Economic Integration
Economic IntegrationName Student numberInstitutionEconomic IntegrationCommonly referred to as the agreement of economic benefits between two regions, economic integration is characterized by the reduction of trade barriers and any other barrier that could hinder members from transacting. The primary aim of integration is to cut the cost for both the consumer and the producer, while maintaining beneficial relations between member states. The more economies are integrated, the less the trade barriers will exist. Additionally, political and economic corporation between two regions will blossom[1]. Researchers have argued that trade barriers between countries serve as an obstacle to trade, which could be beneficial to both parties. If many economies tied, governments and state unions would not have money to benefit themselves. At times, it can lead to long-term benefits shared between two nations; on the other hand, weak economic growth can worsen the situation. Whenever two countries or regions come into a standard agreement to share their fiscal, monetary, and trade policies can be referred to as an economic integration. Many researchers have considered preferential Trade as the weakest type of integration between states. It involves two countries or a region agreeing to reduce or remove trade tariffs for certain goods and services that are imported from the parties. It is considered the first step toward creating a trading block or enhancing regionalism.[2] It is, however, worth noting that this arrangement is only applicable to WTO members, who are obliged to share it with all the other officers. For example, if a country collects a 5% tax on imported motorcycles it must also offer the same rate to all other WTO members. The country has the freedom to charge higher taxes to non-members.
Free Trade Area is practical where the members in agreement come to a mutual understanding to remove all the economic hindrances between them. They can, however, maintain their tariffs against non-members. An ideal example of such an agreement would be the North American Free Trade Area (NAFTA), which is between Canada, America, and Mexico. It is effective to remove all tariffs on goods from Mexico to the United States or Canada[3]. This implies that Canada is free to import tangible property from the United States at zero tariffs, while other countries will be taxed when importing from the US. Customs Union is the understanding between countries to form a trading bloc, which charges a fixed rate for all non-members. The bloc can negotiate with others but never under any circumstances offer lesser charges to non-members unless an agreement has been reached. The European Union is a renowned economic bloc[4]. A customs union provides every member state with an opportunity to negotiate on the fixed charge to be presented to member states.Common Market has been lauded as the first step toward first crucial step that can lead to full economic ties between countries and it happens where two or more nations agree to trade freely their resources not only tangible goods. Therefore, all the tariffs that are imposed on goods, services, labor, and capital are eliminated. For a common market to exist there needs to be a remarkable harmonization of trade policies and even the lowest economic policies and other factors that promote competition.[5] For instance, all citizens of member states of the European Union have a common passport, implying that one can work or invest in another country provided it is an EU member.