Practise distinguishing free-trade areas, customs unions and common markets, then evaluate monetary integration, labour mobility and sovereignty in HL questions.
Study the extract below and answer the questions that follow.
India-Malaysia trade agreement to double trade by 2015
(1) An India-Malaysia trade agreement is expected to almost double trade between the two countries by 2015, allowing the two nations to reduce dependence on traditional trade partners such as China and the United States. The preferential trade agreement will be signed by 31 January 2011 and come into force six months later. The agreement is predicted to increase the level of trade to billion by 2015.
(2) The deal will further strengthen trade ties between India and Malaysia. Malaysia is India's largest trading partner, with bilateral trade totaling billion between January and August 2010 after growing at an average of 14.9 % between 2004 and 2009. The deal will support a trade pact that came into effect in January 2010 between India and the 10 -member Association of Southeast Asian Nations (ASEAN)*, which became a free trade area in 2003. However, this agreement between India and Malaysia will be more extensive, covering services, investments, trade protection and other areas.
(3) Malaysia exports electrical and electronic products, crude petroleum, palm oil and chemical goods to India, its main export destination in South Asia. However, some tariffs have been imposed by India on these products. India, meanwhile, has invested billion in nearly 100 manufacturing projects in Malaysia. Malaysia and India will also bolster defence cooperation through frequent talks between their defence ministers, senior officials and chiefs of the armed services, according to a joint statement. prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world. © 2010 Thomson Reuters. Thomson Reuters journalists are subject to an Editorial Handbook, which requires fair presentation and disclosure of relevant interests.]
}
* ASEAN: is a free trade area comprising Brunei Darussalan, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
Define the term preferential trade agreement indicated in bold in the text (paragraph (1)).
Distinguish between a free trade area (such as ASEAN), a customs union and a common market.
Using information from the text/data and your knowledge of economics, evaluate the possible effects of this agreement on trade between India and Malaysia.
Study the extract and data below and answer the questions that follow.
Rwanda
(1) 20 years after the 1994 genocide* that claimed the lives of 800000 people, international views about Rwanda are mixed. On one hand, there is admiration for the country's dramatic development progress and economic success, while on the other, there is criticism of political repression. Human rights activists maintain that Rwanda too often suppresses political opposition and free speech.
(2) Development indicators show significant changes in education, public health and the economy. Rwanda spends huge proportions of its national budget on health and education. In 2011, almost 24 % of total government expenditure went to health and 17 % to education. Child and infant mortality rates have fallen dramatically. Life expectancy has risen from 48 years in 2000 to more than 64 years in 2012. Significant progress has been made in terms of the Millennium Development Goals.
(3) The economy has grown at an average of nearly 8 % per year from 2010 to 2014 because of increased agricultural productivity, tourism and government spending on infrastructure and housing.
(4) However, extreme poverty remains a reality for more than 60 % of the population. Poverty has fallen, but an estimated 63 % of Rwandans continue to live on less than the equivalent of US a day and 82 % on less than US a day. In 1985, the Gini coefficient was 0.28 . It climbed to a peak of 0.53 in 2005 and in 2010 stood at 0.51 . In spite of major achievements, the prime minister noted that "Poverty and inequality remain serious challenges. The growing youth population means that we need to create 200000 jobs every year".
5 Rwanda is heavily dependent on official development assistance (ODA). This was cut in 2012 after a United Nations report accused the Rwandan government of supporting a rebellion in the neighbouring Democratic Republic of Congo. Although aid resumed in 2013, the cutback severely limited the government's budget. The World Bank reported that the temporary cut in aid could still "threaten the economic outlook for Rwanda".
(6) The government is starting a programme of privatization and liberalization with the goal of attaining rapid and sustainable economic growth and reducing poverty. The aim is to transform the economy from its 90 % dependence on subsistence agriculture into a modern, broadly based economic engine, welcoming investors and creating employment and new opportunities. Rwanda's recent entry into the East African Community (a customs union comprising Burundi, Kenya, Tanzania and Uganda) should further improve its economic potential. www.nytimes.com, 23 March 2014 and www.afdb.org, accessed 29 September 2014]
\footnotetext{
* genocide: the deliberate killing of a very large group of people from a particular ethnic group or nation.
}
Figure 1 - Selected economic data for Rwanda and Nigeria
Define the term customs union indicated in bold in the text (paragraph 6).
Study the following extract and data and answer the questions that follow.
South Sudan joins the East African Community
(1) The East African Community (EAC) is the most integrated trading bloc in Africa. In 2005, the members established a customs union, and then in 2010 it became a common market. There are ambitious plans to establish a monetary union by 2024.
(2) According to a recent report, the region is wealthier and more peaceful as a result of the increased integration. Economic models suggest that bilateral trade between member countries was 213 % higher in 2011 than it would have been without the integration. This is despite the fact that progress on fully eliminating trade barriers has been rather slow and there are still a large number of non-tariff barriers.
(3) Until recently the customs union was made up of Burundi, Kenya, Rwanda, Tanzania and Uganda. Very recently, South Sudan joined the bloc. This presents a tremendous opportunity for South Sudan, which was recently recognized as an independent country.
(4) South Sudan is one of many developing countries that are dependent on oil exports for the majority of its export revenues and oil prices have been falling due to increased supply of oil in the market. The deteriorating terms of trade have resulted in a worsening of the current account and lower government revenues. Regional economic integration might help South Sudan to diversify its economy.
(5) Agriculture is one potential area that South Sudan could focus on to diversify its economy. According to some estimates, 70 % of land is suitable for agriculture, but less than 4 % is currently being cultivated. The large flood plains in the country are suitable for rice production and the hope is that South Sudan can develop a comparative advantage in this essential food.
(6) South Sudan is landlocked and most of its road network is unpaved. This is just one example of its poor infrastructure. Since infrastructure is an expensive investment, regional cooperation will be vital for improving its road systems. Furthermore, effective transport links to sea ports in Kenya and Tanzania will allow for greater trade and therefore economies of scale.
(7) In the short term, there will be challenges for South Sudan associated with joining the common market. For example, before Rwanda joined the EAC in 2007, there were lower tariffs on many imported inputs. However, the cost of living for the poor population rose because of trade diversion that occurred after joining the EAC. South Sudan is likely to face the same problem.
(8) Labour costs in South Sudan are higher than those of other member countries and years of conflict have left the population with low levels of education and skills. This may present a barrier for South Sudan in attracting foreign direct investment, despite being part of the common market.
Figure 1: Intra-East African Community* trade in goods (USD\$bn)
*Burundi, Kenya, Rwanda, Tanzania and Uganda.
Not including South Sudan, which acceded to the treaty in 2016. London (June 9, 2016); paragraphs 4-8 adapted from a paper/article written by Astrid R.N. Haas (and co-authors) with funding from the International Growth Centre.
Graph: IMF, www.eacgermany.org, accessed 3 May 2018]
Define the term monetary union indicated in bold in the text (paragraph (1)).
Using information from the text/data and your knowledge of economics, evaluate the likely impact on South Sudan of its membership of the EAC common market.