ECONOMIC INTEGRATION: CHARACTERISTICS, STAGES, ADVANTAGES - CULTURE VOCABULARY - 2025

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

This allows them to move forward and achieve common goals from an economic point of view. The agreements include reducing or eliminating trade barriers, as well as coordinating monetary and fiscal policies.

Silhouette of the member countries of the European Union

The fundamental objective pursued by economic integration is to reduce costs for producers and consumers, at the same time that it seeks to increase commercial activity among the countries that sign the agreement.

The economic integration processes are achieved through a series of stages that are progressively accomplished. Economic integration has advantages and disadvantages. Advantages include business 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 characteristics of the current regional economic integration processes are:

1. Institutional strengthening and free operation of market rules.
2. Trade liberalization and export promotion
3. Deepening of democratic systems of government.
4. They generate global competition
5. The rest of the world is not discriminated against
6. The opening of markets is emphasized, trade barriers are eliminated, and political and institutional cooperation is fostered.
7. The rules are similar and strictly observed 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, even with overlapping agreements.
10. The concept of regionalism is more open, less protectionist. Adopt open policies in the face of 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 economic integration process is accomplished in stages, either for an association of countries with a certain degree of flexibility in a given trade area or for complete economic integration. These stages o

forms of integration are as follows:

Preferential Trade Area

Preferential Trade areas are created when the countries that make up the same geographic region agree to eliminate or reduce tariff barriers for certain products imported from other members of the zone.

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

Free Trade Area

Free trade areas (FTA) are created when two or more countries in a certain 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

Countries that subscribe to 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 duty payment must be made for the exported goods. Tariff revenue is shared among member countries, but the tax collecting country keeps a small additional part.

Common Market

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

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

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

Complete Economic Union

They are trade blocs that, apart from having a common market for member countries, adopt a common trade 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, as it allows economies to become more united 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 also a single exchange rate and a central bank with jurisdiction for all member countries, which sets interest rates and regulates money.

Economic and Monetary Union

This stage is key to achieving competitive integration. Economic and Monetary Union implies having a single economic market, setting a common trade and monetary policy, and adopting a single currency.

Complete Economic Integration

When this stage is reached, there is not only a single economic market, but also a common trade, monetary and fiscal policy, along with a single currency. Common interest and tax rates are included here, as well as similar benefits for all member countries.

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

Advantages and disadvantages

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

Advantage

The benefits 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.
• Efficiency increases, which generates greater purchasing power.
• It favors energy cooperation between countries and individual commercial negotiation capacity.

Labor

• The population benefits from rising employment rates. Employment opportunities grow due to market expansion, as a consequence of trade liberalization, technology exchange and foreign investment flows.

Policies

• The ties of friendship and political cooperation between the signatory countries are strengthened or strengthened.
• Institutional strengthening and peaceful resolution of conflicts. Countries are forced to generate greater internal stability.
• The political negotiation capacity of countries is enhanced by negotiating as a bloc 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 trade bloc.
• Commercial deviation and diminished sovereignty. Norms not approved by the citizens of the country must be followed.
• Economies can have a strong impact on employment and economic growth, being inundated 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 the commercial flow over the productive sectors.

Examples of economic integration

• North American Free Trade Agreement (NAFTA) made up of the United States, Mexico and Canada.
• Economic Community of Central African States (CEMAC). Member countries: Burundi, Central African Republic, Cameroon, Gabon, Chad, Equatorial Guinea, Congo, Rwanda, Democratic Republic of the Congo, São Tomé and Príncipe 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 February 13 from britannica.com
2. Economic integration. Consulted of economicsonline.co.uk
3. What we should know about the FTAs ​​- Trade Agreements of Peru. Consulted of commercial agreements.gob.pe
4. Characteristics of the current integration processes. Consulted of urosario.edu.co
5. Economic integration. Consulted of icesi.edu.co
6. European Union. Consulted of es.wikipedia.org