1.

Regeional Economic Integration

Regional economic integration is the agreements among countries in a geographic region to
reduce/remove tariff & non-tariff barriers to the free flow of goods, services & factors of
production with each other.

The pros--
• By connecting economies and making them gradually more dependent on each other creates
motivation for political cooperation and decreases the possibility for violent conflict
• By classifying economies, countries can improve their political weight in the world
• Economic integration entails that members give up some level of control over monetary policy,
fiscal/tax policy and trade policy

The cons--
• Advantages of regional integration have been oversold and the costs have often been ignored
• The high-cost domestic producers are replaced by low-cost producers within a region
• The low-cost external suppliers are replaced by higher-cost suppliers within the region

The Framework for Strengthening Regional Economic Integration (Ref. APEC)

• first, it promotes and supports further liberalisation of trade in goods and services
and investment flows in a manner that supports the multilateral trading system. In
this way it will also lay the foundation for a possible Free Trade Area.

• second, it places a greater focus on behind-the-border reform and a business

environment conducive to maximising the benefits obtainable from cross-border
liberalisation;

• third, the framework seeks to strengthen and deepen regional financial markets to
make it easier to mobilise financial resources; and

• fourth, this effort to strengthen regional economic integration will include initiatives
in specific sectors, such as transport and communications.

Proposed Actions:
1.Supporting the multilateral trading system

2. Exploring a Free Trade Area

3. Supporting regional economic Integration through RTAs/FTAs

4. Facilitating business activity through an expanded trade and investment agenda

5. Supporting structural reform

6. Strengthening financial markets

7. Sectoral issues and private sector engagement

8. Strategic approach to expanding capacity building

2.Regeional Economic Integration All over the world

Every continental region has at least one major integration
movement: Europe has the European Community (EC); Asia has the
Association of South East Asian Nations (ASEAN), and the Asia-
Pacific Economic Cooperation (APEC); North America has the North
American Free Trade Agreement (NAFTA); Latin America has the
Latin American Integration Association (LAIA), and the Andean
Common Market (ANCOM); the Caribbean has the Caribbean
Community and Common Market or simply the Caribbean
Community (CARICOM); the Middle East has the Council of Arab
Economic Unity (CAEU); Central America has the Central American
Common Market (CACM); and finally Africa has three major ones:
the Southern African Development Community (SADC); the
Economic Community of West African States (ECOWAS); and the
Common Market for Eastern and Southern Africa (COMESA).
Regional Economic Integration In Europe

European Union (EU), the devastation wrought by two World Wars and the perceived need to counter
the economic strength of both the US and the former USSR were the two major political factors behind
its formation.

Before discussing the EU it is appropriate to introduce another European trade bloc, EFTA.
EFTA was a loosely constituted free trade area consisting of those Western European countries that did
not sign the Treaty of Rome (1957) which formally established the European Economic Community
(EEC). The EEC was the forerunner of the EC, now known as the EU. EFTA consisted of six countries -
Austria , Finland , Iceland , Norway , Sweden and Switzerland . EFTA joined with the EC on 2 January
1994 to form the European Economic Area (EEA). EFTA is now defunct as Austria , Finland and
Sweden became members of the EU.

Of significance was the establishment of the Euro as the single currency in 12 of the now 25 member
countries of the EU on 1 January 2002 with the circulation of Euro notes and coins and the removal of
previously held currencies.

To adopt Euro as a common currency, a country within Europe must have to fulfill some criteria:

a high degree of price stability, sustainable government finances (in terms of both public deficit and
public debt levels), a stable exchange rate, and convergence in long term interest rates.
NAFTA
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments
of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The
agreement came into force on January 1, 1994. It superseded the Canada-United States Free Trade
Agreement between the U.S. and Canada. In terms of combined purchasing power parity GDP of its
members, as of 2007the trade bloc is the largest in the world and second largest by nominal GDP
comparison.

The North American Free Trade Agreement (NAFTA) has two supplements, the North American
Agreement on Environmental Cooperation(NAAEC) and the North American Agreement on Labor
Cooperation (NAALC).

COMESA

The Common Market for Eastern and Southern Africa (COMESA) was established on
8th December 1994 to replace the Preferential Trade Area (PTA) which had been in
existence since December 1981. As of 1997, COMESA had 22 member states,
namely: Angola, Burundi, Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Madagascar,
Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, Sudan,
Swaziland, Tanzania, Uganda, Zaire, Zambia, and Zimbabwe (see also Table 1, for
basic COMESA indicators).

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, namely Indonesia, Malaysia,
Philippines, Singapore and Thailand.

Brunei Darussalam then joined on 8 January 1984, 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.

APEC

Founded in 1990 at the suggestion of Australia.

APEC has 21 members - referred to as "Member Economies" - which account for approximately 40.5%1 of the world's
population, approximately 54.2%1 of world GDP and about 43.7%2 of world trade.
APEC's 21 Member Economies are Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong
Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The
Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America;
Viet Nam.

3.Advantages & Disadvantages of Economic Integration:

Advantages Of Economic Integration
Trade Creation: Member countries have (a) wider selection of goods and services not previously
available; (b) acquire goods and services at a lower cost after trade barriers due to lowered tariffs
or removal of tariffs (c) encourage more trade between member countries the balance of money
spend from cheaper goods and services, can be used to buy more products and services
Greater Consensus: Unlike WTO with hugh membership (147 countries), easier to gain consensus
amongst small memberships in regional integration
Political Cooperation: A group of nation can have significantly greater political influence than each
nation would have individually. This integration is an essential strategy to address the effects of
conflicts and political instability that may affect the region. Useful tool to handle the social and
economic challenges associated with globalization
Employment Opportunities: As economic integration encourage trade liberation and lead to market
expansion, more investment into the country and greater diffusion of technology, it create more
employment opportunities for people to move from one country to another to find jobs or to earn
higher pay. For example, industries requiring mostly unskilled labor tends to shift production to
low wage countries within a regional cooperation

Regional collaboration and integration will also help overcome the limitations and vulnerabilities inherent in the

relatively small size of individual economies.

Disadvantages Of Economic Integration

Creation Of Trading Blocs: It can also increase trade barriers against non-member countries.

Trade Diversion: Because of trade barriers, trade is diverted from a non-member country to a
member country despite the inefficiency in cost. For example, a country has to stop trading with a
 low cost manufacture in a non-member country and trade with a manufacturer in a member
country which has a higher cost.

National Sovereignty: Requires member countries to give up some degree of control over key
policies like trade, monetary and fiscal policies. The higher the level of integration, the greater the
degree of controls that needs to be given up particularly in the case of a political union economic
integration which requires nations to give up a high degree of sovereignty.

4.Bangladesh perspective
SAFTA
The South Asian Association for Regional Cooperation (SAARC) is an organization of South
Asian nations, founded in 1985 and dedicated to economic, technological, social, and cultural
development emphasizing collective self-reliance. Its seven founding members
areBangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Afghanistan joined the
organization in 2007. Meetings of heads of state are usually scheduled annually; meetings of foreign
secretaries, twice annually. Headquarters are in Kathmandu, Nepal.

The SAFTA agreement was introduced with a view of levying zero customs duty for trading any
product by the year 2012. The SAFTA agreement was implemented only after confirmation of
compliance by the governments of the seven member nations. If the SAFTA agreement is
religiously and judiciously followed, the agreement is likely to bring about economic stability in
the member nations. The agreement may also facilitate healthy trade as well as investment
relationship across borders thereby bringing about many structural reforms in the economy of
the seven countries. However, there are certain obstacles, which hinders trade across South
Asian countries as a result of, which trade across borders of the South Asian countries account
for only 5% of the total trade. The reason can be attributed to two prominent factors. They are
political reasons and too much protectionism.

Political causes: During the late 1940s, majority of the South Asian nations were part of British
India, which was a common political entity. During that period, there was considerable amount
of trade between the different South Asian countries. However, in the year 1947, when India
and Pakistan became independent, Pakistan imported most of its essential commodities from
India. Pakistan also exported bulk of its export products to India (approximately 2/3rd of the total
export commodities). Due to conflicts in different spheres, trade activities declined sharply
between India and Pakistan.

Protectionism: Most of the South Asian countries, laid stress on import activities instead of
promoting export activities. This tendency lowered productivity in different sectors of the
economy. However, things are changing for the better. The different economies are gearing up
to extend cooperation among themselves. This is evident by the fact that both Pakistan as well
as India lowered trade tariffs in the year 2005.

BIMSTEC: Towards A Bay of Bengal Economic Community (BoBEC)

Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Cooperation (BIMST-EC) is a sub-

regional grouping combining some geographically contiguous South Asian and ASEAN
countries in the Bay of Bengal.

It recommends that the grouping should set its goal to form a Bay of Bengal Economic
Community by the year 2020. To facilitate the flow of intra-regional investments, there is
need for pursuing investment liberalization on a negative list basis and also incorporate
provisions of double taxation avoidance in the Framework Agreement. A BIMSTEC Fund for
Regional Projects should also be established for further strengthening of business links.

There could also be fruitful cooperation between the BIMSTEC countries in technology
management and capability building, in dealing with the digital divide, among other areas.
BIMST-EC needs an institutional structure to follow up the decisions taken by the Ministerial
Conferences and the Summits and for preparing the agenda of different meetings. The
energy demand-supply sectors in the countries of Bangladesh, India, Myanmar, Sri Lanka,
Thailand, Nepal and Bhutan offer a potential for regional resource cooperation, which could
go beyond export-import trade relations and link the region in a Bay of Bengal Energy
Community and thus contribute to the process of regional integration. Cooperation should
also be promoted in tourism, fisheries, auto, SMEs and other sectors. To facilitate the
exchange of development experiences, a BIMSTEC Network of Policy Think-Tanks of the
region could be created.

5.Opportunities & Challenges:

Opportunities
SAARC members now agree that regional economic integration is more about
finding an engine of growth rather than just promoting trade. Economists now
believe that regional economic integration could generate billions of dollars in new
income, employment and trade. Regional economic cooperation and integration will
also make the member countries, especially the smaller ones, more attractive
destinations for third-country investments by removing the constraints imposed by
a small domestic market.

Economic integration of South Asia could also help the region fight against
poverty. By removing trade barriers, SAFTA will lead to an estimated tripling of the
intra-regional trade. This will make South Asia's internal trade more respectable
compared to its existing marginal four to five percent share in similar trading by
making it possible to trade directly rather than through third countries. It will also
lead to cost savings for the region.
SAFTA aims to increase economic integration and growth through the phased
elimination of regional tariff barriers by 2015.

The Federation of Indian Chambers of Commerce and Industry estimates that annual
trade among the seven countries would jump from $5.0 billion to $14 billion once
restrictions are removed. SAARC members have a 450 million strong middle-class,
bigger than the combined population of the USA and Canada or of the EU.

Issues Holding Up Implementation of SAFTA

The implementation of SAFTA is held up due to failure of the member countries to

resolve three outstanding issues –

1)sensitive items list,

2)rules of origin

3)revenue compensation mechanism for LDCs within SAARC.

Hindrance in implementation of SAFTA indicates that conflict between India and

Pakistan is not the only hurdle. As SAARC countries tend to compete more than they
complement each other, problems are bound to come up from other members. Some
of the member countries still have the fear that they might be swamped by Indian
imports.

Challenges for Bangladesh

1)Bangladesh and Indian businessmen are facing visa problems, which will be one of the major
barriers to trade under Safta.

2)Unless non-tariff barriers are removed, the tariff reduction will bring little benefits.

3)Bangladeshi products have a huge demand in Indian market. But due to non-tariff barriers such
export potential is yet to be tapped

4)Bangladesh being a major importer of Indian products will incur a huge amount of duty losses
from SAFTA,
5)SAFTA shall be deemed to be beneficial to the Bangladeshis only if Bangladesh gains a bigger
access to the South Asian markets, especially to bordering Indian states.