Trade Blocs

In economics, trading blocs are a formal agreement between two or more regional countries that remove trade
barriers between the countries in the agreement while keeping trade barriers for other countries.

Types of Trading Blocs

1. Free Trade Area
Two or more countries form a Free Trade Area in which trade barriers between the countries are abolished but each country
maintains its own tariffs against non-member countries. For example the North American Free Trade Agreement (NAFTA)
between USA, Canada & Mexico created a free trade area.

2. Customs Union
A Customs Union is like a free trade area except that member countries maintain a common tariff against non-member
countries.

3. Common Market
A Common Market is like a customs union but there is free flow of factors of productions between the countries. Ex: No
required to work in another member country.

4. Economic Union
A Economic Union has the same benefits as a common market but there is a common tax system and employ the same
currency. For example the European Union is an economic union.

5. Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or
eliminate tariff barriers on selected goods imported from other members of the area. This is often the first
small step towards the creation of a trading bloc.

Examples of Trading Blocs

1. Trade Creation
Eliminations of trade barriers for member countries increases domestic production and consumption. The more efficient
producer produces, leading to less wastage of scarce resources. This is trade creation.

2. Trade Diversion
When a trade bloc is formed, an external tariff maybe be applied to non-member countries, making some goods that were
initially cheaper, now more expensive. Thus, the member country may start importing from other member countries since
the price becomes artificially cheaper than buying from the previous non-member country. This leads to trade diversion.
European Union
A brief history:

European integration was a movement that followed after the devastation Europe post World War I and II. 1952 saw the
creation of the European Coal and Steel Community, which was declared to be “a first step in the federation of Europe”,
starting with the aim of eliminating the possibility of further wars between its member states by means of pooling the
national heavy industries. In 1957, the six countries signed the Treaty of Rome, which extended the earlier co-operation
within the European Coal and Steel Community (ECSC) and created the European Economic Community (EEC),
establishing a customs union. They also signed another treaty on the same day creating the European Atomic Energy
Community (Euratom) for co-operation in developing nuclear energy. Both treaties came into force in 1958. Eventually
the scope of cooperation extended to various spheres like free trade, free movement and common currency etc, by signing
number of treaties.

Reasons for integration

The initial background of European integration was economic in nature , eventually it evolved into a political
integration .Let us briefly examine the causes of economic and political integration ,

 Desire for a new identity, a broader connotation as an alternative to narrow nationalism that led to the world wars. The
identity the leaders envisaged was that of a larger ,stronger Europe and the identity of every citizen to be “European”.
 Reemergence of Germany post the World War II was a common fear that all the European countries shared, European
integration in the direction of European Union was a move for “Containment of Germany”.
 Post World War II ,Europe was devasted economically and politically, the leaders of various European countries decided
to rebuild themselves and they sought the channel of European integration in the hope of economic prosperity and recovery.
Free trade agreements, freedom of labour, freedom of establishment within the member states was a result of this common
and shared state of affairs i.e economic depression among them, that initially resulted in this integration.
 The United States saw a union between the European States as a means of countering a perceived communist threat from
the eastern bloc countries and consequently, provided financial aid, under Marshall plan. Although, United States had a
vested interest in the European integration and the financial aid provided by them played an important role in the same, it
has be noted that European integration was build primarily by the efforts of various European leaders to build a more stable
and peaceful future for Europe and its citizens

Working of European Union:

The European Union (EU) is not a federation like the United States. Nor is it simply an organization for co-operation
between governments, like the United Nations. Then the question is in such a unique model ,how the member states of
European union, have compromised on their sovereignty. At this point it is important to understand that the European
Union is based on the concept of “pooling of sovereignty”. In practice, this means that member states delegate some of
their decision-making powers to shared institutions they have created, so that decisions on specific matters of joint
interest can be made democratically at European level. Then the questions of the institutions performing these function
should be understood.

SAARC
South Asian Association for Regional Corporation was established in the year of 1985. In the 1970s, the President of
Bangladesh Ziaur Rahman had put forward the idea of a trade bloc that would comprise the South Asian countries. This
idea was accepted by India, Bangladesh, Pakistan and Sri Lanka in Colombo in 1981. In 1983 there was a summit in
New Delhi whereby the declaration regarding the formation of the South Asian Regional Cooperation was adopted. Later
three other countries of Nepal, Bhutan and Maldives joined in.
The objectives, principles and general provisions, as mentioned in the SAARC Charter, are as follows :

Objectives:
 To promote the welfare of the peoples of South Asia and to improve their quality of life;
 To accelerate economic growth, social progress and cultural development in the region and to provide all individuals the
opportunity to live in dignity and to realise their full potentials;
 To promote and strengthen collective self-reliance among the countries of South Asia;
 To contribute to mutual trust, understanding and appreciation of one another’s problems;
 To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields;
 To strengthen cooperation with other developing countries;
 To strengthen cooperation among themselves in international forums on matters of common interests;
 To cooperate with international and regional organizations with similar aims and purposes.

Principles
 Cooperation within the framework of the Association is based on respect for the principles of sovereign equality,
territorial integrity, political independence, non-interference in the internal affairs of other states and mutual benefit.
 Such cooperation is to complement and not to substitute bilateral or multilateral cooperation.
 Such cooperation should be consistent with bilateral and multilateral obligations of the member states.
 Decisions at all levels in SAARC are taken on the basis of unanimity.
 Bilateral and contentious issues are excluded from its deliberations.

Areas of development:

There were mainly five areas in which these seven countries decided to cooperate:

 Human Resource Development

 Transport
 Health and Population Activities
 Telecommunications, Science, Meteorology and Technology
 Agriculture and Rural Development

SAARC EUROPEAN UNION

1. Member states of SAARC , except India are 1. Almost all the members of the EU are
politically instable states and have weaker market Parliamentary democracies, having
structures. multi party system, free and regular
elections and strong market economy.
2. The specific aim of formation of SAARC was to
promote regional economic cooperation among the 2. The reasons of European integration,
member states and it did not have any historical were, as discussed, a desire for a new
reason of integration. identity as “European” for a stable and
peaceful market, economy and state of
3. ndia, is the biggest power in the region of South affairs.
Asia, in terms of size and population thus all the
other member states look at it with suspicion and 3. Geographically, all the states in the
the relations of India with its neighbors is not of European Union are placed in terms of
mutual trust making the working of SAARC weak size and population that no single state
and difficult can dominate the other states. This
 4. Given these relations between the member states enables smooth geopolitics amongst the
the states do not compromise on their sovereignty member states
and all laws have to be made within the strict
framework of “sovereign equality” not as 4. On the other hand, the member states of
community legislation for the single unit of “South the European Union have “pooled their
Asia” and the bilateral relations of the states are sovereignty” enabling institutions of
outside the ambit of SAARC. EU to legislate for the common benefit
of “European Continent”.
5. The countries of SAARC lack economic
complementarity, rather they are economically 5. On the other hand, the member states of
competitive markets where every country exports the European Union have “pooled their
mostly the same goods like spices, cotton, jute etc. sovereignty” enabling institutions of
Furthermore, there is very less intra regional trade EU to legislate for the common benefit
in the region which hinders integration on economic of “European Continent”.
lines in this region

Question 2

Introduction
The telecommunications industry in India has witnessed many developments and undergone
tremendous changes. It is one of the fastest growing industries in the world and has proved to
be an international success story. India has developed as the second largest
telecommunication market with 898 million subscribers as on March, 2013.
Indian telecom sector has undergone a major process of transformation through several policy
reforms and regulations. The sector is becoming more competitive day-by-day, with the
introduction of new players and has truly revolutionized the way we communicate and share
information. This article is an attempt to capture the changing scenario of the
telecommunication industry of India. The study also tries to unravel the change strategies
adopted by the key players in the industry.

Changing telecom scenario

With the announcement of the New Economic Policy in July 1991, the telecom sector was
declared open to the private sector. In 1994, the government announced the National Telecom
Policy which further stimulated the growth of the industry by provision of world class
services at reasonable rates, promotion of exports, stimulation both domestic and foreign
direct investments.
The entry of private players in the sector necessitated the need for regulation. As a result, the
Telecom Regulatory Authority of India (TRAI) was established in 1997 to regulate telecom
services. TRAI has been issuing a large number of regulations from time to time thus,
transforming the once government owned monopolistic telecom market to a multi-operator
open competitive market.
Soon thereafter, the New Telecom Policy was declared in the year 1999 which laid down a
clear road map for future reforms by opening by all the sectors in telecommunications to
private players.
During the recent years, various policy initiatives and developments have given a boost to the
telecom sector. The following section describes some of the major changes in the recent
years.
Technological developments

The growth of telecom industry has also been fuelled by the launch of newer telecom
technologies like 3G, and BWA, and emergence of cloud technologies. Efforts are
continuously made to develop affordable technology for masses and reinvigorate the
maturing urban markets and help in bringing balanced growth of economy.
Muller (1990) in his research attributed the success of mobile commerce to the personal
nature of wireless devices and asserted that the sustained growth of mobile commerce around
the world has been more because of transfer of technology according to local geographical
needs. According to Uehara (1990); King (1990); Glynn (1992); Mutoh (1994), technological
changes in telecom and computers have radically changes the business scenario. Telecom
based technological innovations have been spurred by new demands of business. Singh
(2004) highlighted the exponential growth of data services in the years to come and pointed
out that broadband is likely to a lead in the development of the Indian Telecom Sector.
Saran (2004) mentioned that the telecom technology over the years have transformed from
manual and electro-mechanical systems to digital systems. These technological systems have
made way for new services and better services in the telecom sector.

Declining tariff

The telephone tariffs have declined dramatically over the years making the mobile telephone
affordable to the common man. A large number of options have been made available to the
subscribers to choose from the market depending upon their usage profile. All this has
resulted in increased competition among the various market players.
The stiff competition amongst players has further reduced the tariffs (Indian Infrastructure
Report, 2005). The call rates have significantly declined and have gone as low as 0.5 paisa
per second (TRAI). Ghosh (2003) emphasized on progressive reduction in tariffs as the most
significant development since 1999.

Changing customer demands

Narinder K Chibber (2008) pointed out that mobile telecommunication technology is rapidly
evolving with people demanding mobile services with longer bandwith and new innovative
services like seamless connectivity, 3G and 4G.
Mobile Value Added Service (MVAS)
MVAS industry in India has an estimated size of US $ 2.7 billion which derives its revenues
mainly from game applications, music downloads, etc. The same is estimated to grow US $
10.8 billion by 2015, creating a next wave of change in the semi-urban and rural areas.

Mobile Number Portability (MNP)

MNP services were launched in the year 2011 which allowed subscribers to retain their
existing mobile telephone number even they switch from one service provider to another
irrespective of mobile technology. Implementation of MNP has not only benefitted the
subscribers by offering them a wide range of choices but has also prompted service providers
to offer innovative, affordable, and competitive tariff plans for the benefit of the subscribers
(TRAI).

Foreign Direct Investment (FDI)

The government has decided to allow 100% FDI in telecommunications sector which is
expected to enable foreign telecommunication companies to buy out their Indian partners. At
present India permits up to 74% FDI in this sector – 49% through the automatic route and the
rest after Foreign Investment Promotion Board approval.
The government intends to make India a teleport hub. This initiative is expected to attract
foreign investments, better technology, and sustainable employment opportunities in the
country.

Competition
Deregulation, declining tariff, opening up of the sector to foreign investments, changing
customer demands and last but not the least technological developments has led to increased
competition among the telecom service providers.