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Regional Economic Integration (The 5 Levels (Free-trade Area (1)…
Regional Economic Integration
Definition
defined as an agreement amongst nations to
co-operate on economic and trade issues.
state of affairs OR Process
The 5 Levels
Free-trade Area
(1)
Reduction of Tariffs
E.g.
NAFTA, ASEAN
member country
keeps its own policies and tariffs
against non-member countries
Customs Union
(2)
Common external trade policies & tariffs
Common Market
(3)
member countries
remove ALL BARRIERS to trade:
free mvmt of labour, capital, cross-border investments
common trade policy against
non-members
Economic Union
(4)
(Single market)
All trade Barriers are removed
amongst member countries
Monetary & fiscal policy are harmonised
e.g. EU
Political Union
(5)
Common gov. coordinates
economic + political
system
Sovereignty of each member country is reduced
Potential drawbacks
Trade Deflectio
n
Problem:
deliberately exporting goods to one country thru
a transit country
Solution
: Rules of origin
determine product's country of origin
determine whether a country will incur tarrifs/anti-dumping duty
Trade Diversion
trade is diverted
from a more efficient exporter
towards a less efficient one
by the formation of a free trade agreement or a customs union (trade bloc).
divert for no reason because of nafta agreement
E.g. CHINA, US AND CANADA ARE PART OF NAFTA, US can buy from china cheaper, but because of nafta agreement, China sell to canada, then usa have to buy from Canada which is more expensive
Shifts in employment
formation of trade bloc improves efficiency
with the elimination of trade barriers
Loss of sovereignty
successive levels of integration =
nations surrender their sovereignty
can be seen in a
political union
level
countries have to
give up a certain amt of sovereignty
difficult
since some members have
DELICATE
ties with other members
Potential Benefits
Trade Creation
Wider selection of goods
buyers can acquire goods at a cheaper price
lower costs->ppl can buy more->high demand
Economies of Scale
Companies have greater opportunities to sell to members
in other countries
low avg. production costs and distribution costs
Political Cooperation
more impact/
political weight
as a group of nations
than a country fending for itself
forums like WTO
This integration
reduces potential for military conflict
Job creation
expand in employment opportunities
enabling people to move one member
country to another to earn more
Attracts FDI
, creating jobs