Forms of Economic integration
What are they?
- Economic integration takes the form of the Preferential Trade Area, Free Trade Area, Customs Union, Common Market and Economic Union.
- A preferential trade area (PTA) is a trading bloc that gives preferential access to certain products from the participating 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.
- A free trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce/abolish trade barriers. e.g. South Asian Free Trade Area (SAFTA).
- A customs union is defined as a type of trade block which is composed of a free trade area with no tariffs among members and (zero tariffs among members) with a common external tariff. e.g. BENELUX (Belgium, Netherlands and Luxembourg).
- A common market has the same features as a customs union, but, in addition, factors of production (labour, capital and technology) are mobile among members. Restrictions on immigration and cross-border investment are abolished. e.g. European Common Market (ECM).
- An economic union is the last step in an economic integration process. In addition to free movement of goods, services and production factors, it also requires integration of economic policies, both monetary and fiscal. Under an economic union members harmonized monetary policies, taxation and government spending. (e.g. European Economic Union)
Why in News?
- Commerce Minister Piyush Goyal recently said that India and the U.S. have almost finalised a limited trade deal.
- Mr. Goyal also reiterated what both countries have declared earlier — that the longer term plan is to work towards a comprehensive trade deal. As an intermediate step between the imminent limited deal and the comprehensive deal, Mr. Goyal proposed a preferential trade agreement with the United States that would cover 50 to 100 goods and services, rather than waiting for the gains of a free trade agreement, which may take several years to conclude.
What are the issues?
- India and the U.S. were apparently close to finalising a limited trade deal several times over the past year, including when both Prime Minister Narendra Modi and U.S. President Donald Trump were in New York last year for the United Nations General Assembly session.
- Again, in February this year the two sides scrambled — unsuccessfully — to finalise a mini deal that was to be announced during Mr. Trump’s India visit.
- India wanted the U.S. to restore its access to the U.S. preferential trading system, the Generalized System of Preferences (GSP), an end to Mr. Trump’s steel and aluminium tariffs, increased market access for some categories of Indian agricultural products and so forth.
- U.S. concerns during the negotiations have included market access for American dairy and agricultural products, medical devices and a cut in information and communication technology (ICT) import tariffs. The U.S. has also had concerns with India’s digital trade policies (for instance FDI in commerce, data localisation).
- The Generalised System of Preferences is one of the oldest trade preference programmes in the world, under which developed countries offer preferential treatment (such as zero or low duties on imports) to products originating in developing countries.
- GSP is presently extended by 29 developed countries.
- India, as a developing country, enjoyed special trade benefits from the GSP programme of U.S which allowed duty-free entry of Indian goods worth $5.6 billion into the U.S.
- In June 2019, the U.S. decided to terminate India’s eligibility for the GSP based on complaints from US’ dairy and medical device industries alleging that India has implemented a wide array of trade barriers that are affecting the US exports in those sectors.
View all comments