Model Answer
0 min readIntroduction
Economic integration refers to the reduction or removal of trade barriers between countries to foster greater economic interdependence. This process ranges from preferential trade agreements to complete economic unions. In a globalized world, economic integration is increasingly seen as a pathway to economic growth, enhanced competitiveness, and regional stability. While the benefits are substantial, the process also entails costs and challenges. Both the Association of Southeast Asian Nations (ASEAN) and the South Asian Association for Regional Cooperation (SAARC) represent attempts at regional economic integration, though with varying degrees of success. This answer will elaborate on the different levels of economic integration, their costs and benefits, and critically assess the performance of ASEAN and SAARC in promoting integration among their member states.
Levels of Economic Integration
Economic integration unfolds in several stages, each building upon the previous one:
- Preferential Trade Area (PTA): Countries reduce trade barriers (tariffs, quotas) for certain products.
- Free Trade Area (FTA): Elimination of tariffs and quotas between member countries. Each country maintains its own external tariffs. (e.g., NAFTA/USMCA)
- Customs Union: FTA + common external tariffs on non-member countries. (e.g., Southern Common Market - Mercosur)
- Common Market: Customs Union + free movement of factors of production (labor, capital) between member countries.
- Economic Union: Common Market + harmonization of economic policies (monetary, fiscal, social). (e.g., European Union)
- Complete Economic Integration: Economic Union + complete harmonization of policies, including a common currency and a supranational authority.
Costs and Benefits of Economic Integration
| Level of Integration | Benefits | Costs |
|---|---|---|
| PTA | Increased trade in specific sectors, lower prices for consumers. | Limited impact on overall trade, potential for trade diversion. |
| FTA | Increased trade, economies of scale, greater competition, lower prices. | Loss of tariff revenue, adjustment costs for domestic industries, trade diversion. |
| Customs Union | FTA benefits + increased bargaining power with non-member countries. | Loss of policy autonomy in trade, potential for inefficient resource allocation. |
| Common Market | Customs Union benefits + increased labor mobility, capital flows, economic growth. | Potential for wage disparities, brain drain, social tensions. |
| Economic Union | Common Market benefits + macroeconomic stability, reduced transaction costs. | Loss of monetary policy independence, potential for asymmetric shocks. |
| Complete Economic Integration | Maximum economic efficiency, political stability. | Significant loss of national sovereignty, complex governance challenges. |
ASEAN and SAARC: A Comparative Analysis
ASEAN (Association of Southeast Asian Nations)
ASEAN, established in 1967, has been relatively successful in promoting economic integration. The ASEAN Free Trade Area (AFTA) was established in 1992, and the ASEAN Economic Community (AEC) blueprint (2008) aimed for a common market by 2015. While the 2015 target wasn’t fully met, ASEAN has significantly reduced intra-regional tariffs, facilitated trade, and attracted foreign investment. The Regional Comprehensive Economic Partnership (RCEP), signed in 2020, further strengthens economic ties with countries like China, Japan, and Australia. ASEAN’s success is attributed to its consensus-based approach, strong political will, and a focus on practical cooperation. Intra-ASEAN trade has grown significantly, reaching approximately 23.4% in 2022 (ASEAN Secretariat data).
SAARC (South Asian Association for Regional Cooperation)
SAARC, founded in 1985, has faced significant challenges in achieving meaningful economic integration. The South Asian Free Trade Area (SAFTA) was established in 2006, but its implementation has been slow and hampered by political tensions, particularly between India and Pakistan. Non-tariff barriers remain significant, and intra-regional trade remains low, estimated at around 5% (World Bank, 2020). Political instability, lack of trust, and differing levels of economic development have hindered progress. The suspension of SAARC summits and limited cross-border infrastructure projects further impede integration. The lack of a strong institutional framework and the dominance of India have also been cited as factors contributing to SAARC’s limited success.
Comparative Table: ASEAN vs. SAARC
| Feature | ASEAN | SAARC |
|---|---|---|
| Political Stability | Relatively stable | Prone to political tensions |
| Intra-Regional Trade | ~23.4% (2022) | ~5% (2020) |
| Institutional Framework | Strong and effective | Weak and fragmented |
| Political Will | High | Low |
| External Engagement | Proactive (RCEP) | Limited |
Conclusion
Economic integration offers substantial benefits, but its success hinges on political will, institutional capacity, and a shared vision among member states. ASEAN’s experience demonstrates that a pragmatic, consensus-based approach, coupled with strong regional institutions and proactive external engagement, can foster significant economic integration. In contrast, SAARC’s progress has been hampered by political tensions, weak institutions, and a lack of trust. For SAARC to realize its potential, it needs to address these challenges and prioritize practical cooperation, focusing on areas like infrastructure development and trade facilitation. Ultimately, the future of regional integration in both South and Southeast Asia depends on the commitment of member states to overcome political obstacles and embrace a collaborative approach to economic development.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.