GLOBAL ECONOMIC

INTEGRATION

LOGO
Economic Integration
 Economic integration refers to trade unification
between different states by the partial or full
abolishing of customs tariffs on trade taking place
within the borders of each state.
 The level of integration defines the nature and
degree of economic links among countries
 Economic Integration

 Global: trade liberalization by GATT

or WTO
 Regional: preferential treatment of

member countries in the group

 Bilateral: preferential treatment

between two countries

 Regional and bilateral agreements are against the
MFN clause (normal trading relations), but allowed
under WTO.
Levels of economic integration
Free Trade Area
 The free trade area is the least restrictive and loosest
form of economic integration among countries
 In a free trade area, many barriers to trade among
member countries are removed
 no internal tariffs among members, but each country
imposes its own external tariffs to the third country
 Eg: NAFTA, AFTA, EFTA
Custom Union
 Members of a customs union dismantle barriers to trade
in goods and services among themselves
 A customs union establishes a common trade policy with
respect to non members
no internal tariffs and common external
tariffs
Eg: Mercosur (Southern Common
Market), CACM (Central American
Common Market),CARICOM (Caribbean
Community and Common Market)
Common Market
 A common market has no barriers to trade among
members and has a common external trade policy
 Factors of production are mobile among members
 Members of a common market must be prepared to
cooperate closely in monetary, fiscal, and employment
policies
Eg: EU (European Union)
Economic Union
 The creation of a true economic union requires
integration of economic policies in addition to the free
movement of goods, services, and factors of production
 Under this union, members would harmonize monetary
policies, taxation, and government spending and a
common currency would be used by all members
Eg: EMU (Economic and Monetary
Union)
Political Union
 Central political apparatus coordinates the
economic, social and foreign policy of the member
states.
 Eg: EU countries, US
  Global economic integration generally speeds up
Global Economic Integration
when trade restrictions have been lifted between
nations, allowing a freedom of trading opportunity
that may not have been previously there.
 Principle of comparative advantage which refers
to a situation whereby each nation shifts its
resources to its more competitive and productive
industries.
 GATT(General Agreement on Trade
and Tariff)
 a voluntary agreement to give tariff concessions and
reduce restrictions on imports among the trading
countries of the world
 Established in 1947
 135 countries member of GATT
 Pakistan one of the founder member
 Labelled as ‘Rich Countries Club’
Principles of GATT

 World Trade should be carried on non-discriminatory

basis.

 A country should protect its domestic industry by

means of custom tariffs and not through Trade
barriers.
 Contd

 The trading members by mutual consultations will

look to promote the trading interests of each
country.

 The GATT provides a framework within which the

negotiations can be held to reduce tariffs and
other trade barriers.
Problems
 failed to liberalize trade in agricultural products to any
significant degree.
 has experienced partial success in regulating trade
practices adopted by member countries
 has condoned managed trade for textiles, largely
because of pressure from the US, and automobiles
 no enforcement power to discipline parties that violate
the rules.
WTO (World Trade Organization)

 Established in 1995
 151 members
 Held its last round of international trade negotiation at
Doha in July 2006
Objective of WTO
 To ensure the conduct the international trade on non-
discrimination basis.
 To raise standard of living and income, ensuring full
employment
 To expend production and trade
 Protecting environment
 Ensuring better share for developing countries.
 Function of WTO
 Administering World Trade Organization (WTO) trade
agreement
 Forum the trade negotiation
 Handling trade disputes
 Monitoring national trade policy
 Technical assistance and training for developing countries
 Co-operation with other international organization (like
help from World Bank and IMF)
NAFTA
SAARC
Factors driving Economic
integration
 improvements in the technology
 Taste for the benefits of integration
 Policies
Dimensions of Economic
integration
Human Migration
Trade in goods & services
 reduction in shipping & transportation costs
 reduction in artificial barriers to international
commerce

 Drop in communication costs

International Capital Movements
and Trade in Financial Services
 Capital markets in developing countries too are
becoming more closely integrated with markets in
the rest of the world
The Particular Communication

 Societies that cut themselves off from

commerce with the rest of humanity do tend to
stagnate. However, the volume of international
commerce is probably not the critical
determinant of the spread of useful innovations
—provided that channels of communication
remain reasonably well open.
 Thankyou !!!