Reducing barriers to trade has the tendency to cut costs associated with economic activities. Not having to pay taxes, tariffs, fees, and other expenses can be beneficial for trading partners. This causes the volume of trade to increase, as trading partners actively seek out deals in regions where some degree of economic integration has been achieved. For nations outside integration agreements, however, barriers to trade can be created as they may not be able to compete with preferred trading partners.
When economies are strong, economic integration has benefits for all members, and every member of an agreement, union, or treaty can experience economic growth. The same holds true of economic downturns. When individual members of a trade agreement start to be dragged down, their economic problems can spread. This was notably seen in the European Union during the economic crises of the early sass, when bad debt in nations like Greece and Portugal caused problems across the ELI, including in nations with relatively strong economies, like Germany.
As regions and nations embark on economic integration programs, they weigh the costs and benefits of integration carefully to see if it is the right choice for their needs. Some nations may prefer to avoid the risks, even though barriers to read may pose a problem. Others may be willing to take on the risks in exchange for increased trade and foreign exchange. Growing nations are often particularly eager to engage in economic integration, as trade with foreign nations can contribute to rapid economic growth. They may use incentive programs to attract foreign and investment.
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Some countries create business opportunities by integrating their economies in order avoid unnecessary competition among the countries. Economic integration results in grouping up of smaller economies into a larger and single economy and market. It minimizes the Economic consequences of politically independent countries and political boundaries. Economic integration among the countries takes several forms. It covers different kinds of arrangements among countries by which two or more countries link their economies closer either in part or total.
The different kinds of economic integration are Free Trade Area, customs union, common market and economic union. Economic integration among the world economies varies in degree 1 What is Economic Integration? Economic integration is the unification of economic policies between different states wrought the partial or tulle abolition to trait and non-trait restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states.
The trade stimulation effects intended by means of economic integration where the best option is free trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been Hough of as the "sec nod best" option for global trade where barriers to full free trade exist. Economic integration, process in which two or more states in a broadly defined geographic area reduce a range of trade barriers to advance or protect a set of economic goals.
The level of integration involved in an economic regionalism project can vary enormously from loose association to a sophisticated, deeply integrated, Tarn's nationalized economic space. It is in its political dimension that economic integration differs from the broader idea of regionalism in general. Although economic decisions go directly to the intrinsically political question of resource allocation, an economic region can be deployed as a technocratic tool by the participating government to advance a clearly defined and limited economic agenda without requiring more than minimal political alignment or erosion of formal state sovereignty.
The unifying factor in the different forms of economic regionalism is thus the desire by the participating states to use a wider, Trans nationalized sense of space to advance national economic interests. More specifically, economic integration recoded by agreements to: Abolish tariffs and import quotas among members (Fats and sectarian Fats). Establish common external tariffs and quotas (Cuss). Allow free movement of goods, services and workers (Common Market). Harmonize competition, structural, fiscal, monetary and social policies (Economic Union). Ђ Unify economic policies and establish supra-national institutions (Economic and Political Union). 2 FORMS OF ECONOMIC INTEGRATION 1. Preferential Trading, A preferential trade area (also preferential trade agreement, PTA) is a trading bloc hat gives preferential access to certain products from the participant eating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration.
The line between a PTA and a free trade area (FAT) may be blurred, as almost any PTA has a main goal of becoming a FAT in accordance with the General Agreement on Tariffs and Trade. An agreement between two or more countries to lower trade barriers between each other on particular products. Trade barriers may remain on the rest of he products, and on imports from non-member countries. Pats sometimes involve cooperation between members on labor standards, environmental issues or intellectual property.
They include free trade areas (Fats), customs unions or common markets and they may be bilateral or regional. These tariff preferences have created numerous departures from the normal trade relations principle, namely that World Trade Organization from other WTFO members. 2. Free Trade Area ) members should apply the same tariff to imports A free-trade area is a trade bloc whose member countries have signed a frustrated agreement (FAT), which eliminates tariffs, import quotas, and preferences on most goods and services traded between them.
If people are also free to move between the countries, in addition to FAT, it would also be considered an open border. It can be considered the second stage of economic integration. Countries choose this kind of economic integration if their economic structures are complementary. If their economic structures are competitive, it is likely there will be no incentive for a FAT, or only selected areas of goods and services will be covered to fulfill the economic interests between the two signatories of FAT.
The aim of a free-trade area is to reduce barriers to exchange so that trade can grow as a result of specialization, division of labor, and most importantly via comparative advantage. The theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium) each source of production will tend to specialize in that activity where it has comparative (rather than absolute) advantage. The theory argues that the net result will be an increase in income and ultimately wealth and well-being for everyone in the free-trade area.
But the theory refers only to aggregate wealth and says nothing about the distribution of wealth; in fact there may be significant losers, in particular among the recently protected industries with a comparative disadvantage. In principle, the overall gains from trade could be used to compensate for the effects of reduced trade barriers by appropriate inter-party transfers. 3 To exclude regional exploitation of zero tariffs within the FAT there is a rule of certificate of origin for the goods originating from the territory of a member state of an FAT.
Unlike a customs union, members of a free trade area do not have a common external tariff with respect to non-members, meaning different quotas and customs. To avoid evasion through re-exportation the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods. 3. Customs Union When two or more countries agree to remove (essentially) all restrictions on mutual trade and set up a common system of tariffs and import quotas visas-¤-visas nonmembers, the result is referred to as a CUE.
The adoption of a common external riff (GET) and Joint quotas necessitates closer co-operation with respect to the sharing of customs revenues collected on non-member imports. Rules of origin are no longer necessary: when a common external tariff exists, imports into the CUE-area face the same tariff in each cue-member country, hence there is no incentive for transshipment of imports between members. 4. Common market A common market represents a major step towards significant economic integration, eliminating all barriers to trade in goods among the member nations, adopting a common external tariff.
In addition, it permits free movement of goods and services within the market. The many benefits of common market would be free full movement of factors for production between the member countries, and factors of production become more efficiently allocated with additional of increasing productivity. Factors of production, such a labor and capital, are free to move within member countries, expanding scale economies and comparative advantages. Thus, a worker in a member country is able to move and work in another member country. 5.
Economic and Monetary Union The economic and monetary union is a union in which sectional, social, taxation, and fiscal policies are harmonize and administrated by supranational institution: an agreement is required to transfer economic sovereignty to a supranational authority. A final degree of economic union by the supranational monetary authority would be the unification of national monetary policies and which administrated the acceptance of the common currency. United States is an example of a monetary union. Political union.
Represents the potentially most advanced form of integration with a common government and were the sovereignty of member country is significantly reduced. Only found within nation states, such as federations where there is a central government and regions having a level of autonomy. 4 NEED FOR ECONOMIC INTEGRATION 1. Progress in trade. All countries that follow economic integration have extremely wide assortment of goods and services from which they can choose. Introduction of economic integration helps in acquiring goods and services at much low costs. This is because the removal of trade barriers reduces or removes the tariffs entirely.
Reduced duties and lowered prices save a lot of spare money with countries which can be used for buying more reduces and services. 2. Ease of agreement. When countries enter into regional integration, they easily get into agreements and stick to them for long periods of time. 3. Improved political cooperation. Countries entering economic integration form groups and have greater political influence as compared to influence created by a single nation. Integration is a vital strategy for addressing the effects of political instability and human conflicts that might affect a region. . Opportunities for employment. The various options available in economic integration help to liberalize and encourage trade. This results in market expansion due to which high amount of capital is invested in an economy. This creates higher opportunities for employment to people trot all over the world They thus move trot one country to another n search of Jobs or for earning higher pay. 5. Beneficial for financial markets. Economic integration is extremely beneficial for financial markets as it eases firm to borrow finances at low rate if interest.
This is because capital liquidity of larger capital market increases and the resultant diversification effect reduces the risks associated with high investment. 6. Increase in Foreign Direct Investments. Economic integration helps to increase the amount of money in Foreign Direct Investment (FAD). Once firms start FAD, through new operations or by merger, takeover, and acquisition, it becomes an international enterprise. Thus economic integration is a win-win situation for all the firms, people and the economies involved in the process. Is has become a preferred strategy for most countries of the world. Economic Integration Effects Economic integration involves at least two countries to abolish customs tariffs on inner border between the states. This causes a number of effects while the phenomenon itself has specific properties for its successful development. It requires coherence of the policies (customs, tax, financial, social policies etc. And entity registration) applied in integrated states. Economic parameters (domestic savings rate, tax rates, etc. ) are striving to one single multitude. Coherence policy finally leads to equal multi-dimensional economic space within integrated area.
At the same time, it is very similar to the process of mixing differently colored liquids in a retort: coherence leads to one final color in a report. It needs permanency of economic integration stages applied to unified states (free trade area, customs union, economic union, political union). Otherwise integration process stagnates, finally leading to termination of economic unions (Belgium-Luxemburg Union). Economic integration leads to Praetor-reallocation of the factors (labor and capital) which move towards their better exploitation. Labor moves to area of higher wages, while capital - to area with higher returns.
It was found that the pair of the value added of sectors and labor disperse within a region in the same way as heat or gas in a space. Domestic saving rates in the member states of economically integrated region strive to the one and same magnitude, described by the coherence policy of economic blocks. At the same time, practical observation shows that this phenomenon is taking place before formal creation of economic unions. Formulation of economic integration theory has been initiated by Jacob Finer who described trade creation and trade diversion effects caused by economic integration.
They actually mean a change in direction of interregional trade flows respectively caused by the change of tariffs within and outside economic union. The dynamics of trade creation and diversion effects was mathematically described by R. T. Dualism. The finding shows that trade flow (an output moving from region to region) may be described by Navies-Stones equation, with the goods tool caused by the price deterrence - quite similar to gas or liquid moving under pressure difference.
Economic integration benefits (growth of economy, specifically the GAP; raise of productivity) depend on the level of development as well as a scale of unifying states. For instance, if there are two states being economically integrated, than the larger is the size of economy the less it species from integration and vice versa (observed empirically). The same principle is observed regarding the level of development of integrating states, although it is not as clear as the firstly mentioned principle.
Productivity in the unified area is increased. Remarkably, it is increased more in less developed states, and vice versa, I. E. According to the principle observed in practice. 6 Among the main benefits for the countries which decided to be unified is a free access to markets of the other member states. Since the stage of the common market, or since supranational bodies of the union are created, specific regional funds are rated to reallocate revenues from more developed states to less developed ones.
This way development of the member states is equalized, with less developed ones developing faster, leading to an increase of their earnings per capita and thus purchasing more from more developed partner states. 7 CHAPTER 2 - SEAN Association of Southeast Asian Nations One Vision, One Identity, One Community The Association of Southeast Asian Nations, or SEAN, it was established on 8 August 1967 in Bangkok, Thailand, with the signing of the SEAN Declaration (Bangkok Declaration) by the Founding Fathers of SEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand.
Brunet Tarantulas then Joined on 7 January 1984, Viet Name on 28 July 1995, Ala PDP and Manner on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of SEAN. It is a gee-political and economic organization of ten countries located in Southeast Asia SEAN covers a land area of 4. 46 million km, which is 3% of the total land area of Earth, and has a population of approximately 600 million people, which is 8. 8% of the world's population. The sea area of SEAN is about three times larger than its land counterpart.
HISTORY OF SEAN SEAN was preceded by an organization called the Association of Southeast Asia, commonly called AS, an alliance consisting of the Philippines, Malaysia and Thailand that was formed in 1961. The bloc itself, however, was established on 8 August 1967, when foreign ministers of five countries - Indonesia, Malaysia, the Philippines, Singapore, and Thailand - met at the Thai Department of Foreign Affairs building in Bangkok and signed the SEAN Declaration, more commonly known as the Bangkok Declaration.
The twelve tottering ministers - Adam Mali to Indonesia, Narcosis Ramose to the Philippines, Abdul Raze of Malaysia, S. Rational of Singapore, and Than Shaman of Thailand - are considered the organization's Founding Fathers . The motivations for the birth of SEAN were so that its members' governing elite could concentrate on nation building, the common fear of communism, reduced faith in or mistrust of external powers in the sass, and a desire for economic development.
The bloc grew when Brunet Tarantulas became the sixth member on 8 January 1984, barely a week after gaining independence on 1 January 8 AIMS AND PURPOSES 0 To accelerate the economic growth, social progress and cultural development in the egging through Joint endeavourers in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations; 0 To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter; 0 To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; 0 To provide assistance o each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; 0 To collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples; 0 To promote Southeast Asian studies; and 0 To 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. 9 SEAN summit SEAN Summit is an annual meeting held by the member of the Association of Southeast Asian Nations (SEAN) in relation to economic, and cultural development of Southeast Asian countries The league of SEAN is currently connected with other countries who aimed to participate on the missions and visions of the league. Apparently, the league is conducting an annual meetings with other countries in an organization collectively known as the SEAN dialogue partners. SEAN +3 adds China, Japan and South Korea.
The formal summit are held in three days. The usual itinerary are as follows: - SEAN leaders hold an internal organization meeting. - SEAN leaders hold a conference together with foreign ministers of the SEAN Regional Forum. - Leaders of 3 SEAN Dialogue Partners (also known as SEAN+3) namely China, Japan and South Korea hold a meeting with the SEAN leaders. - And a separate meeting is set for leaders of 2 SEAN Dialogue Partners (also known as SEAN+CERT.) namely Australia and SEAN Charter New Zealand. The SEAN Charter serves as a firm foundation in achieving the SEAN Community y providing legal status and institutional framework for SEAN.
It also codifies SEAN norms, rules and values; sets clear targets for SEAN; and presents accountability and compliance. The SEAN Charter entered into force on 15 December 2008. A gathering of the SEAN Foreign Ministers was held at the SEAN Secretariat in Jakarta to mark this very historic occasion for SEAN. With the entry into force of the SEAN Charter, SEAN will henceforth operate under a new legal framework and establish a number of new organs to boost its community-building process. In effect, the SEAN Charter has become a legally binding agreement among he 10 SEAN Member States. It will also be registered with the Secretariat of the United Nations, pursuant to Article 102, Paragraph 1 of the Charter of the United Nations. 0 The importance of the SEAN Charter 0 0 New political commitment at the top level New and enhanced commitments New legal framework, legal personality New SEAN bodies Two new openly-recruited Digs More SEAN meetings More roles of SEAN Foreign Ministers New and enhanced role of the Secretary-General of SEAN 0 Other new initiatives and changes SEAN Political-security Community (APPC) A Rules-based Community of Shared Values and Norms A Cohesive, Peaceful and Resilient Region with Shared Responsibility for Comprehensive Security A Dynamic and Outward-looking Region in An Increasingly Integrated and Interdependent World The APPC aims to ensure that the peoples and Member States of SEAN live in peace with one another and with the world at large in a Just, democratic and harmonious environment.
To achieve this, the APPC promotes political development in adherence to the principles of democracy, the rule of law and good governance, and respect for the promotion and protection of human rights and fundamental freedoms as inscribed in the SEAN Charter. It also subscribes to a comprehensive approach to security. At the same time, the APPC seeks to strengthen the mutually beneficial relations between SEAN and its Dialogue Partners and friends. The APPC thus envisages the following key characteristics: (a) A rules-based Community of shared values and norms; (b) A cohesive, peaceful, stable and resilient region with shared responsibility for comprehensive security; and (c)A dynamic and outward-looking region in an increasingly integrated and interdependent world. 11 When SEAN was established, trade among the Member Countries was insignificant.
Estimates between 1967 and the early sass showed that the share of intra-SEAN trade from the total trade of the Member Countries was between 12 and 15 percent. Thus, some of the earliest economic cooperation schemes of SEAN were aimed at addressing this situation. One of these was the Preferential Trading Arrangement of 1977, which accorded tariff preferences for trade among SEAN economies. Ten years later, an Enhanced PTA Programmer was adopted at the Third SEAN Summit in Manila further increasing intra-SEAN trade. The Framework Agreement on Enhancing Economic Cooperation was adopted at the Fourth SEAN Summit in Singapore in 1992, which included the launching of a scheme toward an SEAN Free Trade Area or AFT.
The strategic objective of AFT is to increase the SEAN region's competitive advantage as a single production unit. The elimination of tariff and non- tariff barriers among the member countries is expected to promote greater economic efficiency, productivity, and competitiveness. The Fifth SEAN Summit held in Bangkok in 1995 adopted the Agenda for Greater Economic Integration, which included the acceleration of the timetable for the realization of AFT from the original 1 5-year timeshare to 10 years. In 1997, the SEAN leaders adopted the SEAN Vision 2020, which called for SEAN Partnership in Dynamic Development aimed at forging closer economic integration within the region.
The vision statement also resolved to create a stable, prosperous and highly competitive SEAN Economic Region, in which there is a free flow of goods, services, investments, capital, and equitable economic development and reduced poverty and socio-economic disparities. The Hanoi Plan of Action, adopted in 1998, serves as the first in a series of plans of action leading up to the realization of the SEAN vision. In addition to trade and investment liberalizing, regional economic integration is being pursued through the development of Trans-SEAN transportation network consisting of major inter-state highway and railway networks, principal ports and sea lanes for maritime traffic, inland waterway transport, and major civil aviation links. SEAN is promoting the interoperability and interconnectivity of the national telecommunications equipment and services.
Building of Trans-SEAN energy networks, which consist of the SEAN Power Grid and the Trans-SEAN Gas Pipeline Projects are also being developed. SEAN cooperation has resulted in greater regional integration. Within three years from the launching of AFT, exports among SEAN countries grew from IIS$43. 26 billion in 1993 to almost IIS$80 billion in 1996, an average yearly growth rate of 28. 3 percent. In the process, the share of intra-regional trade from Jean's total trade rose from 20 percent to almost 25 percent. Tourists from 12 SEAN countries themselves have been representing an increasingly important share of tourism in the region. In 1996, of the 28. 6 million tourist arrivals in SEAN, 1 1. Million or almost 40 percent, came from within SEAN itself. Today, SEAN economic cooperation covers the following areas: trade, investment, industry, services, finance, agriculture, forestry, energy, transportation and communication, intellectual property, small and medium enterprises, and tourism. Desiring to build a community of caring societies, the SEAN leaders resolved in 1995 to elevate attitudinal cooperation to a higher plane to bring snared prosperity to all its members. The Framework for Elevating Functional Cooperation to a Higher Plane was adopted in 1996 with a theme: "Shared prosperity through human development, technological competitiveness, and social cohesiveness. Functional cooperation is aided by the following plans: 0 SEAN Plan of Action on Social Development; SEAN Plan of Action on Culture and Information; 0 SEAN Plan of Action on Science and Technology; 0 SEAN Strategic Plan of Action on the Environment; 0 SEAN Plan of Action on Drug Abuse Control; and 0 SEAN Plan of Action in Combating Transnational Crime 13 SEAN Economic Integration: Challenges and Strategies Southeast Asia is among the important pillars in Sais's economic integration whereby SEAN is expected to gain solid economic integration from trade and investment. This would mean that SEAN must have significant and positive relations in her intra- congenial trade and intra-regional investments. Yet a previous study finds them to be significant nevertheless having negative relations (Overcome, 2012). Given its long-run economic integration objective, SEAN must turn this relation into one that is significant and positive.
This will require an economic convergence by which an equivalent level of playing field within its member states. Economic convergence is a necessary condition for a solid regional economic integration. It will move Jean's economic integration stage from an intra-regional trade to that of an intra-regional investment. However, SEAN still faces huge economic gaps between its SEAN-6 and SEAN-4 as well as within the groups themselves. This economic divergence becomes a major source of asymmetric information in the SEAN economy. Among one of the useful tools to prove this divergence is the 'gravity model of trade' (Timbering, 1962, Anderson, 1979, Hellman and Grumman, 1985).
The model which was inspired by Newton's Law of gravity describes that among the significant factors in economic integration process are economic size (GAP) and economic level (IN per capita). Utilizing this model, in terms of economic size, SEAN must deal with economic biases towards Indonesian economy as her nominal GAP is at around 40% of total Jean's nominal GAP, making it too dominant. In 2011, Indonesian nominal economic size (GAP) is around IIS$ 847 billion, much larger than Thailand at IIS$ 346 billion, Malaysia at IIS$ 288 billion, and Singapore at IIS$ 240 billion. Indonesian nominal GAP size is ranked 16 the in the world, making her the only SEAN member in the 620 group.
On the other hand, in terms of economic level, Jean's economic gravity erection is biased towards Singapore economy. According to the World Banks atlas method (Gross National Income/Only per capita per year), the circumstance shows the opposite of the preceding figures. Using 2011 data, among those four countries, the highest income per capita belongs to the lowest economic sized country, which is Singapore. Singapore IN per capita per year is IIS$ 42,930 that is much higher than Malaysia at IIS$ 8,770, Thailand at IIS$ 4,440, while the lowest level among these countries is the highest economic sized country, which is Indonesia at US$ 2,940. 14
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