CIIB WEEK 5

LECTURE 6:
Regional economic
integration
Joseph Mukasa
mukasajb@gmail.com
Regional economic integration
 Learning outcomes
Define regional integration
Describe the forms of regional integration
Appreciate the structures of regional blocks.
 Regional economic integration
• This is when countries of the same geographical region work
together through agreements to reduce tariffs and non tariff
barriers which hinder free trade and production in their
countries. The questions we need to answer are whether
regional trade agreements promote free trade? Are they leading
to trading blocks competing with each other?
 Benefits of integration
Trade creation - high-cost domestic producers are
replaced by low-cost producers within the free trade
area.
Stimulates growth – improving Standards of living
Political cooperation- reduces conflict or tension
Creates jobs
Improved efficiency and specialisation
Gives consumers a wide choice
 Downside of economic integration
• Loss of sovereignty
• Shifting employment- loss of jobs
• Trade diversion- inefficient production with
member states that is low cost external suppliers
are replaced by high cost suppliers within the
group
• Intense competition
Economic integration
 Forms of economic integration
1. Free trade area - eliminates all trade barriers between
member states but gives the members the power to determine
their trade polices with non member states. This makes them
prone to problems of trade deflection, in which goods are re
directed through countries with lower trade barriers.
Examples:
European Free Trade Association (EFTA) Norway, Iceland,
Liechtenstein and Switzerland.
North American Free Trade Agreement (NAFTA) US, Canada &
Mexico
 Forms of economic integration
2. Customs Union- eliminates trade barriers between
member states and adopts a common trade policy
against non member states. It is amore organised
economic integration as member states have a
common external trade policy, examples:
Andean Community or PACT-Bolivia, Columbia, Ecuador,
and Peru.
Southern African Customs Union- Botswana, Lesotho,
South Africa, Swaziland and Namibia
 Forms of economic integration
3. Common market- it has no trade barriers
between member states, a common trade
policy and the free movement of the factors of
production.
MERCOSUR- Brazil, Argentina, Paraguay and
Uruguay.
 Forms of economic integration
4. Economic Union- has free flow of products, factors of
production, common external policy, a common
currency, a harmonised tax rate, and a common
monetary and fiscal policy, example:
European Union
The downside to it is that countries lose sovereignty to
a certain extent over monetary and fiscal policy as it
becomes uniform amongst member states.
Is it a good idea to have a common currency?
 Forms of economic integration
5. Political Union- involves a central political apparatus that
coordinates the economic , social and foreign policy.
There is a danger of mass exodus of jobs and job seekers to
countries which are lucrative leading to social problems such as
XENOPHOBIA
European Union is heading towards that
This is also the case with USA made up of fifty different states
surrendering their power to the federal government
By grouping themselves countries enhance their political stand
to the world.
 The political structure of EU

The European Union uses four organs for its operations:

 European Commission-proposes legislation,
implements it, and monitors compliance.
 European Council- the ultimate controlling authority
within the union.
European Parliament- debates the legislation proposed
by the commission and forwards it to the council.
Court of justice- appeals court for EU law
 Areas covered by the EU
Security within the region
Human rights
Trade issues
Monitoring compliance and maladministration.
Environmental issues- climate change
Trade issues within and with non members e.g. LDCs
Welfare within member states bankruptcy of Greece and issue
of migrants flooding Europe, racism –xenophobia as some
member states are using discriminatory policies in dealing with
foreigners.
 Political structure of SADC
• Summit of heads or Government
• SADC tribunal
• SADC Council of Ministers
• Sectoral & cluster ministerial committee
• Standing committee of Senior Officials
• SADC secretariat
• SADC National Committee
• SADC parliamentary forum
• Chairperson is rotational with deputy preparing to take over
 Areas covered by SADC
Trade and industry
Finance , investment and the private sector
Infrastructure services
Human, social and skills development
Food security and natural resources management
Environment , gender issues
Peace and political stability
Cross border crime
Foreign policy – promote cooperation
 COMESA
• Common Market for Eastern and Southern Africa- Burundi,
Comoros, Djibouti, Egypt, Eritrea, Kenya , Libya, Madagascar,
Swaziland, Zimbabwe, Rwanda, Zambia, Malawi, Mauritius,
Seychelles, Sudan, Congo
• It is a free trade area.
• Its organs are the Head of states, Council of Ministers, COMESA
court of Justice, Committee of Governors of Central Banks,
COMESA association of commercial banks, COMESA leather
institute, COMESA, Regional Agency.
 ECOWAS
• Economic Community of West African States – Benin, Burkina
Faso, Cape Verde, Niger, Nigeria, Gambia, Ghana, Guinea, Guinea
Bissau, Ivory Coast, Senegal, Sierra Leone, and Togo
It has the following organs for its operations as a trading block
ECOWAS commission
ECOWAS Bank of Investment and development
ECOWAS court of justice
ECOWAS sporting and cultural exchange
 Factors hindering integration
• Costs
• Painful adjustments – disharmony in legal, tax systems, standards
• Concerns over national sovereignty
• Unemployment challenges/ lack of sufficient skilled manpower
• Countries do not have similar endowments
• Different economic policies
• Production of similar things e.g. raw materials.
• UK believed they could do better if they pulled out of EU while others
thought that’s backward thinking as the world is globalising. What
would be your take? Botswana once had a similar situation that SADC
was not effective in its mandate and hence there was no need to
attend some of the meetings.
 BRICS
• This is a classical example of economic integration that is not
based on geographical region.
• Brazil, Russia, India, China and South Africa. These are a group of
countries that are fighting for global recognition. However they
are not a formal trading block but it is projected that by 2050
they will be dominating the world economy.
• As of now no formal structures exist but they are regarded as
emerging economies with lots of investment opportunities.
 Implications for managers
Regional economic integration means that markets that had
been protected from foreign competition are increasingly open,
hence competition increases .
It’s in two ways markets are opened and also attacked.
Production is also affected as there is mobility in terms of the
factors of production, mass exodus of job seekers to other areas.
Adjustments to common set standards hence firms maybe
limited in pursuing a strategy of their choice.
 Conclusion
Regional economic integration is a good way for promoting trade
and investment in regions though in the end it might create
competition amongst regional blocks.
 TUTORIAL 6
• Regional economic integration has produced
significant net benefits for the economies of
member states. Discuss with relevant
examples and.