Test: Regional Economic Integration -1 - UGC NET MCQ

A Customs Union differs from a Free Trade Area in that member countries in a Customs Union eliminate tariffs and other trade barriers on goods traded among them while also adopting a common external tariff on imports from non-member countries. This common external tariff helps create a unified trade policy towards non-member countries, which is not a feature of a Free Trade Area.

The Government of India can take many measures to control the money supply in India by controlling the purchasing power in the hands of the public. There are measures that are undertaken to promote the domestic industries and thereby lead to a reduction in imports. The Government of India has the power to regulate the foreign trade practices that may hamper the domestic industries.

In order to protect domestic industries, there are two major decisions that the Government may take in order to protect the domestic industries:

1. Tariffs- a tax on imported goods to make imported goods more expensive and discourage their use. This would lead to buyers choosing to purchase more of domestic goods than imported goods.
2. Quotas-  These specify the number of goods which can be imported. This is also known as the quantitative restriction on imports. This is done to purposely reduce the number of goods that can be imported from other countries. The combination of both these measures is known as the policy of import substitution.

The policy of import substitution provides protection to domestic industries from foreign competition. The rationale for this policy is that industries of developing countries like India are not in a position to compete against the goods produced by developed economies. It is assumed that if the domestic industries are protected in the infant stage they with gain strength by being able to produce on large scale and through experience to compete in the course of time. 

1. The statement 'Boosted Trade and Investment: Integration decreases trade and investment within the region' is incorrect. The actual impact of regional economic integration is that it increases trade and investment within the region. Therefore, option 1 is incorrect.

2. The statement 'Increased Inequality: Economic disparities between member countries may narrow' is also incorrect. The potential negative impact of increased inequality is that economic disparities between member countries may widen, not narrow. Thus, option 2 is incorrect.

Therefore, the correct answer is option C: Both 1 and 2, as both statements are inaccurate the impacts of regional economic integration.

Both statements 1 and 2 are correct based on the limitations of regional economic integration.

1. Winner/loser imbalances:That not all member nations or sectors benefit equally from integration, leading to political tensions. This implies the existence of winner/loser imbalances.

2. Implementation issues: Weak implementation and enforcement of regional agreements as hindrances to effective integration. This supports the statement that implementation issues and weak enforcement are common challenges in the process of economic integration.

• Assertion (A) states that ASEAN has made significant progress in eliminating tariffs among member states. This is true as ASEAN has indeed eliminated tariffs on many goods traded between member states, which is a key measure in promoting economic integration within the region.
• Reason (R) claims that the reduction of non-tariff barriers such as quotas and import licensing has been a primary focus of ASEAN integration efforts. This is also true as ASEAN has gradually reduced non-tariff barriers to facilitate trade and investment flows within the region.
• The Reason is a correct explanation of the Assertion because the reduction of non-tariff barriers complements the elimination of tariffs by making trade smoother and more efficient.
• Therefore, the correct answer is Option A: If both Assertion and Reason are true and Reason is the correct explanation of Assertion.

One of the advantages of regional economic integration is technology transfer, which occurs as a result of greater trade and investment within the integrated region. This transfer of technology and knowledge can lead to improvements in productivity, innovation, and overall economic development. It allows member countries to learn from each other's advancements and expertise, fostering growth and competitiveness within the integrated market.

The main objective of regional economic integration is to foster closer economic ties and cooperation within a particular geographic area. By reducing trade barriers, facilitating the movement of assets and labor, and promoting collaboration, countries aim to enhance economic prosperity and strengthen relationships within the region. This process can lead to increased efficiency, improved market access, and greater opportunities for shared growth and development among participating nations.

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand. Currently, there are 10 permanent members of this association. Its headquarter is in Jakarta (Indonesia).

Key Points

• The creation of ASEAN was motivated by a common fear of communism.
• The Association of Southeast Asian Nations is a regional intergovernmental organization comprising ten countries in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration among its members and other countries in Asia.
• Members are Indonesia, Philippines, Vietnam, Thailand, Myanmar, Malaysia, Cambodia, Laos, Singapore, and Brunei. Observers are East Timor and Papua New Guinea. 
• India could not become a member of this association due to its geographical location. India is a part of South-Asia while ASEAN is an organization of South-East Asian Nations. On July 23, 1996; ASEAN gave advisory status to India.

Thus, option 1 is the correct answer.

Assertion: The assertion that regional economic integration can lead to increased competition among member countries is correct. Integration often fosters competition as countries strive to improve their efficiency and competitiveness within the broader regional market.

Reason: The reason provided that integration fosters competition, leading to innovation and lower prices, is also correct. Increased competition is a common outcome of economic integration efforts.

Explanation: While both the Assertion and Reason statements are individually true, the Reason does not directly explain why the Assertion is true. Competition resulting from integration is a consequence rather than a direct explanation of the assertion. Therefore, Option B is the correct choice.

One of the key objectives of regional economic integration, is to promote trade among member countries. By reducing or eliminating tariffs and non-tariff barriers, regional integration aims to increase the flow of goods and services between nations, fostering economic growth and cooperation. This process can lead to a more efficient allocation of resources and increased market access for businesses within the integrated region.