Towards international Economic Integration

World Bank

• World Bank was created in 1944 out of the Bretton Woods Agreement, which was secured under the auspices of the United Nations in the latter days of World War II.
• The is an international organization dedicated to providing financing, advice, and research to developing nations to aid their economic advancement.
• The bank predominantly acts as an organization that attempts to fight poverty by offering developmental assistance to middle- and low-income countries.
• Currently, the World Bank has two stated goals that it aims to achieve by 2030.
• The first is to end extreme poverty by decreasing the number of people living on less than $1.90 a day to below 3% of the world population.
• The second is to increase overall prosperity by increasing income growth in the bottom 40% of every country in the world.

Consists of five organizations:

• International Bank for Reconstruction and Development (IBRD). This is the IMF's lending arm. It provides financial assistance to credit-worthy, middle- and low-income nations.
• International Development Association (IDA). IDA provides loans and grants to poor countries. 
• International Finance Corporation (IFC). In contrast to the World Bank, which focuses its efforts on governments, the IFC provides money and advice to private sector entities.
• Multilateral Investment Guarantee Agency. MIGA seeks to encourage foreign direct investment in developing nations.
• International Centre for Settlement of Investment Disputes. ICSID provides physical facilities and procedural expertise to help resolve the inevitable disputes that arise when money is at the heart of a disagreement between two parties.

International Monetary Fund

• The International Monetary Fund (IMF) is an international organization that promotes global economic growth and financial stability, encourages international trade, and reduces poverty.
• The IMF's website describes its mission as "to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
• Quotas of member countries are a key determinant of the voting power in IMF decisions. Votes comprise one vote per 100,000 special drawing right (SDR) of quota plus basic votes.
• SDRS are an international type of monetary reserve currency created by the IMF as a supplement to the existing money reserves of member countries.1?
• What Are Special Drawing Rights (SDR)?
• Special drawing rights (SDR) refer to an international type of monetary reserve currency created by the International Monetary Fund (IMF) in 1969 that operates as a supplement to the existing money reserves of member countries.
• Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs augment international liquidity by supplementing the standard reserve currencies.1
• The IMF's primary methods for achieving these goals are monitoring capacity building and lending.
• Monitoring : The IMF collects massive amounts of data on national economies, international trade, and the global economy in aggregate. The organization also provides regularly updated economic forecasts, published in the World Economic Outlook,
• Capacity Building : The IMF provides technical assistance, training, and policy advice to member countries through its capacity building programs. These programs include training in data collection and analysis, which feed into the IMF's project of monitoring national and global economies.
• Lending : The IMF makes loans to countries that are experiencing economic distress to prevent or mitigate financial crises. Members contribute the funds for this lending to a pool based on a quota system.
• IMF funds are often conditional on recipients making reforms to increase their growth potential and financial stability. Structural adjustment programs, as these conditional loans are known

World Trade Organization – WTO

• While the IMF and World Bank would play pivotal roles in the new international framework, the ITO failed to materialize, and its plan to oversee the development of a non-preferential multilateral trading order would be taken up by the GATT, established in 1947.
• Following up on GATT, the 1986-1994 Uruguay Roundtable trade negotiations resulted in the formal creation of the WTO. The WTO headquarters is located in Geneva, Switzerland. Like the IMF and the World Bank, the WTO is funded by its members.
• Officially founded in 1995, The World Trade Organization (WTO) claims to be “the only global international organization dealing with the rules of trade between nations.”
• The WTO’s efforts centers on developing trade agreements between nations to encourage cross-border commerce. This includes setting up the agreements, interpreting the agreements and facilitating dispute settlement.

Regional Trade Agreements – Follow up to WTO

• While the GATT was designed to encourage the reduction of tariffs among member nations, and thereby provide a foundation for the expansion of multilateral trade, the period that followed saw increasing waves of more regional trade agreements.
• In less than five years after the GATT was established, Europe would begin a program of regional economic integration through the creation of the European Coal and Steel Community in 1951, which would eventually evolve into what we know today as the European Union (EU).
• Serving to spark numerous other regional trade agreements in Africa, the Caribbean, Central and South America, Europe’s regionalism also helped push the GATT agenda forward as other countries looked for further tariff reductions to compete with the preferential trade that European partnership engendered.
• Following the breakup of the Soviet Union, the EU pushed to form trade agreements with some Central and Eastern European nations, and in the mid-1990s, it established some bilateral trade agreements with Middle Eastern countries.
• The U.S. also pursued its own trade negotiations, forming an agreement with Israel in 1985, as well as the trilateral North American Free Trade Agreement (NAFTA) with Mexico and Canada in the early 1990s. Many other significant regional agreements also took off in South America, Africa and Asia.
• Whereas the focus of GATT had been primarily reserved for goods, the WTO went much further by including policies on services, intellectual property and investment.
• The WTO had over 145 members by the early 21st century, with China joining in 2001. 
• While the WTO seeks to extend the multilateral trade initiatives of the GATT, recent trade negotiations appear to be ushering in a stage of “multilateralizing regionalism.”
• The Transatlantic Trade and Investment Partnership (TTIP), the Transpacific Partnership (TPP), and the Regional Cooperation in Asia and the Pacific (RCEP) comprise a significant portion of global GDP and world trade, suggesting that regionalism may be evolving into a broader, more multilateral framework.

Generalized System of Preferences

• The Generalized System of Preferences, or GSP, is a preferential tariff system which provides tariff reduction on various products.
• The concept of GSP is very different from the concept of "most favored nation" (MFN).
• Most-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members
• In case of GSP differential tariff could be imposed by a nation on various countries depending upon factors such as whether it is a developed country or a developing country. Both the rules comes under the purview of WTO.
• GSP provides tariff reduction for least developed countries but MFN is only for not discriminating among WTO members.
• The idea of tariff preferences for developing countries was the subject of considerable discussion within the United Nations Conference on Trade and Development (UNCTAD) in the 1960s.
• Among other concerns, developing countries claimed that MFN was creating a disincentive for richer countries to reduce and eliminate tariffs and other trade restrictions with enough speed to benefit developing countries.
• In 1971, the GATT followed the lead of UNCTAD and enacted two waivers to the MFN that permitted tariff preferences to be granted to developing country goods.
• Both these waivers were limited in time to ten years.
• In 1979, the GATT established a permanent exemption to the MFN obligation by way of the enabling clause.
• This exemption allowed contracting parties to the GATT (the equivalent of today's WTO members) to establish systems of trade preferences for other countries, with the caveat that these systems had to be "generalized, non-discriminatory and non-reciprocal' with respect to the countries they benefited (so-called "beneficiary" countries).
• Countries were not supposed to set up GSP programs that benefited just a few of their "friends.'

Trade facilitation

• Trade facilitation—the simplification, modernization and harmonization of export and import processes—has therefore emerged as an important issue for the world trading system.
• WTO members concluded negotiations at the 2013 Bali Ministerial Conference on the landmark Trade Facilitation Agreement (TFA), which entered into force on 22 February 2017 following its ratification by two-thirds of the WTO membership.
• The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit.
• It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.
• four pillars

1. Transparency: focus on improved access to accurate and complete information.
2. Technology: development and use of digital and detection technologies to ease out trade bottlenecks and improve efficiency.
3. Simplification of Proceduresand Risk based Assessments: simplified, uniform and harmonised procedures withincreased adoption of a risk based management approach.
4. Infrastructure Augmentation: enhancement of infrastructure, particularly the roadand rail infrastructure leading to ports and the infrastructure within ports, airports, ICDs, ICPsand Land Customs Stations is a major enabler for growth in trade thatcuts across all stakeholders.

• The aforementioned four pillars rest on a robust foundation provided by Coordinated Border Management through Intra-Government and Inter-Agency cooperation and collaboration.

TFA and India

• India ratified the WTOAgreement on Trade Facilitation (TFA) in April 2016.

Preamble

• To transform cross border clearance eco-system through efficient, transparent, risk based, coordinated, digital, seamless and technology driven procedures which are supported by state-of-the-art sea ports, airports,land border crossings,rail, road and other logistics infrastructure.
• To bring down the overall cargo release time as below –
• i.For imports–Within 48 hrs for Sea Cargo, Inland Container Depots and Land Customs Stations and within 24 hrs for Air Cargo.
• ii.For exports–Within 24 hrs for Sea Cargo, Inland Container Depots &Land Customs Stationsand within 12 hrs for Air Cargo

Towards Economic Integration ?

• Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration.
• As international trade and investment levels continue to rise under progressive globalisation, the level of economic integration between various groups of nations is also deepening.
• The most obvious example of this is the European Union, which has evolved from a collection of autarkical nations to become a fully integrated economic unit.
• Economic integration takes place in stages, beginning with the lowering and removal of barriers to trade and culminating in the creation of an economic union. 
• The four/Six basic stages of evolution of this inter linkage can be seen as follows;

FREE TRADE AGREEMENTS

• Two stages : Preferential trade agreements (PTAs) and Free trade agreements (FTAs)
• The first level of formal economic integration is the establishment of free trade agreements (FTAs) or preferential trade agreements (PTAs).
• FTAs eliminate import tariffs as well as import quotas between signatory countries. These agreements can be limited to a few sectors or can encompass all aspects of international trade. FTAs can also include formal mechanisms to resolve trade disputes. The North American Free Trade Agreement (NAFTA) is an example of such an arrangement.
• Aside from a commitment to a reciprocal trade liberalization schedule, FTAs place few limitations on member states. Although FTAs may contain provisions in these areas if the signatory countries agree to do so, no further harmonization of regulations, standards or economic policies is required, nor is the free movement of capital and labour a necessary part of a free trade agreement. FTA signatory countries also retain independent trade policy with all countries outside the agreement.
• However, in order for an FTA to function properly, member countries must establish rules of origin for all third-party goods entering the free trade area. Goods produced within the free trade area (and subject to the agreement) may cross borders tariff-free, but rules of origin requirements must be met to prove that the good was in fact produced in the exporting country. In the absence of rules of origin, third-party countries seeking trade access to the FTA area will choose the path of least resistance – the country where they face the lowest opposing tariff – in order to gain effective entry to the entire FTA region.
• Regional Comprehensive Economic Partnership (RCEP)
• Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the
• ten member states of the Association of Southeast Asian Nations (ASEAN) and the
• six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand)
• Concerns with respect to India and RCEP
• India is the one country that doesn’t have an FTA with China. The greater access Chinese goods will have to the Indian market, bigger the problem given India’s massive trade deficit.
• To circumvent this, the government has proposed a “differential market access” strategy for China, which others are inclined to accept.
• Both Indian negotiators and the domestic industry have been vocal about their discomfort with respect to opening up of the domestic market to Chinese exports. This is because of the massive Chinese overcapacity in key manufacturing industries, and major support programmes in the form of financial, non-financial and trade measures for the domestic industry, which give an edge to Chinese producers over other trade partners.
• There are also demands by other RCEP countries for lower customs duties on a number of products and greater access to the market than India has been willing to provide.
• The more developed RCEP countries such as Australia and Singapore have been unwilling to accommodate India’s demands to liberalize their services regime and allow freer mobility of Indian workers.

Cautions

• Appropriate safeguard clauses in case injury to domestic industry. India suggests introduction of clause on provisional safeguard measures.
• hased elimination of tariffs is necessary,
• Policymakers should be cognizant of the use of non- tariff barriers (NTBs) by China. Even though China has agreed to open almost 92% of their tariff lines, expecting India to reciprocate in the same manner, India’s concerns over China’s complex NTBs merit serious attention.
• Conclusion:
• RCEP is an opportunity for India to play a greater role in Asia-Pacific, the fastest growing and developing region the globe.
• India must not take the easiest way out on the trade deal and walk out of talks, rather it should move forward and fill the vacuum being created by the protectionism of US.
• If negotiated well, the RCEP has the potential to be a game-changer for India.

CUSTOMS UNION

• A customs union (CU) builds on a free trade area by, in addition to removing internal barriers to trade, also requiring participating nations to harmonize their external trade policy.

This includes establishing a common external tariff (CET) and import quotas on products entering the region from third-party countries, as well as possibly establishing common trade remedy policies such as anti-dumping and countervail measures.

• A customs union may also preclude the use of trade remedy mechanisms within the union. Members of a CU also typically negotiate any multilateral trade initiative (such as at the World Trade Organization) as a single bloc. Countries with an established customs union no longer require rules of origin, since any product entering the CU area would be subject to the same tariff rates and/or import quotas regardless of the point of entry.
• The elimination of the need for rules of origin is the chief benefit of a customs union over a free trade area. To maintain rules of origin requires extensive documentation by all FTA member countries as well as enforcement of those rules at borders within the free trade area. This is a costly process and can lead to disputes over interpretation of the rules as well as other delays. A CU would result in significant administrative cost savings and efficiency gains.
• In order to gain the benefits of a customs union, member countries would have to surrender some degree of policy freedom – specifically the ability to set independent trade policy. By extension, because of the increased importance of trade and economic measures as foreign policy tools, customs unions place some limitations on independent foreign policy as well.

COMMON MARKET

• A common market represents a major step towards significant economic integration.
• In addition to containing the provisions of a customs union, a common market (CM) removes all barriers to the mobility of people, capital and other resources within the area in question, as well as eliminating non-tariff barriers to trade, such as the regulatory treatment of product standards.
• Establishing a common market typically requires significant policy harmonization in a number of areas.
• Free movement of labour, for example, necessitates agreement on worker qualifications and certifications. A common market is also typically associated – whether by design or consequence – with a broad convergence of fiscal and monetary policies due to the increased economic interdependence within the region and the effect that one member country’s policies can have on other member countries. This necessarily places more severe limitations on member countries’ ability to pursue independent economic policies.
• The principal advantage of establishing a common market is the expected gains in economic efficiency. With unfettered mobility, labour and capital can more easily respond to economic signals within the common market, resulting in a more efficient allocation of resources.

ECONOMIC UNION

• Two stages : Economic Union / Monetary Union
• The deepest form of economic integration, an economic union adds to a common market the need to harmonize a number of key policy areas. Most notably, economic unions require formally coordinated monetary and fiscal policies as well as labour market, regional development, transportation and industrial policies. Since all countries would essentially share the same economic space, it would be counter-productive to operate divergent policies in those areas.
• Monetary union frequently includes the use of a common currency and a unified monetary policy. Eliminating exchange rate uncertainty improves the functioning of an economic union by allowing trade to follow economically efficient paths without being unduly affected by exchange rate considerations. The same is true of business location decisions. Supranational institutions would be required to regulate commerce within the union to ensure uniform application of the rules. These laws would still be administered at the national level, but countries would abdicate individual control in this area.
• However, with economics crisis started in 2008 the global economy has started to realize quite a few initiatives on regional level.
• It is unification between the EU and US, expansion of Eurasian Economic Community (now Eurasia Economic Union) by Armenia and Kyrgyzstan.
• It is also the creation of BRICS with the bank of its members, and notably high motivation of creating competitive economic structures within Shanghai Organization, also creating the bank with many multi-currency instruments applied.
• Engine for such fast and dramatic changes was insufficiency of global capital, while one has to mention obvious large political discrepancies witnessed in 2014-2015.
• Global economy has to overcome this by easing the moves of capital and labor, while this is impossible unless the states will find common point of views in resolving cultural and politic differences which pushed it so far as of now. 
• If as T.S. Eliot said that humankind cannot bear too much reality, recent events suggest that the world cannot bear too much globalization either.