Answer to Question #204428 in Economics for Emmericia

Question

Fully discuss four types of economic integration and give practical examples in each case. (20 marks)

Answer 1

The experience of many integration associations shows that they are formed in two basic ways. The first principle is a powerful proactive role of the state (a classic example is the creation and development of the EU). Another principle is the predominant role of big business, which forces the state to take the path of rapprochement with one country or another. An example is the agreement between the USA, Canada and Mexico - NAFTA).

In the first case, an institutional type of integration develops, in the second - a private-corporate type of integration. The former CMEA should also be classified as an institutional type of integration, since it was organized exclusively at the interstate level, albeit with the aim of solving, first of all, the economic problems of Eastern European countries.

In terms of scale, integration associations are divided into bilateral (for example, the integration agreement between Australia and New Zealand), multilateral - the most common in regional integration, continental - Latin American Economic Integration (LEI), the Organization of African Unity.

Economic integration takes several forms. To date, there is no unified methodology for determining the total number of forms of international economic integration. According to the prevailing estimates in the economic literature, their number varies from four to seven. The WTO uses the approach of Bela Balassa, which has identified five main forms of economic integration:

1) free trade zone;

2) customs union;

3) common market;

4) economic (monetary) union;

5) political union.

In some sources, the economic union gets its continuation in a fundamentally new link - the currency union. The latter stands out from the economic union into an independent form. Some authors consider one more among the main forms of economic integration - a single internal market. Consequently, the largest number of integration agreements can be represented by such constituent parts as a free trade zone; Customs Union; Common Market; single domestic market; economic union; monetary union; (complete) economic and political integration.

The Free Trade Area (FTA) is a regional grouping of countries within which duty-free trade is carried out. With third countries, each member of the free trade zone sets its own tariffs. Therefore, between the countries participating in the FTZ, there are customs posts and borders that control the origin of goods crossing their state borders. This form of integration removes internal barriers and creates favorable preconditions for the specialization of the bloc member states in the production of those goods and services for which they have comparative advantages and facilitates the import of those goods and services in the production of which they do not have comparative advantages. At the same time, each country retains its independence in trade and other types of economic policy. One of the most famous agreements of this type is the European Free Trade Association, created in 1960, which currently unites the countries of Western Europe that are not members of the EU: Norway, Switzerland, Iceland. Another example is the North American Free Trade Agreement (IIAFTA), which united the United States and Canada in 1989, which later included Mexico.

The Customs Union (CU) is a common customs territory of two or more countries with a single customs tariff for goods exported or imported from third countries. A customs union leads to the adoption by countries of a common customs policy. Each member will delegate some of the management functions related to trade policy to the group as a whole. At this stage, common supranational bodies are already being created to coordinate the implementation of an agreed foreign trade policy. Examples of this form of integration are the Andean Community (ANCOM), which includes five Latin American countries; The Caribbean Community of 15 Caribbean countries (CARICOM); the EurAsEC customs union; MERCOSUR (common market of South American countries). An example of the successful development of the CU can also be the EEC, which during 1960-1990. was precisely at this stage of interaction.

The common market is a space covering a number of countries, where they establish equal conditions for the movement of goods and services, factors of production. While pursuing a common trade policy, countries retain their independence in monetary and fiscal policies, but they are coordinated. The main features of a common market are the absence of any barriers to trade between states, a common trade policy in relation to other countries, and the mobility of factors of production between the member states of the union. Interstate administration is based for this form of integration on the coordination of economic policy but in the most important areas - monetary, fiscal, structural, scientific and technical, social, antimonopoly, etc. regulation.