Economic Integration: Characteristics, Stages, Advantages, Disadvantages, Examples

The economic integration it is a process through which two or more countries in a certain geographical area, agree to reduce a series of trade barriers to benefit and protect each other.

This allows them to advance and achieve common goals from the economic point of view. The agreements include reducing or eliminating trade barriers, in addition to coordinating monetary and fiscal policies.

Silhouette of the member countries of the European Union

The fundamental objective pursued by economic integration is the reduction of costs for producers and consumers, while seeking the increase of commercial activity among the countries subscribing to the agreement.

The processes of economic integration are achieved through a series of stages that are progressively fulfilled. Economic integration has advantages and disadvantages. Among the advantages are commercial benefits, increased employment and political cooperation.

Characteristics of integration processes

The integration processes are complex, due to the controversies that arise among its members. Among the most outstanding features of the current processes of regional economic integration are:

1. Institutional strengthening and free functioning of market rules.
2. Trade liberalization and export promotion
3. Deepening of democratic government systems.
4. Generate global competition
5. The rest of the world is not discriminated
6. Emphasis is placed on opening markets, eliminating trade barriers and encouraging political and institutional cooperation.
7. The rules are similar and strict compliance by all members, without discrimination or asymmetries.
8. The agreements that are adopted are vertical
9. Countries can sign one or more trade agreements with other countries, including overlapping agreements.
10. The concept of regionalism is more open, less protectionist. It adopts open policies against official barriers to trade or a distancing from protectionism.
11. Reduction of non-tariff barriers derived from sectors such as transport and communications.
12. Currently, regional integration processes are being adopted through market processes that are independent of the government.

Stages of economic integration

The process of economic integration is accomplished in stages, either for an association of countries with a certain degree of flexibility in a given area of ​​trade or for complete economic integration. These stages or

forms of integration are the following:

Preferential Trade Area

The areas of Preferential Trade are created when the countries that make up the same geographical region agree on the elimination or reduction of tariff barriers for certain products imported from other members of the zone.

This is often the first small step towards the creation of a commercial block. This type of integration can be established bilaterally (two countries) or multilateral (several countries).

Free Trade Area

Free trade areas (FTAs) are created when two or more countries in a given region agree to reduce or eliminate trade barriers in all products that come from other members.

An example of this is the North Atlantic Free Trade Agreement (NAFTA) signed between the United States, Canada and Mexico.

Customs union

The countries that sign customs unions assume the obligation to eliminate tariff barriers. They must also accept the setting of a common (unified) external tariff for non-member countries.

To export to countries with a customs union, a single tariff payment must be made for the exported goods. The tariff revenues are shared among the member countries, but the country collecting the tax is left with a small additional part.

Common Market

A common market, also called the single market, is a step prior to the establishment of full economic integration. In Europe, this type of integration is officially called"internal market".

The common market includes not only the tangible products, but all the goods and services that are produced within the economic area. Goods, services, capital and labor can circulate freely.

Tariffs are eliminated completely and non-tariff barriers are reduced or eliminated as well.

Complete Economic Union

They are commercial blocks that, apart from having a common market for member countries, adopt a common commercial policy towards non-member countries.

However, the signatories are free to apply their own macroeconomic policies. An example of this type of integration is the European Union (EU).

Monetary Union

It is considered a fundamental step towards macroeconomic integration, since it allows economies to join more and strengthen their integration. The monetary union implies the adoption of a common monetary policy, which includes a single currency (the euro, for example).

There is a single exchange rate also and a central bank with jurisdiction for all member countries, which sets interest rates and regulates the currency.

Economic and Monetary Union

This stage is key to achieve competitive integration. The Economic and Monetary Union implies having a single economic market, establishing a common commercial and monetary policy, and adopting a single currency.

Full Economic Integration

When this stage is reached, there is not only a single economic market, but also a common commercial, monetary and fiscal policy, together with a single currency. Interest rates and common taxes are included here, as well as similar benefits for all member countries.

All commercial and economic policies, in general, must be harmonized with the guidelines of the central bank of the community.

Advantages and disadvantages

The processes of economic integration have positive and negative consequences for the countries, although they are not the same in all cases.

Advantage

The advantages can be classified into three categories:

Commercial

• Economic integration generates a substantial reduction in the cost of trade.
• Improves the availability and selection of goods and services.
• Increases efficiency, which generates more purchasing power.
• It promotes energy cooperation between countries and individual commercial negotiation capacity.

Labor

• The population benefits by raising the employment rate. Employment opportunities are growing due to market expansion, as a result of trade liberalization, exchange of technology and foreign investment flows.

Policies

• The bonds of friendship and political cooperation between the signatory countries are reinforced or strengthened.
• Institutional strengthening and peaceful resolution of conflicts. Countries are forced to generate greater internal stability.
• The countries' political negotiation capacity is enhanced by negotiating in a block and maximizing international relations.
• Strengthening of internal defense and protection of the borders of each member country.
• Promotion of labor rights and academic exchange.
• Increase in the flow of people between countries.

Disadvantages

• Generation of conflicts when there are very marked economic and social asymmetries between the countries that make up the commercial block.
• Commercial deviation and decrease of sovereignty. Standards not approved by the citizens of the country must be met.
• Economies can have a strong impact on employment and economic growth, being flooded with foreign products and labor.
• Increase in the short term of internal competition with national products and companies.
• Increase in asymmetries due to differences in economies of scale.
• There may be a negative predominance of commercial flow over the productive sectors.

Examples of economic integration

• North American Free Trade Agreement (NAFTA) that make up the United States, Mexico and Canada.
• Economic Community of the Central African States (CEMAC). Member countries: Burundi, Central African Republic, Cameroon, Gabon, Chad, Equatorial Guinea, Congo, Rwanda, Democratic Republic of the Congo, Sao Tome and Principe and Angola.
• Mercosur . Member countries: Argentina, Paraguay, Brazil and Uruguay. (Venezuela was excluded).
• Caricom (Caribbean Community)
• Latin American Integration Association (ALADI).
• Asia-Pacific Free Trade Agreement (APTA).
• European Union. 28 member countries.

References

1. Sean Burges: Economic integration. Retrieved on February 13 from britannica.com
2. Economic integration. Consulted by economicsonline.co.uk
3. What we should know about the FTAs ​​- Trade Agreements of Peru. Consulted of comerciocomerciales.gob.pe
4. Characteristics of the current integration processes. Consulted by urosario.edu.co
5. Economic integration Consulted from icesi.edu.co
6. European Union. Consulted on es.wikipedia.org