08. Regional Economic Integration

bilateral integration

two countries cooperate closely, usually in the form of tariff reductions

regional integration

a group of countries located in the same geographic proximity decide to cooperate

global integration

countries worldwide cooperate through the WTO

regional trade agreements (RTAs) are…

any reciprocal trade agreement between two or more partners

regional economic integration

agreements between countries in a geographic region to reduce or remove barriers for goods, services, and factors of production

5 levels of economic integration

free trade area, customs union, common market, economic union, political union

free trade area

internal trade barriers are removed but each country determines its own external trade policy e.g. EFTA or USMCA

customs union

internal trade barriers are removed and a common external trade policy is adopted e.g. Andean community

common market

customs union that allows factors of production to move freely among member countries e.g. Mercosur

economic union

characteristics of a common market, harmonised monetary and fiscal policies, and a common currency e.g. EU

political union

common foreign and security policies, judicial cooperation e.g. Australia and the US

trade creation

occurs when low-cost producers within the free trade area replace high-cost domestic producers

trade diversion

occurs when higher cost suppliers within the free trade area replace low cost external suppliers

commodities

raw materials or primary products that enter into trade, such as metals or agricultural products