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REGIONAL TRADE BLOCKS

In general terms, regional trade blocks are associations of nations at a governmental level to
promote trade within the block and defend its members against global competition. Defense
against global competition is obtained through established tariffs on goods produced by member
states, import quotas, government subsidies, onerous bureaucratic import processes, and
technical and other non-tariff barriers. Since trade is not an isolated activity, member states
within regional blocks also cooperate in economic, political, security, climatic, and other issues
affecting the region. In terms of their size and trade value, there are four major trade blocks and
a larger number of blocks of regional importance.
The four major regional trade blocks are, as follows:
ASEAN (Association of Southeast Asian Nations)
Established on August 8, 1967, in Bangkok/Thailand.
Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, and Vietnam.
Goals: (1) Accelerate economic growth, social progress and cultural development in the region
and (2) Promote regional peace and stability and adhere to United Nations Charter.
Important Indicators for 2013: Population 625.1 million; GDP US$2.4 trillion; and Total Trade
US$2.5

trillion.

EU (European Union)
Founded in 1951 by six neighboring states as the European Coal and Steel Community
(ECSC). Over time evolved into the European Economic Community, then the European
Community and, in 1992, was finally transformed into the European Union.
Regional block with the largest number of members states (28). These include Austria, Belgium,
Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom.
Goals: Evolved from a regional free-trade association of states into a union of political,
economic and executive connections. Population estimated at 511.4 million (July 2014); GDP
(PPP) estimated at US$15.85 trillion (2013); and Total Trade US$4.485 trillion
MERCOSUR (Mercado Comun del Cono Sul - Southern Cone Common Market)
Established on 26 March 1991 with the Treaty of Assuncin.
Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Boliivia is
undergoing process of becoming a full member. Associate members include Chile, Colombia,
Ecuador, Guyana, Peru, and Suriname. Associate members have access to preferential trade

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but not to tariff benefits of full members. Mexico, interested in becoming a member of the region,
has an observer status.
Goals: Integration of member states for acceleration of sustained economic development based
on social justice, environmental protection, and combating poverty. Population: More than 295
million people GDP (PPP) of more than US$3.471 trillion
NAFTA (North American Free Trade Agreement)
Agreement signed on 1 January 1994.
Members: Canada, Mexico, and the United States of America.
Goals: Eliminate trade barriers among member states, promote conditions for free trade,
increase investment opportunities, and protect intellectual property rights. Population of over
474 million GDP (PPP) US$20.083 trillion
Advantages are:
1. faster way to remove trade and investment barriers within trade blocs
2. increasing interdependency of neighbouring countries on one another.
3. greater weight and voice on world's political and economic stage when represented as a
group.
4.Wider range of goods available..
5. Makes movement of money and goods easier.
Disadvantages are:
1. Non member countries of the trade bloc will be ostracised since trade blocs are created to
help only their member countries reduce trade barriers.
2. Member countries will only look out for each other and ignoring the non-member countries.
3. relaxed borders between member countries mean more illegal immigrants manage to get
through.
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WTO AND TRADE LIBERALIZATION

DEFINITION of 'Trade Liberalization'
The removal or reduction of restrictions or barriers on the free exchange of goods
between nations. This includes the removal or reduction of both tariff (duties and
surcharges) and non-tariff obstacles (like licensing rules, quotas and other

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requirements). The easing or eradication of these restrictions is often referred to as
promoting "free trade.
The international movement towards open markets prompted by the World Trade
Organisation (WTO) has its premise that trade liberalization will benefit all those
who are concerned. Each country will be able to exploit its position of comparative
advantage, once a free and fair trade regime has been implemented. After the
Second World War, world trade has been growing continuously due to a number of
factors. In particular, the liberalization of trade restrictions and advent of WTO in
recent times have expanded the trade between the international communities.
The economic well being of a country is associated closely to the availability of
resources and the productivity of its workforce. Trade operates in a diversify ways to
sustain the economic development process. It enhances competition and the linked
thrust to innovation and specialization, and it provides a significant channel for
international technology transfer. Therefore, it is not astounding that economists
include trade among the classical drivers of economic growth.
Trade liberalization helps to enhance the economic growth of the nation and reduce
the level of poverty:
(i)

3 % of world exports of goods, equivalent to $2,275 billion, were

attributable to WTO/GATTs function in facilitating growth in trade more

(ii)

than 50 years in the year 2003.

In 1990, the average annual growth rate of more globalize developing
countries were 5% against 1.4 per cent for less globalize countries and

(iii)

over 2% a year in high income countries.

While achieving the highest growth rates, developing countries have been
able to reduce the level of poverty remarkably. Share of population
earning less than $1 a day halved from 30 per cent to 15 per cent in East
Asia and cut down by a quarter from 42 per cent to 30 per cent in South

(iv)

Asia between 1990 and 2001.

Openness to international trade is connected with investment climate
(both foreign and domestic), which is positively correlated with economic
growth. When markets are open and are free from all barriers then private
investors get better opportunity with reduced uncertainty whereas
previous barriers might have restricted their business. Private investment

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brings intellectual capital and technology, and can also push other aspect
(v)

of social infrastructure in a positive direction.

The financial service sectors are also enhanced due to opening up of
trade. This can mobilize resources for domestic and foreign investment.

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BOP DEFICIT AND APPROACH TO PURE BOP: The balance of payments is the record
of a country.s transactions with the rest of the world. It consists of three main parts:
the current account, the capital account, and ofcial reserves settlement balance.
a) Current Account: It includes export and import of all goods and services and transfer
payments on receipts and payments sides respectively. b) Capital Account: In capital account,
on receipts side, short term and long-term capital inflow receipts of foreign direct investment and
foreign debts are posted. Same items are written in payment side while making payment. c)
Reserve Accounts: It shows the foreign exchange position of a country. Official reserve
account has the records of foreign official holding and increase reserves of gold and foreign
currencies.
BALANCE OF PAYMENTS DEFICIT: An imbalance in a nation's balance of
payments in which payments made by the country exceed payments received by
the country. This is also termed an unfavorable balance of payments. It's considered
unfavorable because more currency is flowing out of the country than is flowing in.
Such an unequal flow of currency will reduce the supply of money in the nation and
subsequently cause an increase in the exchange rate relative to the currencies of
other nations. This then has implications for inflation, unemployment, production,
and other facets of the domestic economy. A balance of trade deficit is often the
source of a balance of payments deficit, but other payments can turn a balance of
trade deficit into a balance of payments surplus. Pakistan, since independence, has
been experiencing deficit (un-favourable) in its balance of payment except the following five
years i. e., 1950-51, 1954-55, 1955-56, 1958-59, and 1959-60. In 1965-66, the balance of
payment was highly deficit due to war against India. To pure BOP the following steps must be
taken.
1. Labour Intensive Industries: Labour intensive industries should be established,

because labour is cheaper in Pakistan, these industries can be set up at lower cost. The
products of these industries can be exported.
2. Manufactured Goods: Instead of exporting primary goods like raw cotton, Pakistan

should export manufactured goods like textiles and garments, leather goods, food
products and electrical goods.
3. Reduction in Export Duties: This step will make our export competitive in the

international market. Foreigners will prefer to import from Pakistan because of low
prices.

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4. Quality Products: Many of our goods cannot be exported because of poor quality.

Thus, electric fans, cycles, electric motors, shoes, ball pens, crockery etc. cannot be
sold abroad. Pakistan is needed to improve the quality of its products according to
international standard.
5. Export Marketing: Agencies should be made more active. Pakistan has already done

this. There are Export Promotion Bureau, Export Development Fund and Export
Processing Zones etc. All these are playing their effective role to increase export and to
correct the BOP.
6. Immoral Practices: Many Pakistanis have brought bad name to our trade because

they export commodities of inferior quality than specified in agreements. So, all this
should be restricted.
7. Pricing of Goods: It is necessary for increasing exports that goods should be

produced under optimal conditions and offered at competitive prices in international

market.
8. Packing: High quality packing is essential for promoting exports. If packing is not

attractive and durable, it will not capture foreign market.

9. Joint Venture: Establishing industries with joint venture of foreign investors can also push up
the export. The products of these industries can be sold in the foreign market.
10. Import of Only Essential Items: Only essential items should be imported which are
needed for our industrial production. Import of luxuries should be banned. People should be
educated to come out from the complex of foreign goods.
11. Exchange Control: Exchange control is also an important step to minimize the imports.
Exchange control should be followed, so that there is no wastage of foreign exchange to import
of un-necessary and luxuries.
12. Substitutes for Imported Items: Import substitutes should be manufactured in the country.
If home production of fertilizer, paper, steel, edible oil and electrical goods are increased, there
will be less need for such imports.
13. Decrease in Consumption: Taxes should be imposed to reduce the consumption of many
items. Rich people in our country are spending freely on unnecessary imported consumer items.
So, foreign exchange reserves are wasted.
14. Control of Smuggling: Bara markets should be eliminated. After atomic explosion, the
Govt. is taking strict measures to eliminate markets of smuggled goods.

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15. Population Control: Many of our problems are arising due to fast increase in population.
Sincere efforts should be made to decrease growth rate of population. People should be
educated in this regard.
Conclusion: Achievement of surplus in balance of payment is difficult but not impossible. It can
achieve through installing import substitution and export promoting industries. Government
should control the forex and check the import of luxuries.
--------------------x---------------------------x---------------------------x---------------------------x-------------------------DETERMINANTS OF FOREIGN EXCHANGE RATE
The system of converting one nation currency into another or transferring money
from one country to another. Exchange rates play a vital role in a country's level of
trade, which is critical to most every free market economy in the world. Numerous
factors determine exchange rates, and all are related to the trading relationship
between two countries.
1. Current-Account Deficits: The current account is the balance of trade between
a country and its trading partners, reflecting all payments between countries for
goods, services, interest and dividends. A deficit in the current account shows the
country is spending more on foreign trade than it is earning, and that it is borrowing
capital from foreign sources to make up the deficit.
2. Public Debt: Countries will engage in large-scale deficit financing to pay for
public sector projects and governmental funding. While such activity stimulates the
domestic economy, nations with large public deficits and debts are less attractive to
foreign investors. The reason? A large debt encourages inflation, and if inflation is
high, the debt will be serviced and ultimately paid off with cheaper real dollars in
the future.
3. Terms of Trade: A ratio comparing export prices to import prices, the terms of
trade is related to current accounts and the balance of payments. If the price of a
country's exports rises by a greater rate than that of its imports, its terms of trade
have favorably improved. Increasing terms of trade shows greater demand for the
country's exports.
4. Political Stability and Economic Performance: Foreign investors inevitably
seek out stable countries with strong economic performance in which to invest their
capital. A country with such positive attributes will draw investment funds away
from other countries perceived to have more political and economic risk.
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FOREIGN DIRECTOR INVESTMENT
Foreign direct investment (FDI) refers to long term participation by a country A into
country B (in this case Pakistan) . It usually involves participation in management,
joint-venture, transfer of technology and expertise. There are two types of FDI:
inward foreign direct investment and outward foreign direct investment, resulting in
a net FDI inflow (positive or negative).
Foreign direct investment (FDI) is a measure of foreign ownership of productive
assets, such as factories, mines and land. Increasing foreign investment can be
used as one measure of growing economic globalization.
WHO CAN BE A FOREIGN INVESTOR?
A foreign direct investor may be classified in any sector of the economy and could
be any one of the following:
# An individual; # A group of related individuals; # An incorporated or
unincorporated entity;
# A public company or private company; A group of related enterprises; # A
government body;
# An estate (law), trust or other societal organisation; or # Any combination of the
above.
Pakistan has a very liberal policy on repatriation for foreign direct investors,
therefore, investing in Pakistan may give a foreign direct investors the following
added advantages.

Remittance of royalty, technology and franchise fee is allowed to projects in

social, service, infrastructure, agriculture and international chains food

franchise.
Minimum share of the local (Pakistani) partner in a joint venture will be 60:40
for the service sector. However, 100% foreign equity can be owned for first 5

years.
The FBR (Federal Board of Revenue) will not question as to the source of
investment; however, the FBR will only want to know whether the investor
has paid requisite Income Tax on that specific investment. The FBR will not

inquire into the source of the funds.

Foreign investors are allowed to invest in industrial project on 100% equity

basis without any permission from the government.

There is no requirement for a No Objection Certificate from the Provincial
Government.

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In addition to manufacturing sector foreign investment on a repatriate-able

basis is allowed in services, infrastructure and social sectors.

Full repatriation of capital gains, dividends and profits.
The facility for contracting foreign private loans is available to all those

foreign investors who make investment in the approved sectors.

Foreign controlled manufacturing concerns are allowed to borrow on the

domestic market according to their requirements.

Foreign controlled semi-manufacturing and non-manufacturing concerns can
access loans equal to @ 75% & 50%, respectively, of their paid up capital

including reserves.
BOIs (Board of Investment) approval is not required for foreign companies to
open a bank account.

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INTERNATIONAL INSTITUTE
The role that international organizations can play depends on the interests of their
member States. States establish and develop international organizations to achieve
objectives that they cannot achieve on their own. By the same token, States will not
permit international organizations to do things that constitute, in the eyes of these
States, interference in their internal affairs.
This is particularly true in the very sensitive field of international migration. The
entry, economic activities, residence rights, etc., of foreigners are viewed, to this
day, as falling under the sovereignty and reserved domain of States. In the field of
international migration, no State likes to be told what it can or cannot do - neither
by another State nor by an international organization.
What are the principal functions accorded to international organizations? They may
be summarized under four heIMadings:
i.

studies or the collection and dissemination of information;

ii.

setting internationally acceptable norms;

iii.

fostering cooperation through meetings;

iv.

engaging in technical cooperation activities.

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States have few hesitations in giving international organizations a mandate to
collect and disseminate information, especially statistical material, and to carry out
studies, notably comparative studies, that enable the analysis of contemporary
trends and the drawing of lessons.
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IMF AND WORLD BANK

The Bretton Woods Institutions after the remote village in New Hampshire, U.S.A., where they
were founded by the delegates of 44 nations in July 1944, the Bank and the IMF are twin
intergovernmental pillars supporting the structure of the world's economic and financial order.
That there are two pillars rather than one is no accident. The international community was
consciously trying to establish a division of labor in setting up the two agencies. Those who deal
professionally with the IMF and Bank find them categorically distinct. To the rest of the world,
the niceties of the division of labor are even more mysterious than are the activities of the two
institutions.
Similarities between them do little to resolve the confusion. Superficially the Bank and IMF
exhibit many common characteristics. Both are in a sense owned and directed by the
governments of member nations. The People's Republic of China, by far the most populous
state on earth, is a member, as is the world's largest industrial power (the United States). In fact,
virtually every country on earth is a member of both institutions. Both institutions concern
themselves with economic issues and concentrate their efforts on broadening and strengthening
the economies of their member nations. Staff members of both the Bank and IMF often appear
at international conferences, speaking the same recondite language of the economics and
development professions, or are reported in the media to be negotiating involved and somewhat
mystifying programs of economic adjustment with ministers of finance or other government
officials. The two institutions hold joint annual meetings, which the news media cover
extensively. Both have headquarters in Washington, D.C., where popular confusion over what
they do and how they differ is about as pronounced as everywhere else. For many years both
occupied the same building and even now, though located on opposite sides of a street very
near the White House, they share a common library and other facilities, regularly exchange
economic data, sometimes present joint seminars, daily hold informal meetings, and
occasionally send out joint missions to member countries.