International Trade Agreement

&
Regional Economic Integration

International Trade Agreements:

Trade agreements regulate international trade between two or more nations. An agreement may
cover all imports and exports, certain categories of goods, or a single category. Trade agreements
are when two or more nations agree on the terms of trade between them. They determine the
tariffs and duties that countries impose on imports and exports. All trade agreements affect
international trade.
Imports are goods and services produced in a foreign country and bought by domestic residents.
That includes anything shipped into the country even if it's by the foreign subsidiary of a
domestic firm. If the consumer is inside the country's boundaries and the provider is outside, then
the good or service is an import. Exports are goods and services that are made in a country and
sold outside its borders. That includes anything shipped from a domestic company to its foreign
affiliate or branch.
The most important general trade agreement is called, simply enough, the General Agreement on
Tariffs and Trade (GATT). GATT was signed in October 1947 to liberalize trade, to create an
organization to administer more liberal trade agreements, and to establish a mechanism for
resolving trade disputes. The GATT organization is small and located in Geneva. More than 110
nations have signed the general agreement, which originally was signed by 24 nations, including
the United States. To a large degree, the role of GATT as an organization has been superseded
by the World Trade Organization, which I discuss later in this section.
A major trend of the past 25 years has been the creation and growth of free trade zones among
nations agreeing to form regional trade blocs. The agreements that create free trade zones all
share the same aims: to liberalize trade, promote economic growth, and provide equal access to
markets among the member nations. The most significant free trade zones are the European
Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of
Southeast Asian Nations (ASEAN).
In addition, the World Trade Organization (WTO) is a global organization, headquartered in
Geneva, for dealing with trade between nations. Established in January 1995 by the Uruguay
round negotiations under GATT, the WTO included 144 nations as of January 2002. The WTO
administers trade agreements, provides a forum for trade negotiations and resolving trade
disputes, monitors trade policies, and provides technical assistance and training for developing
countries.
History of International Trade Agreements:
Ever since Adam Smith extolled the virtues of the division of labor and David Ricardo explained
the comparative advantage of trading with other nations, the modern world has become
increasingly more economically integrated. International trade has expanded, and trade
agreements have increased in complexity. While the trend over the last few hundred years has
been toward greater openness and liberalized trade, the path has not always been straight.

From Mercantilism to Multilateral Trade Liberalization:

The doctrine of mercantilism dominated the trade policies of the major European powers for
most of the sixteenth century through to the end of the 18th century. The key objective of trade,
according to the mercantilists, was to obtain a “favorable” balance of trade, by which the value
of one’s exports should exceed the value of one’s imports. The mercantilist trade policy
discouraged trade agreements between nations. That's because governments assisted local
industry through the use of tariffs and quotas on imports, as well as the prohibition of exporting
tools, capital equipment, skilled labor or anything that might help foreign nations compete with
the domestic production of manufactured goods.
One of the best examples of a mercantilist trade policy during this time was the British
Navigation Act of 1651. Foreign ships were prohibited from taking part in coastal trade in
England, and all imports from continental Europe were required to be carried by either British
ships or ships that were registered in the country where the goods were produced.
In 1823, the Reciprocity of Duties Act was passed, which greatly aided the British carry trade
and made permissible the reciprocal removal of import duties under bilateral trade agreements
with other nations. In 1846, the Corn Laws, which had levied restrictions on grain imports, were
repealed, and by 1850, most protectionist policies on British imports had been dropped. Further,
the Cobden-Chevalier Treaty between Britain and France enacted significant reciprocal tariff
reductions. It also included a most favored nation clause (MFN), a non-discriminatory policy that
requires countries to treat all other countries the same when it comes to trade. This treaty helped
spark a number of MFN treaties throughout the rest of Europe, initiating the growth of
multilateral trade liberalization, or free trade.

The Deterioration of Multilateral Trade:

The trend toward more liberalized multilateral trading would soon begin to slow by the late 19th
century with the world economy falling into a severe depression in 1873. Lasting until 1877, the
depression served to increase pressure for greater domestic protection and dampen any previous
momentum to access foreign markets. Italy would institute a moderate set of tariffs in 1878 with
more severe tariffs to follow in 1887. In 1879, Germany would revert to more protectionist
policies with its "iron and rye" tariff, and France would follow with its Méline tariff of 1892.
Only Great Britain, out of all the major Western European powers, maintained its adherence to
free-trade policies.
As for the U.S., the country never took part in the trade liberalization that had been sweeping
across Europe during the first half of the 19th century. But during the latter half of the century,
protectionism significantly increased with the raising of duties during the Civil War and then the
ultra-protectionist McKinley Tariff Act of 1890. The rise of nationalist ideologies and dismal
economic conditions following the war served to disrupt world trade and dismantle the trading
networks that had characterized the previous century. The new wave of protectionist trade
barriers moved the newly formed League of Nations to organize the First World Economic
Conference in 1927 in order to outline a multilateral trade agreement. Yet, the agreement would
have little effect as the onset of the Great Depression initiated a new wave of protectionism. The
economic insecurity and extreme nationalism of the period created the conditions for the
outbreak of World War II.

Multilateral Regionalism:
With the U.S. and Britain emerging from World War II as the two great economic superpowers,
the two countries felt the need to engineer a plan for a more cooperative and open international
system. The International Monetary Fund (IMF), World Bank, and International Trade
Organization (ITO) arose out of the 1944 Bretton Woods Agreement. While the IMF and World
Bank would play pivotal roles in the new international framework, the ITO failed to materialize,
and its plan to oversee the development of a non-preferential multilateral trading order would be
taken up by the GATT, established in 1947. While the GATT was designed to encourage the
reduction of tariffs among member nations, and thereby provide a foundation for the expansion
of multilateral trade, the period that followed saw increasing waves of more regional trade
agreements. In less than five years after the GATT was established, Europe would begin a
program of regional economic integration through the creation of the European Coal and Steel
Community in 1951, which would eventually evolve into what we know today as the European
Union (EU).
Following the breakup of the Soviet Union, the EU pushed to form trade agreements with some
Central and Eastern European nations, and in the mid-1990s, it established some bilateral trade
agreements with Middle Eastern countries. The U.S. also pursued its own trade negotiations,
forming an agreement with Israel in 1985, as well as the trilateral North American Free Trade
Agreement (NAFTA) with Mexico and Canada in the early 1990s. Many other significant
regional agreements also took off in South America, Africa and Asia.
In 1995, the World Trade Organization (WTO) succeeded the GATT as the global supervisor of
world trade liberalization, following the Uruguay Round of trade negotiations. Whereas the focus
of GATT had been primarily reserved for goods, the WTO went much further by including
policies on services, intellectual property and investment. The WTO had over 145 members by
the early 21st century, with China joining in 2001.
While the WTO seeks to extend the multilateral trade initiatives of the GATT, recent trade
negotiations appear to be ushering in a stage of “multilateralizing regionalism.” The
Transatlantic Trade and Investment Partnership (TTIP), the Transpacific Partnership (TPP), and
the Regional Cooperation in Asia and the Pacific (RCEP) comprise a significant portion of
global GDP and world trade, suggesting that regionalism may be evolving into a broader, more
multilateral framework.

Types of International Trade Agreements:

There are three types of trade agreements. There is a gradient in degrees of cooperation in the
Economic Integration among the countries.
 Unilateral Trade Agreement
 Bilateral Trade Agreements
 Multilateral Trade Agreements

Unilateral Trade Agreement:

The first is a unilateral trade agreement. It occurs when a country imposes trade restrictions and
no other country reciprocates. A country can also unilaterally loosen trade restrictions, but that
rarely happens. It would put the country at a competitive disadvantage. The United States and
other developed countries only do this as a type of foreign aid. They want to help emerging
markets strengthen strategic industries that are too small to be a threat. It helps the emerging
market's economy grow, creating new markets for U.S. exporters.

Bilateral Trade Agreements:

Bilateral trade agreements are between two countries. Both countries agree to loosen trade
restrictions to expand business opportunities between them. They lower tariffs and confer
preferred trade status with each other. The sticking point usually centers around key protected or
subsidized domestic industries. For most countries, these are in the automotive, oil or food
production industries. The United States has 14 bilateral agreements. The Obama administration
was negotiating the world's largest bilateral agreement.

Multilateral Trade Agreements:

Multilateral trade agreements are the most difficult to negotiate. These are among three countries
or more. The greater the number of participants, the more difficult the negotiations are. They are
also more complex than bilateral agreements. Each country has its own needs and requests. Once
negotiated, multilateral agreements are very powerful. They cover a larger geographic area. That
confers a greater competitive advantage on the signatories. All countries also give each other
most favored nation status. They agree to treat each other equally.
The largest multilateral agreement is the North American Free Trade Agreement. It is between
the United States, Canada and Mexico. Their combined economic output is $20 trillion. Over
NAFTA's first two decades, regional trade increased from roughly $290 billion in 1993 to more
than $1.1 trillion in 2016. But it also cost between 500,000 to 750,000 U.S. jobs. Most were in
the manufacturing industry in California, New York, Michigan and Texas. For more, see Pros
and Cons of Free Trade Agreements.
The Trans-Pacific Partnership would have replaced NAFTA as the world's largest agreement. In
2017, President Trump withdrew the United States from it.

Pros & Cons of International Trade Agreements:

International trade allows countries, states, brands, and businesses to buy and sell in foreign
markets. This trade diversifies the products and services that domestic customers can receive. It
offers the potential for development and expansion, but without the risks of internal research and
development. Trade is not without its problems. One country can profit greatly from it by
exporting, but not importing, goods and services. It can also be used to undercut domestic
markets by offering cheaper, but equally valuable goods.
There are many advantages and disadvantages of international trade to consider, in all its various
forms. Here are the key points to consider.

Advantages of International Trade:

 It provides a foundation for international growth.
Companies that are involved in exporting can achieve levels of growth that may not be
possible if they only focus on their domestic markets. This allows brands and businesses
an opportunity to achieve sustained revenues from a diversified portfolio of customers in
several markets instead of a limited customer base in a single home market.
 International trade improves financial performance.
Brands and businesses which assert themselves in foreign trade work can increase their
financial performance. This allows them to augment the returns they achieve on their
investments into research and development. By rotating the products or services through
the global market, the commercial lifespan of each opportunity can be amplified,
expanding what existing products and services can provide. This benefit can even be
achieved if a domestic market is no longer interested.
 It spreads out the risk a brand and business must assume.
Organizations can better protect themselves from risk thanks to international trade
because of the amount of diversification that can be achieved. Whether it is a financial
disaster, like the Great Recession of 2007-2009, or a natural disaster like Hurricane
Katrina, a company with an international presence can survive and even maintain
profitability without domestic customer support. A home market may be unstable, but
international trade can still let the brand and business be stable.
 International trade encourages market competitiveness.
When a brand and business compete in several markets simultaneously, then it must
focus on its competitiveness for it to be able to thrive. By observing a larger range of
trends because of their greater level of global market access, brands and businesses can
focus on quality, design, and product development improvements so that they can
continuously improve and diversify.
  International exchange rates can be beneficial to a business.
Brands and businesses involved with international trade can further reduce their risk by
taking advantage of monetary exchange rates. If a company does most of its trading in
US dollars, then trading with Japan to spread the risk of the exchange rate between the
yen and the dollar can potentially add to the profits of the company. The same could be
said of the euro or the pound to the dollar.
 Revenue streams have some protection.
Although all risk cannot be eliminated from international trade, a series of contracts,
insurance, and financial instrument trading can help to protect the revenue streams a
brand and business is able to develop.
 It encourages specialization.
International trade plays an important role in encouraging specialization which ends up
increasing the quality of goods and service produced for the consumers.
 Optimal use of natural resources.
International trade encourages countries to explore their natural resources and in doing
so, they make good use of the natural resources other than leaving them buried
underneath the earth’s surface.
 Availability of a variety to choose from.
International trade provides an ideal platform for companies and countries to compete
thus offering a variety of products produced by different companies for consumers to
choose from.
 It can be used as a way to get around high levels of domestic competition.
A domestic market can have several products or services that are like what a new brand
and business is trying to offer. Instead of competing for a small sliver of that domestic
market, going through international trade can help an organization target similar foreign
markets where competition may be much lower. Over time, the experiences gained in the
foreign market can help an organization be able to establish a stronger domestic presence
as well.

Disadvantages of International Trade:

 There is always a political risk involved with international trade.
If you were a brand and business that was counting on the TPP, then the words of Donald
Trump represent a high political risk. Different countries provide their own political risks
at varying levels, while domestic politics changes over time and presents an ongoing
challenge. A government can change laws in a discriminatory fashion or create
regulations that directly impact a specific organization.
 There can be severe exchange rate risks.
Many businesses focus on emerging markets for their products or services because it can
greatly extend the lifespan of them. This also means the exchange rates in those emerging
markets may fluctuate wildly, making it difficult to forecast finances for budgeting
purposes. The value of assets and liabilities that are in foreign currencies creates the
 potential of a brand and business becoming immediately less competitive overnight,
resulting in steep revenue losses.
 International trade also presents cultural complications.
Different cultures have different attitudes, standards, and expectations that can create
problems for a brand and business. Failing to consider the expectation a different culture
may have can lead to mistakes that damage the reputation of the brand and can be very
costly to the bottom line. Any step of the sales process could create an offense.
Something as simple as inappropriate packaging can be enough to permanently damage a
brand’s reputation.
 It has a credit risk that must be specifically managed.
Many brands and businesses tend to overlook the risk of non-payment when they begin to
operate in the world of international trade. Credit risks can be managed by obtaining
insurance or a letter of credit, but customer finances and credit can still impact the
number of potential sales that can be received within a market. Without an understanding
of the B2B and B2C credit potential of an international market, the success a brand and
business can receive will be hit or miss at best.
 International trade increases the risk of proprietary information theft.
Going into an international market with a product or service increases the risk of another
brand or business stealing proprietary information, marketing concepts, or even a
personal identity. China has a reputation of doing this, even if there isn’t a business
presence in the local market. Do you remember the Obama Fried Chicken billboard from
2011?
 It may lead to world wars.
International trade may sometimes lead to misunderstandings that may escalate to the
levels of wars. This is how world wars are started.
 Misutilization of natural resources.
International trade is a recipe for countries to exploit their natural resources for financial
gains. In some instances, countries may be pushed to the brink of mis utilizing these
resources with the hope that it will return financial benefits.
 Importation of harmful goods.
International trade allows other countries to export goods to other countries. This opens
up a country’s boundaries to harmful goods that may end up affecting locals.
 It impedes development of home industries.
International trade means people will be open and free to purchase goods and services
from other parts of the world. This hinders the growth and development of local
industries which face competition.
 Economic dependence on other countries.
International trade means that countries will keep doing business with other countries.
This has the risk of having a country over rely on other countries for their economic
growth and development.
The advantages and disadvantages of international trade can all be managed appropriately with
good market research and an understanding of foreign cultures. There will always be brands and
businesses that succeed more than others in any trade deal. The goal must be to evaluate these
key points so that a full understanding of what to expect can be obtained so participation levels
can be properly gauged.

Free Trade Vs. Protectionism

As with other theories, there are opposing views. International trade has two contrasting views
regarding the level of control placed on trade: free trade and protectionism. Free trade is the
simpler of the two theories: a laissez-faire approach, with no restrictions on trade. The main idea
is that supply and demand factors, operating on a global scale, will ensure that production
happens efficiently. Therefore, nothing needs to be done to protect or promote trade and growth,
because market forces will do so automatically.
One view says that we should make it as easy as possible for goods and services to move
between countries. This approach is based on the argument that more trade makes us wealthier
and is therefore a good thing. It is known as free trade. Another approach says that we should
restrict trade. We might do this to protect certain jobs. We might think that we need certain
industries – such as food production or steel-making – just in case things go wrong in the wider
world. We might want to restrict imports from countries with lower labour or environmental
standards so they can’t undercut our industries. This approach is known as protectionism. Many
economists agree that some restrictions on trade are desirable, but that we should be careful, as
such restrictions can make us poorer overall. For example, limits on agricultural imports may be
good for British farmers, but they also increase food prices.
In contrast, protectionism holds that regulation of international trade is important to ensure that
markets function properly. Advocates of this theory believe that market inefficiencies may
hamper the benefits of international trade, and they aim to guide the market accordingly.
Protectionism exists in many different forms, but the most common are tariffs, subsidies, and
quotas. These strategies attempt to correct any inefficiency in the international market.
As it opens up the opportunity for specialization, and therefore more efficient use of resources,
international trade has the potential to maximize a country's capacity to produce and acquire
goods. Opponents of global free trade have argued, however, that international trade still allows
for inefficiencies that leave developing nations compromised. What is certain is that the global
economy is in a state of continual change, and, as it develops, so too must all of its participants.

Top International & Regional Trade Organizations:

 World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that is
concerned with the regulation of international trade between nations. The WTO officially
commenced on 1 January 1995 under the Marrakesh Agreement, signed by 124 nations
 on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which
commenced in 1948. It is the largest international economic organization in the world.
 Organization of the Petroleum Exporting Countries (OPEC)
The Organization of the Petroleum Exporting Countries is an intergovernmental
organization of 14 nations, founded in 1960 in Baghdad by the first five members (Iran,
Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna,
Austria. As of September 2018, the then 14 member countries accounted for an estimated
44 percent of global oil production and 81.5 percent of the world's "proven" oil reserves,
giving OPEC a major influence on global oil prices that were previously determined by
the so called "Seven Sisters” grouping of multinational oil companies.
 South Asian Association for Regional Cooperation (SAARC)
The South Asian Association for Regional Cooperation (SAARC) is the regional
intergovernmental organization and geopolitical union of nations in South Asia. Its
member states include Afghanistan, Bangladesh, Bhutan, India, Nepal, the Maldives,
Pakistan and Sri Lanka. SAARC comprises 3% of the world's area, 21% of the world's
population and 3.8% (US$2.9 trillion) of the global economy, as of 2015.
 Association of Southeast Asian Nations (ASEAN)
The Association of Southeast Asian Nations is a regional intergovernmental organization
comprising ten countries in Southeast Asia, which promotes intergovernmental
cooperation and facilitates economic, political, security, military, educational, and
sociocultural integration among its members and other countries in Asia. It also regularly
engages other countries in the Asia-Pacific region and beyond. A major partner of
Shanghai Cooperation Organization, ASEAN maintains a global network of alliances and
dialogue partners and is considered by many as a global powerhouse, the central union
for cooperation in Asia-Pacific, and a prominent and influential organization. It is
involved in numerous international affairs, and hosts diplomatic missions throughout the
world.
 Asia-Pacific Economic Cooperation (APEC)
Asia-Pacific Economic Cooperation (APEC) is an inter-governmental forum for 21
Pacific Rim member economies that promotes free trade throughout the Asia-Pacific
region. Inspired from the success of Association of Southeast Asian Nations (ASEAN)’s
series of post-ministerial conferences launched in the mid-1980s, the APEC was
established in 1989 in response to the growing interdependence of Asia-Pacific
economies and the advent of regional trade blocs in other parts of the world; and to
establish new markets for agricultural products and raw materials beyond Europe.
Headquartered in Singapore, the APEC is recognized as one of the oldest forums and
highest-level multilateral blocs in the Asia-Pacific region, and exerts a significant global
influence.
 BRICS
BRICS is the acronym coined for an association of five major emerging national
economies: Brazil, Russia, India, China and South Africa. Originally the first four were
grouped as "BRIC" (or "the BRICs"), before the induction of South Africa in 2010. The
 BRICS members are known for their significant influence on regional affairs; all are
members of G20. Since 2009, the BRICS nations have met annually at formal summits.
China hosted the 9th BRICS summit in Xiamen on September 2017, while South Africa
hosted the most recent 10th BRICS summit in July 2018. The term does not include
countries such as South Korea, Mexico and Turkey for which other acronyms and group
associations were later created.
 North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement is an agreement signed by Canada, Mexico,
and the United States, creating a trilateral trade bloc in North America. The agreement
came into force on January 1, 1994.[4] It superseded the 1988 Canada–United States Free
Trade Agreement between the United States and Canada, and is expected to be replaced
by the United States–Mexico–Canada Agreement once it is ratified.
 Central European Free Trade Agreement (CEFTA)
The Central European Free Trade Agreement (CEFTA) is a trade agreement between
non-EU countries, members of which are now mostly located in Southeastern Europe.
Founded by representatives of Poland, Hungary and Czechoslovakia, CEFTA expanded
to Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Moldova, Montenegro, North
Macedonia, Romania, Serbia, Slovenia and the UNMIK (on behalf of Kosovo in
accordance with UNSCR 1244).

Regional Economic Integration:

Economic integration is an arrangement between different regions that often includes the
reduction or elimination of trade barriers, and the coordination of monetary and fiscal policies.
Economic integration aims to reduce costs for both consumers and producers and to increase
trade between the countries involved in the agreement. Regional Integration is a process in which
neighboring states enter into an agreement in order to upgrade cooperation through common
institutions and rules. The objectives of the agreement could range from economic to political to
environmental, although it has typically taken the form of a political economy initiative where
commercial interests are the focus for achieving broader socio-political and security objectives,
as defined by national governments. Regional integration has been organized either via
supranational institutional structures or through intergovernmental decision-making, or a
combination of both.
As economies become integrated, there is a lessening of trade barriers and economic and
political coordination between countries increases. There are seven stages of economic
integration: preferential trading area, free trade area, customs union, common market, economic
union, economic and monetary union, and complete economic integration. The final stage
represents a complete monetary union and fiscal policy harmonization.
Intra-regional trade refers to trade which focuses on economic exchange primarily between
countries of the same region or economic zone. In recent years countries within economic-trade
regimes such as ASEAN in Southeast Asia for example have increased the level of trade and
commodity exchange between themselves which reduces the inflation and tariff barriers
associated with foreign markets resulting in growing prosperity.

Regional Economic Integration: A New Trend?

Regional economic integration becomes a new trend in the world of trading nowadays; there are
many World Regions and Trade Organizations such as APEC, EU, NAFTA and ASEAN (Trade,
2010). In this essay, the objective is comparing the European Union (EU) and North American
Free Trade Agreement (NAFTA), which are known as two top regional economic integrations in
the world. Before comparing and contrasting these two regional trade associations, this essay
will firstly consider giving some background knowledge of EU and NAFTA. It will then go on
with comparing the level of regional economic integration with free trade area, custom union,
common market, economic union and political union between EU and NAFTA. Making the
comparison between the impact of integration in EU and NAFTA will be stated as the third
section in this essay. At the end, this essay will give a conclusion in order to summarize the key
point in the main body.
EU, whose forerunner was the European Economic Community (EEC) that was founded in 1958
and changed its name into EU in 1993, followed the ratification of the Maastricht Treaty
(European Union, n.d). The EU includes 27 European countries today, as an economic and
political partnership between these countries. In addition, according to Actrav (n.d), the objective
of the EU is calling to eliminate the internal trade barriers and create a common external tariff in
order to strengthen the economic and social harmonious development and establish finally
unified monetary economic monetary union (EMU), promote economic and social between
member countries. Moreover, EU can develop the free movement of goods, services, capital and
people.
The first level of economic integration is free trade agreements (FTAs). Rolf and Nataliya (2001)
explained that FTAs can avoid the barriers such as import tariffs and import quotas between
signatory countries. Each country can determine its own policies with nonmember. For example,
the traffic barriers are very different between member and nonmember (Charles, 2011). In
addition, according to WTO (2002), the most popular form of regional economic integration is
free trade agreements, which accounts for almost 90 percent of regional agreements. The
example of free trade area in the world is the NAFTA that include three countries, are United
State, Canada and Mexico. NAFTANOW (2012) explained that NAFTA is the largest FTAs in
the world, has abolished most parts of tariff and non-tariff which are barriers for trade and
investment in the union systematically.
The next level of economic integration is customs union (CU), which build on a free trade area.
Michael Holden (2003) descried that members in a customs union have no trade barriers with
goods, as well as services among them. Besides, the CU put forward a common trade policy
which shows respect to those nonmembers. It is a typical form for common external tariff that
has the same tariff sold to any member countries when the subjects of imports are nonmembers.
For example, EU began in this level at the beginning, but now it has moved to the high level of
economic integration. In addition, NAFTA also has comment external trade barrier from outside.
For example, Andean Community is known as the customs unions around the world, which
assured free trade between signatory countries and compelled with a common tariff of 5 to 20 per
cent on trading products while importing from countries outside the union.

Functions of Regional Integration:

 The strengthening of trade integration in the region
 The creation of an appropriate enabling environment for private sector development
 The development of infrastructure programs in support of economic growth and regional
integration
 The development of strong public sector institutions and good governance
 The reduction of social exclusion and the development of an inclusive civil society
 Contribution to peace and security in the region
 The strengthening of the region’s interaction with other regions of the world.
 Regions may agree to economic integration to better serve their citizens.
 Economic integration can broaden markets, boost employment, and spur political
cooperation.
 Some advantages and disadvantages must be weighed when pursuing economic
integration.
 Trade unions may divert trade from nonmembers even if doing so is detrimental to one or
more members.
 Strict nationalists may oppose economic integration due to feelings of a loss of
sovereignty.

Advantages of Regional Economic Integration.

The advantages of economic integration fall into three categories:

 Trade Benefits.
 Employment.
 Political Cooperation.
More specifically, economic integration typically leads to a reduction in the cost of trade,
improved availability of and a wider selection of goods and services, and efficiency gains that
lead to greater purchasing power. Employment opportunities tend to improve because trade
liberalization leads to market expansion, technology sharing, and cross-border investment flows.
Political cooperation among countries can improve because of stronger economic ties, which can
help resolve conflicts peacefully and lead to greater stability.

Disadvantages of Regional Economic Integration.

Despite the benefits, economic integration has costs. The disadvantages include

 Trade Diversion.
 Erosion of National Sovereignty.
For example, trade unions can divert trade from nonmembers, even if it is economically
detrimental for them to do so. Additionally, members of economic unions are typically required
to adhere to rules on trade, monetary policy, and fiscal policy, which are established by an
unelected external policymaking body. Because economists and policymakers believe economic
integration leads to significant benefits for society, many institutions attempt to measure the
degree of economic integration across countries and regions. The methodology for measuring
economic integration typically involves the combination of multiple economic indicators,
including trade in goods and services, cross-border capital flows, labor migration, and others.
Assessing economic integration also includes measures of institutional conformity, such as
membership in trade unions and the strength of institutions that protect consumer and investor
rights.

Changes in The Agreements of The Regional Economic Integration.

 Deep Integration Recognition.
 Closed regionalism to open model.
 Advent of trade blocs.
Deep Integration Recognition:
Deep Integration Recognition analyses the aspect that effective integration is a much broader
aspect, surpassing the idea that reducing tariffs, quotas and barriers will provide effective
solutions. Rather, it recognizes the concept that additional barriers tend to segment the markets.
That impedes the free flow of goods and services, along with ideas and investments. Hence, it is
now recognized that the current framework of traditional trade policies are not adequate enough
to tackle these barriers. Such deep-integration was first implemented in the Single Market
Program in the European Union. However, in the light of the modern context, that debate is
being propounded into the clauses of different regional integration agreements arising out of
increase in international trade.

Closed regionalism to open model:

The change from a system of closed regionalism to a more open model had arisen out of the fact
that the section of trading blocs that were created among the developing countries during the
1960s and 1970s were based on certain specific models such as those of import substitution as
well as regional agreements coupled with the prevalence generally high external trade barriers.
The positive aspects of such shifting is that there has been some restructuring of certain old
agreements. The agreements tend to be more forward in their outward approach as well as show
commitment in trying to advance international trade and commerce instead to trying to put a cap
on it by way of strict control.

Trade blocks:
The Advent of Trade Blocks tend to draw in some parity between high-income industrial
countries and developing countries with a much lower income base in that they tend to serve as
equal partners under such a system. The concept of equal partners grew out of the concept of
providing reinforcement to the economies to all the member countries. The various countries
then agree upon the fact that they will help economies to maintain the balance of trade between
and prohibit the entry of other countries in their trade process.
An important example would be the North American Free Trade Area, formed in 1994 when the
Canada - US Free Trade Agreement was extended to Mexico. Another vibrant example would
entail as to how EU has formed linkages incorporating the transition economies of Eastern
Europe through the Europe Agreements. It has signed agreements with the majority of
Mediterranean countries by highly developing the EU-Turkey customs union and a
Mediterranean policy.

Real World Example of Regional Economic Integration:

 The European Union (EU)
EU includes 28 member states and formally came into being in 1993. Since 2002, 19 of
those nations have adopted the euro as a shared currency. According to the International
Monetary Fund (IMF), the EU accounted for 16.04% of the world's gross domestic
product.
 Asia-Pacific Economic Cooperation (APEC) Forum Promotes Free Trade
Asia-Pacific Economic Cooperation (APEC) is a 21-member economic forum who
promotes free trade and sustainable development in Pacific Rim economies.
 European Economic and Monetary Union (EMU)
The European Economic and Monetary Union (EMU) combined the European Union
member states into a comprehensive economic system.
 The European Free Trade Association
It is a free trade bloc of four countries (Iceland, Liechtenstein, Switzerland and Norway)
which operates in parallel and is linked to the European Union.