Test: Regional Economic Integration -2 - UGC NET MCQ

SAARC:

• The South Asian Association for Regional Cooperation (SAARC) was founded in Dhaka on 8 December 1985 and was dedicated to economic, social, technological, and cultural development emphasizing collective self-reliance.
• It is the regional intergovernmental organization and geopolitical union of states in South Asia.
• The SAARC is headquartered in Kathmandu, Nepal.
• Its seven founding member states are Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka.
• Afganistan joined the organization in 2007.
• There are 11 areas of cooperation which includes agriculture; education, sports, and culture; population, health, and child welfare; the environment and meteorology; rural development; transport; tourism; communications; science and technology; women in development; and the prevention of drug trafficking and drug abuse. 
• It launched the South Asian Free Trade Area (SAFTA) in 2006.
• The SAARC maintains permanent diplomatic relations at the UN as an observer and has developed links with multilateral entities, including the European Union.
• Therefore, Brazil is not a member of SAARC.

• Assertion is correct as customs unions do indeed involve eliminating trade barriers among member states.
• Reason is correct as customs unions also necessitate the implementation of a common external tariff towards non-members.
• The Reason is the correct explanation of the Assertion because the removal of internal trade barriers in customs unions is complemented by the imposition of a unified external tariff on non-member countries, ensuring a cohesive trade policy within the union.

• Assertion is correct as economic unions entail coordinating fiscal, budgetary, and monetary policies among member states.
• Reason is false as economic unions often do adopt a common currency for their member nations (e.g., the Euro in the European Union).
• The Reason is false, so it does not explain the Assertion. Economic unions frequently adopt a common currency to facilitate economic integration and trade among member countries.

A Common Market goes beyond a Customs Union by enabling the free movement of factors of production such as labor, capital, services, and technology across borders. It involves institutions that regulate competition and coordinate macroeconomic policies to facilitate economic integration.

Economic Integration:

• One of the major economic trends that has affected global trade in recent years is economic integration.
• Countries have sought to cooperate economically in order to utilise their resources more efficiently and to generate substantial markets for the countries that would make up the ensuing integrated territories.

A Preferential Trading Area (PTA) involves member countries agreeing to lower tariffs and quotas on imports from fellow member countries while maintaining their individual trade policies toward non-member nations. This level of economic integration typically features minimal cooperation and lacks formal institutions.

• Assertion is false as Preferential Trade Arrangements do not entail the complete unification of trade policies but involve selective reductions in tariffs and quotas.
• Reason is false as Preferential Trade Arrangements typically have a limited institutional framework compared to higher stages of economic integration.
• Both Assertion and Reason are false, making Option D the correct answer.

A Customs Union builds upon an FTA by not only removing tariffs and quotas among member countries but also implementing a common external tariff and a unified trade policy toward non-members. This allows for coordinated trade planning with non-member nations.

• Assertion is true as common markets indeed enable the free movement of various factors among member nations.
• Reason is also true, but it is not the correct explanation of the Assertion. Common markets do require coordination of competition and macroeconomic policies to ensure fair competition and economic stability within the integrated market.

An Economic Union represents full economic integration with a single market, coordinated fiscal, budgetary, and monetary policies, and possibly a common currency. This level of integration allows for harmonized policies across the entire region, distinguishing it from a Common Market.