Tag Archives: Trading Blocs

AS Economics – Economic Integration

Although in the CIE syllabus only three stages of economic integration are mentioned there are actually six stages between nations, ranging from the relatively weak to more complex and stronger associations.

1. Preferential Trading Area – weakest form of integration. Nations agree to give preferential access to certain products from overseas countries. The EU (European Union) and countries of the ACP (African, Caribbean and Pacific) have formed Preferential Trading Area.

2. Free Trade Area – most common type of integration. Nations permit an agreed list of products to be traded tariff free. However those nations can set their own tariffs between themselves and nations outside the agreement. EG. NAFTA, EEA and APEC

3. Customs Union – same as FTA but all member nations agree a set of standard tariff levels between themselves and outside nations. This is known as the Common External Tariff (CET).

4. Common Market – same as Customs Union but is more complex in that it involves the establishment of common laws relating to the economy, trade, and employment and a common form of taxation between member nations.

5. Economic and Monetary Union – one trade barrier that a Common Market does not eradicate is the presence of different currencies although Economic and Monetary Union does not necessarily involve a single currency. It is where member nations irrevocably fix their exchange rates to one another.

6. Complete Economic Integration – all of the above but also includes considerable political integration as well. Nations embark on harmonization of economic policies and there tends to be the development of a supranational state making decisions on behalf of member nation’s governments.

Economic integration has the potential to benefit all parties involved and create additional economic welfare. It also brings nations together politically and culturally which again, can be a positive.

Examples of Regional Trade Agreements (RTAs):

  • The number of RTAs has risen from around 70 in 1990 to over 300 today
  • The European Union (EU) – a customs union, a single market and now with a single currency
  • The European Free Trade Area (EFTA)
  • The North American Free Trade Agreement (NAFTA) – created in 1994
  • Mercosur – a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela
  • Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
  • Common Market of Eastern and Southern Africa (COMESA)
  • South Asian Free Trade Area (SAFTA) created in January 2006 and containing countries such as India and Pakistan

NAFTA, EU, APEC now EAC – East African Community

It has been seen as an agreement that will bring economic revolution to East Aftrica – on 1st July 2010 East Africa’s common market came into force with Burundi, Kenya, Rwanda Tanzania and Uganda agreeing to the free movement of trade and labour in a trading area of 126 million people. Kenya can be seen as the hub of EAC and it will no doubt benefit greatly from this common market. However, it is the poorer member states of Rwanda and Burundi that could lose out by Kenya’s larger businesses marginalising the local economy in those countries. Furthermore, the free movement of people might mean other member states might have to cope with the influx of better-trained Kenyan workers and there is already concern in Uganda that the local jobs will be taken over by Kenyans.

The world is ever more being slit up into trading blocs, which dominate international trade negotiations. As many recent trade talks have ended in stalemate, observers believe regional groupings will play an even bigger role – more recently bilateral agreements
between trading blocs have become more common. Therefore it will be vital that Africa has a regional trading bloc that can increase its presence in determining the direction of future trade agreements.