 25. Tutorial Instructions for Students: 1. Choose a Regional Organization: You will be given a
real-life example of a regional organization such as ASEAN, East African Community,
MERCOSUR, SAARC . 2. Analyze Level of Economic Integration: Your task is to analyze the
level of economic integration of the chosen organization. Consider the following factors: trade
barriers, trade policies, and trade agreements. 3. Assess Benefits and Challenges: Evaluate the
benefits and challenges of the integration level, taking into account the organization's goals and
objectives. 4. Class presentation: After the completion of the activity, each group will present
their findings and the class will provide feedback and suggestions. Note: This activity is
designed to help you understand the concept of regional economic integration and its impact on
the region. Make sure to do your research and analysis thoroughly to get the most out of this
exercise.
 26. Thank You

I. Concept of Regional Integration

Definition

Regional Integration refers to a process by which neighboring countries enter into agreements to
enhance economic cooperation, reduce trade barriers, and coordinate economic, social, and political
policies. The ultimate aim is to improve regional stability, economic growth, and development.

Objectives of Regional Integration

1. Economic growth and development

2. Trade expansion and market access
3. Economies of scale and competitiveness
4. Infrastructure development
5. Peace and political stability
6. Poverty reduction and social cohesion
Stages of Regional Integration

1. Preferential Trade Area (PTA) – Lower tariffs among member countries.

2. Free Trade Area (FTA) – No tariffs on intra-regional trade (e.g., SADC FTA).
3. Customs Union – Common external tariffs.
4. Common Market – Free movement of goods, services, labor, and capital.
5. Economic Union – Harmonized economic and fiscal policies.
6. Political Union – Unified governance structures.

II. Regional Integration in Africa

Key Regional Integration Frameworks in Africa

1. African Union (AU)

2. African Continental Free Trade Area (AfCFTA)
3. Regional Economic Communities (RECs):
o IGAD (Intergovernmental Authority on Development)
o COMESA (Common Market for Eastern and Southern Africa)
o EAC (East African Community)
o ECOWAS, SADC, etc.

III. Ethiopian Agricultural Trade

Overview of Ethiopian Agriculture

 Contribution to GDP: ~35–40%

 Employment: ~70% of the population
 Exports: Coffee, oilseeds, pulses, khat, fruits, vegetables, and livestock
 Subsistence-based, low productivity, and high dependence on rain-fed farming

Ethiopia’s Key Agricultural Export Markets

 Coffee: Europe, USA, Saudi Arabia

 Oilseeds & Pulses: India, China, Middle East
 Livestock and Meat: Middle East, Egypt

Role of Regional Integration in Ethiopian Agricultural Trade

1. Market Expansion

 AfCFTA and COMESA provide Ethiopia with access to large regional markets, enabling it to
diversify its export destinations beyond traditional global markets.
2. Trade Facilitation

 Regional initiatives help reduce non-tariff barriers, simplify customs procedures, and improve
infrastructure (roads, railways, and ports), essential for agricultural exports.

3. Value Chain Development

 Regional integration promotes regional value chains (e.g., agro-processing industries), which
can help Ethiopia shift from exporting raw produce to value-added products.

4. Cross-border Livestock Trade

 IGAD-led efforts support legal, regulated trade in live animals across borders (e.g., Ethiopia–
Djibouti, Ethiopia–Kenya), crucial for pastoralist communities.

5. Food Security and Climate Resilience

 Integration facilitates the exchange of technologies, climate-smart agriculture practices, and

joint investments in irrigation and food storage.

Constraints to Ethiopia’s Agricultural Trade within Regional Integration

1. Infrastructure bottlenecks – Poor rural roads and transport.

2. Logistics and trade facilitation – High transaction costs and bureaucratic hurdles.
3. Limited value addition – Raw exports dominate.
4. Non-tariff barriers – Sanitary and phytosanitary standards often restrict exports.
5. Policy coordination – Weak harmonization with regional policies.
6. Political instability and security issues – Affects regional trust and investment.

IV. Policy and Institutional Frameworks Supporting Ethiopia’s Regional Trade

 Ethiopia’s Memberships:
o COMESA
o IGAD
o AfCFTA (signed and ratified)
 National Programs:
o Agricultural Transformation Agency (ATA)
o Growth and Transformation Plans (GTP I & II)
o 10-Year Development Plan emphasizing export-led agriculture

V. Conclusion

Regional integration offers Ethiopia a strategic pathway to enhance its agricultural trade, boost rural
incomes, and achieve food and nutrition security. However, to fully benefit, the country must invest in
 infrastructure, trade logistics, and agro-industrial development while actively engaging in regional
policy harmonization and implementation of AfCFTA protocols.

International Trade by Dr. A. Royal Edward Williams Unit - III.pptx

 1. INTERNATIONAL TRADE: REGIONAL ECONOMIC INTEGRATION Dr. A. Royal
Edward Williams Associate Professor of Economics Sacred Heart College (A), Tirupattur
Unit - III
 2. REGIONAL ECONOMIC INTEGRATION • Regional economic integration refers to a
way where neighboring nations work to merge their thrifts by falling barriers to trade,
investment, and mobility of labor and capital within the region. The goal is for the
region to become more useful and roaring through alliance and mutual support.
Regional economic integration begins with free trade areas that remove tariffs and
quotas on member nations' trade.
 3. What is Economic Integration? • Economic integration is an arrangement among
nations that typically includes the reduction or elimination of trade barriers and the
coordination of monetary and fiscal policies. Economic integration aims to reduce costs
for both consumers and producers and to increase trade between the countries involved
in the agreement.
 4. Objectives of Regional Economic Integration The goals of regional
economic integration have been stated below:
 Promote trade
 Create larger markets
 Specialize in what you do best
 Attract more investment
 Foster economic growth
 Improve living standards
 Enhance stability
 5. Effects of Regional Economic Integration

 The effects of regional economic integration have been stated below:

 Increased trade and investment within the region
 Specialization and comparative advantage
 Economies of scale
 Competition and innovation
 Growth and development
 Reduced poverty
 Political stability
 Global competitiveness Job creation Access to larger markets
 6. Advantages of Regional Economic Integration The advantages of
regional economic integration have been stated below: Grown trade
Economies of scale Specialization and efficiency Increased investment
 Technology transfer Political stability Reduced poverty Global
competitiveness
 7. Disadvantages of Regional Economic Integration
o The drawbacks of regional economic integration have been
stated below.
o Loss of sovereignty
o Increased competition
o Increased economic contrasts.
o Risk of conflicts
o Cost of coordination
o Trade diversion
o Raised barriers to non-members
o Policy imposition
o Slower decision-making
o Spread of economic issues
 8. FREE TRADE AREA • A free trade area (FTA) refers to a specific region wherein a
group of countries signs a trade agreement that seals the economic cooperation among
them. • The FTA’s main goals are to bring down barriers in trading, specifically tariffs
and import quotas, and encourage the free trade of goods and services among its
member countries.
 9. The key terms of free trade agreements and free trade areas include:  Import
goods are products that were manufactured from a foreign land and are brought into
another country and consumed by its domestic residents.  Export goods are the
opposite of import goods – a manufacturer located in one country sells its products to
buyers in a foreign country.
 10. FREE TRADE AREA • A free trade area is concerned with removing tariffs, and
regulations that are applied to member countries who trade with each other. Members
establish a common set of policies that regulate trade terms, tariffs, and quotas. •
Another thing about a free trade area is that imports from outside the area do not
confer the benefit of the free trade agreement. For example, two countries that are
members of a free trade area, such as the U.S. and Mexico, refrain from imposing tariffs
on each other. However, if a U.S. company imports bananas from South America, they
would be subject to tariffs.
 11. Advantages of a Free Trade Area A free trade area offers several advantages,
including: • 1. Increased efficiency • 2. Specialization of countries • 3. No monopoly • 4.
Lowered prices • 5. Increased variety
 12. Disadvantages of Free Trade Area Despite all the benefits brought about by a
free trade area, there are also some corresponding disadvantages, including: • 1.
Threat to intellectual property • 2. Unhealthy working conditions • 3. Less tax revenue
 13. Customs Union • A customs union is an agreement between two or more
neighboring countries to remove trade barriers, reduce or abolish customs duty, and
eliminate quotas. Such unions were defined by the General Agreement on Tariffs and
Trade (GATT) and are the third stage of economic integration. • Unlike in free trade
agreements, a common external tariff is imposed on non- members of the union. When
countries outside the union trade with countries in the customs union, they need to
make a single payment (duty fee) for the goods that have crossed the border. Once
inside the union, they can trade freely with no added tariffs.
 14. Purpose of Customs Unions • The purpose of a customs union is to make it easier
for member countries to trade freely with each other. The union reduces the
 administrative and financial burden of barrier trading and fosters economic cooperation
among nations. • The member countries are not given the freedom to form their own
trade deals. The countries in the customs union usually restructure their domestic
economy and economic policies in order to maximize their gain from membership in the
union. The European Union is the largest customs union in the world in terms of the
economic output of its members. • A customs union generates trade creation and
diversion that helps with economic integration. Below are the advantages and
disadvantages of customs unions.
 15. Advantages of Custom Unions Customs unions offer the following benefits: 1.
Increase in trade flows and economic integration 2. Trade creation and trade diversion
3. Reduces trade deflection
 16. Disadvantages of Customs Unions Along with the advantages, customs unions
also come with a few drawbacks: 1. Loss of economic sovereignty 2. Distribution of tariff
revenues 3. Complexity of setting the tariff rate
 17. European Economic Union • The European Union (EU) is a political and economic
alliance of 27 countries. It promotes democratic values in its member nations and is one
of the world's most powerful trade blocs. Nineteen of the countries share the euro as
their official currency. • The EU grew out of a desire to strengthen economic and
political cooperation throughout the continent of Europe in the wake of World War II. •
Its Gross Domestic Product (GDP) total sum of 14.45 trillion euros in 2021. That's about
US $15.49 trillion. The GDP of the U.S. for the same period was about US $23 trillion
 18. History of the European Union • The EU traces its roots to the European Coal and
Steel Community, which was founded in 1950 and had just six members: Belgium,
France, Germany, Italy, Luxembourg, and the Netherlands. It became the European
Economic Community in 1957 under the Treaty of Rome and subsequently was
renamed the European Community (EC) • This served to deepen the integration of the
member nations' foreign, security, and internal affairs policies. The EU established a
common market the same year to promote the free movement of goods, services,
people, and capital across its internal borders. • The EC initially focused on a common
agricultural policy and the elimination of customs barriers. Denmark, Ireland, and the
U.K. joined in 1973 in the first wave of expansion. Direct elections to the European
Parliament began in 1979.
 19. Creation of a Common Market • In 1986, the Single European Act embarked on a
six-year plan to create a common European market by harmonizing national
regulations. • The Maastricht treaty took effect in 1993, replacing the EC with the EU.
The euro debuted as a common single currency for participating EU members on
January 1, 1999.6 Denmark and the U.K. negotiated "opt-out" provisions that permitted
countries to retain their own currencies if they chose. • Several newer members of the
EU have also either not yet met the criteria for adopting the euro or chosen to opt out.
 20. What is a Common Market? • A common market is a formal agreement where a
group is formed amongst several countries that adopt a common external tariff . In a
common market, countries also allow free trade and free movement of labor and capital
among the members of the group. The trade arrangement is aimed at providing
improved economic benefits to all the members of the common market. • The most
famous example of a common market is the European Common Market, which aims to
provide the free movement of goods, capital, services, and labor within the European
Union.
 21. Target •A Common Market is an agreement between two or more countries
removing all trade barriers between themselves, establishing common tariff and non-
tariff barriers for importers, and also allowing for the free movement of labour, capital
and services between themselves.
 22. Conditions Required to be Defined as a Common Market To be defined as a
common market, the following conditions must be satisfied: 1. Tariffs, quotas, and all
barriers regarding importing and exporting goods and services among members of the
common market are eliminated. 2. Common trade restrictions such as tariffs on
countries outside the group are adopted by all members. 3. Production factors such as
labor and capital are able to move freely without restriction among member countries. If
one of the conditions is not satisfied, the resulting market is not a common market. For
example, if production factors such as labor and capital are not able to move freely
without restriction among member countries, then the arrangement would instead be
defined as a customs union.
 23. Benefits of a Common Market • Free movement of people, goods, services, and
capital • Efficiency in production
 24. Costs of a Common Market • Less competitive countries may suffer • Trade
diversion
 25. TRADE CREATION AND DIVERSION

 In the realm of global economics, trade creation and diversion are vital
aspects which affect how countries interact under trade agreements. Trade
creation takes place when the reduction in it happens in a group of nations
which leads to a major shift from higher-cost domestic production to lower-
cost imports from partner nation, which increases the economic efficiency
and welfare of a place.
 26. Trade Creation and Diversion Effects •
 Trade creation is one of the key positive outcomes of forming a trade
agreement between countries. When countries lower or eliminate tariffs and
other trade barriers, trade creation leads to a more efficient allocation of
resources and increased economic activity. • This phenomenon occurs as a
result of cheaper imports from partner countries replacing more expensive
domestic production. Understanding the detailed effects of trade creation
can help policymakers and economists gauge the true benefits of trade
agreements.
 27. Increased Efficiency and Comparative Advantage • Efficiency Gains:
When trade barriers are reduced, countries can specialize in producing goods
where they have a comparative advantage. This specialization means that
countries can produce goods more efficiently and at a lower cost than if each
country tried to produce everything domestically. • Resource Allocation:
Resources (labour, capital, land) are redirected to industries where the
 country is most efficient, leading to better overall economic performance and
productivity.
 28. Consumer Benefits • Lower Prices: With tariffs removed or reduced,
imported goods become cheaper. Consumers can then access a wider
variety of goods at lower prices, increasing their purchasing power and
welfare. • Increased Variety: Trade agreements often result in a greater
variety of goods available in the market, as consumers can access products
from multiple countries, enhancing their choice and satisfaction.
 29. Effects of Trade Creation Increased Efficiency and Comparative
Advantage  Efficiency Gains  Resource Allocation Consumer Benefits 
Lower Prices  Increased Variety Impact on Domestic Producers 
Competitiveness  Market Expansion Economic Growth and Job Creation 
Growth Stimulation  Job Creation Improved International Relations 
Political Stability  Regional Integration
 30. Trade Diversion Effects Less Efficient Resource Allocation o
Suboptimal Production Choices o Distorted Comparative Advantage
Consumer Impact o Higher Prices o Reduced Product Variety Impact on Non-
Member Countries o Trade Reduction o Economic Strain Geopolitical and
Strategic Considerations o Strained Relations o Retaliatory Measures
Economic Welfare Implications o Mixed Economic Outcomes o Policymaking
Challenges