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REGIONAL ECONOMIC INTEGRATION (R.E.I. in Europe (Political Structure of…
REGIONAL ECONOMIC INTEGRATION
R.E.I.
Definition:
Agreement between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods and services, and factors of production between each other.
5 Levels of Economic Integration
Free Trade
All barriers to the trade of goods and services among member countries are removed or reduced, but members determine their own trade policies with regard to nonmembers.
Customs Union
Eliminates trade barriers between member countries and adopts a common external trade policy.
Common Market
No barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production
Economic Union
Involves the free flow of products and factors of production between members, the adoption of a common external trade policy, and in addition, common currency, harmonization of the member countries' tax rates, and a common monetary and fiscal policy.
Political Union
Independent states are combined into single union.
Case
Regional economic integration
It is an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under internal agreements such as WTO.
Case Against REI
Trade Creation
Occurs when low cost producers within the free trade area replace hgih cost domestic producers.
Trade diversion
Occurs when higher cost suppliers within free trade area replace lower cost external suppliers
Political Case for Integration
By linking countries making them dependent on each other, and forming a structure where they regularly have to interact, which might reduce violent conflict and war.
R.E.I. in Europe
European Union with 27 members
The European Free Trade Association with 4 members
Political Structure of the European union
The Council of the European Union
The European Parliament
The European Commision
The Court of Justice
Establishment of the Euro (BENEFITS)
Handling one currency
Easier to compare price and cost
Increased competition promotes greater effeciencies