Regional Economic

Blocks
For MBA VI/VIII Trimester/MBS II Semester
Pokhara University/Tribhuvan University
BEA
 Regional Economic Integration
• Economic integration is a process of removing progressively the
discriminations which affect the flow of goods and services, and the
movement of factors of production at borders.
• The meaningful integration through increased participation in the world
economy, generates a lot of benefits like taking the advantage of trade
without barriers, getting special preferences, allocating resources more
efficiently, achieving higher long-term growth, and exposure to new ideas,
technologies, and products and many more.
• The main concern of economic integration, particularly among the developing
countries, is to achieve an acceleration of economic growth, expansion of social
welfare in the partner countries or at least to minimize the cost in terms of the
use of the scarce resources for growth and social welfare.
• There are many regional and sub regional trading blocks trying to attain goal of
regional trade expansion through economic liberalization and to attain the
economic growth and social objectives like eliminating poverty, generating
more employment opportunity and improving quality of life of the people in the
region.
 Regional Trading Blocks
• RTB are the intergovernmental organizations established for greater socio-
economic benefits for member countries through the removal of trade
barriers and expansion of cross border trade and investment.
• The philosophy is: ‘coming together and developing together’
• The levels of regional trading blocks goes like PTA-FTA-CU-CM-
Unions (economic or monetary or both)-Economic Integration
• Examples: ASEAN, APEC, NAFTA, SAFTA, BIMSTEC, BRICs, EU
 Nepal in the regional initiatives

• Founder member of SAARC, established in 1985.

• Member of SAPTA (1993) and SAFTA (2006).
• Joined BIMSTEC (established in 1997) in 2004.
• SAARC includes 16 areas of cooperation including economic and trade.
• BIMSTEC has 13 areas of cooperation and six of them has been termed as
the priority areas of cooperation.
 SAFTA and Nepal
• Established in 2006.
• Covers about $4.088 trillion GDP and 24% of world’s population (2022)
• Meant as stimulus to promote economic resilience in the region.
• Mainly SAFTA is concerned to promote and enhance trade and economic
cooperation in the SAARC region through elimination of trade barriers,
promoting conditions of free competition, resolving trade disputes.
• Establishing a framework for regional cooperation for mutual benefits.
 SAFTA: Main principles
• Trade Liberalization and facilitations
• Rule-based functions
• Reciprocity and mutuality of advantage for member countries
• Preference and technical assistance to LDCs
• Safeguards measures
• Dispute settlement
• Compatible with other agreements like WTO
• Tariff Reduction: For Non LDCs:
• Reduction to 20% within two years of agreement (joining the SAFTA)
• 0-5% by ending 2012
• For LDCs:
• Reductions to 30% within three years of agreement (joining the SAFTA)
• 0-5% by 2016
 SAFTA..
• Nepal can explore the market.
• Can reduce the over dependency on India.
• Can focus the joint ventures projects and initiatives in the region.
• Can be benefitted from special treatment given to LDCs.
• Increased benefits from economies of scale and comparative advantage
products.
 SAFTA: issues
• Poverty is the major constraints.
• Policy safeguards to strengthen domestic industries
• Competitiveness
• Failure to promote economic diplomacy
• Problems in resource mobilization, manufacturing base, HRD, development and
advancement in technology, promotions
• Enhancing regulatory mechanism
(Has not attained the anticipatory progress).
 Growth Potential in South Asian Region
• Situated in the world’s fastest growing region, Nepal’s potential to expand trade in
goods and services is promising.
• If the various existing trade barriers could be reduced through introduction of
effective policies, Nepal has the potential to raise its exports to South Asian
countries four-fold (World Bank, 2018).
• Intraregional trade in South Asia remains one of the lowest in the world and
accounts for about five per cent of the region’s total trade, compared with 50 per
cent in East Asia and the Pacific. Nepal mostly exports to South Asia and has a
trade deficit of about $12 billion in 2020/21.
• According to the report of world bank, intraregional trade has the potential
to grow from its current value of $23 billion to $67 billion if these barriers
are reduced.
• Four critical barriers to regional trade:
• Tariffs and para tariffs,
• Real and perceived non-tariff barriers,
• Connectivity costs and
• Seriousness.
 BIMSTEC and Nepal
• Established in 1997, Nepal joined in 2004
• Works as a bridge between SAARC and ASEAN
• It has wide area of coverage: Trade in service, Investment and Tourism
• It has two policy measures for regulation of tariffs: Fast track and Normal
Track
• It has 13 priority sectors….
• Nepal is leading Poverty Alleviation
• ADB is the co-operating partner of BIMSTEC
• Covers about $3.8 trillion economy and 22% of world population (GDP)
• Objectives:
• Creating favorable environment for economic development
• Key areas are: trade, investment, industry, technology, manpower
development, tourism, agriculture, energy, infrastructure and transport
 Focuses on socio-economic development through equality and
partnership approach.
• Collaborative approach to fight with poverty and unemployment.
• Focuses joint efforts for national development of member countries.
• The basic premise is that the member countries should work seriously to
cooperate with each others for social and economic progress.
• Has not attained the anticipatory progress.
 19th Ministerial Meeting
• The theme of the 5th Summit was 'BIMSTEC – Towards a Resilient
Region, Prosperous Economies, Healthy Peoples’
• The Nineteenth Bay of Bengal Initiative for Multi-Sectoral Technical and
Economic Cooperation (BIMSTEC) Ministerial Meeting, chaired by the
Deputy Prime Minister and Minister of Foreign Affairs of Thailand, H.E.
Don Pramudwinai, was convened virtually from Bangkok, Thailand, on 09
March 2023.
• This was the first meeting of the ministers of BIMSTEC Member States
dealing with the subject of foreign relations, held since the 18th Meeting
held in Colombo on 29 March last year.
• During the Meeting, the Ministers considered and approved several key
documents emanating from decisions of BIMSTEC Summits, including
the Rules of Procedure for Core BIMSTEC Mechanisms; BIMSTEC
Sectoral Mechanisms; and BIMSTEC’s External Relations. The Rules of
Procedure will be submitted to the Sixth Summit for adoption.
• Nepal’s issues in the meeting:
• -Climate Change
• -Energy Crisis
• -Food crisis
• -Global Impact of pandemic like Covid
 ASEAN
• Association of South East Asian Nations formed in 1967.
• It has 10 members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, Vietnam.
• Comprises of about $3.5 trillion of worlds GDP and estimated 634 million
inhabitants (2022)
• Has broader objectives:
• expanding economic, social, cultural, administrative and technical co-
operations.
• To accelerate economic progress and stability in the region.
• To strengthen regional peace and security by ensuring security in the
region.
• AFTA was established in 1992.
• Has positive impact on intra ASEAN trade and investment.
• Has not attained the anticipatory progress.
 NAFTA
• North American Free Trade Agreement.
• Established in 1991 as tri-lateral trading block in the region.
• Member countries are: USA, Canada and Mexico.
• NAFTA occupies about 24% of worlds’ GDP.
• Focuses on eliminating all tariffs (almost 100%) on trade.
• Easy access of cross boarder flow of goods and services.

• Promotes FDI.

• Works on the protection of intellectual property rights.

• Promotes National Environment Standards.

 APEC
• APEC was founded in 1989.
• 21 members mostly of coastline of pacific ocean.
• Center of economic dynamics.
• Criteria is that member should be separate economies not necessarily an state.
• Head office is in Singapore.
• Most of the trade and investment barriers have been removed by member
countries.
• Premier forum for facilitating economic growth, cooperation, trade and
investment in the Asia Pacific region.
• Major economies such as USA, China, Japan, Russia, Australia are the
members of APEC.
• Holds about 60% world GDP and 39% world population.
• The member countries have doubled their GDP from 1990 to 2015.
• Growth in trade has increased to 7 times.
 Nepal’s Assessment
• SAFTA still maintains a long sensitive list that is hindering the process of
freeing trade. The current level of intra-SAARC trade is only about 5-7%.
• SAFTA trade is affected due to presence of numerous NTBs, lack of
connectivity, harmonization of standards, and customs harmonization.
• SATIS is now under negotiation based on request and offer list. There is
slow progress under SATIS as well.
• SAARC members have signed the agreement on Avoidance of Double
Taxation, Establishing SAARC Arbitration Council, Agreement on
Customs Cooperation, Harmonization of Standards but the
implementation process is slow.
• The members still to conclude the SAARC Agreement on Promotion and
Protection of Investment.
• SRMTS completed in 2008 but the cross-border agreement is not yet
signed.
• BIMSTEC FTA is still to be made effective although the agreement was
signed in 2004.
• The negotiation on trade in goods is complete, however, the trade in
services and investment is still to be negotiated.
• There is lackluster in making the headway progress under BIMSTEC
FTA.
• BTILS was completed in 2007 but no progress is made towards
developing connectivity among member countries.
• SASEC has limited its existence in study and research but no substantial
things happening on the ground.
• ADB is providing support in organizing meetings and study for enhancement
of sub-regional agreement. Limited number of regional projects are being
implemented with ADB assistance.
• No permanent secretariat exist for SASEC mechanism.
• A sub-regional Motor Vehicle Agreement (MVA) was signed between
SASEC country on 15 June 2015. Protocol is being negotiated.
 Recent trends in global business
• Growing emerging markets
• Digital Revolution (about 25 billion hard wares are connected world wide
today, growth of data analytics, online trading and payments).
• Shifting towards isolationism
• BPO and KPO
• m-commerce (subset of e-commerce)