Economic Integration

Question 1

Regional Trade Agreements

Answer 1

Positives:

1. Easier to implement
2. Domestic lobbies for protectionism are easier to resist at regional level
3. Open Regionalism: External liberalization by trade blocks that is the reduction in barriers on imports from non-member countries that is undertaken when member countries liberalize the trade among themselves.

Negatives:

1. Trade diversion
2. Loss in revenue

Question 2

PTA

Answer 2

Preferential trade agreements:

Lower customs duty on the products originating from the member countries.

Level of integration: Shallow

Question 3

FTA

Answer 3

Free Trade Agreements

It is a special case of PTA where all tariff and non-tariff barriers are abolished

Free access is allowed to the products of member countries

Example NAFTA (among Mexico, US and Canada)

Level of integration: Shallow

Question 4

Custom Union

Answer 4

A Customs Union moves beyond a free trade area by
establishing a common external tariff on all trade between members and non-members

Customs Unions typically contain mechanisms to redistribute tariff revenue among members

Example Mercosur

Level of integration: Shallow

Question 5

Common Market

Answer 5

Free flow labour, capital and output (goods/services) among the members

Example, SICA (in Central America)

Level of integration: Deep

Question 6

Economic Unoin

Answer 6

Members share a common currency and macro-economic policies

Example, European Union.

Level of integration: Deep

Question 7

CECA vs CEPA

Answer 7

Differences:
Comprehensive Economic Cooperation Agreement
Comprehensive Economic Partnership Agreement

CECA: Reduce the tariffs (custom/import duties).
CEPA:Reduce tariffs + cooperation in trade in services, investment. = wider scope.

Countries sign CECA first and then gradually move towards CEPA like agreement.

Example, India has CECA with

1. Malaysia
2. Singapore
3. ASEAN (under negotiation)

Example, India has CEPA with

1. Japan
2. South Korea
3. Sri Lanka (under negotiation)