Regional Economic Integration
Definition
The 5 Levels
defined as an agreement amongst nations to
co-operate on economic and trade issues.
state of affairs OR Process
Free-trade Area (1)
Customs Union (2)
Common Market (3)
Economic Union (4)
(Single market)
Political Union (5)
All trade Barriers are removed amongst member countries
Reduction of Tariffs
E.g. NAFTA, ASEAN
Common external trade policies & tariffs
member countries remove ALL BARRIERS to trade:
free mvmt of labour, capital, cross-border investments
member country keeps its own policies and tariffs
against non-member countries
common trade policy against non-members
Monetary & fiscal policy are harmonised
e.g. EU
Common gov. coordinates economic + political system
Potential drawbacks
Sovereignty of each member country is reduced
Potential Benefits
Trade Creation
Economies of Scale
Political Cooperation
Job creation
Trade Deflection
Trade Diversion
Shifts in employment
Loss of sovereignty
Wider selection of goods
buyers can acquire goods at a cheaper price
lower costs->ppl can buy more->high demand
Companies have greater opportunities to sell to members
in other countries
low avg. production costs and distribution costs
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
expand in employment opportunities
enabling people to move one member
country to another to earn more
Attracts FDI, creating jobs
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).
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
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
formation of trade bloc improves efficiency
with the elimination of trade barriers
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