Regional Integration

Functions of Integration
Forms of Integration
Functions of Regional Integration
Initiatives- What are the ultimate goals?
1. Creation of an appropriate enabling environment
for private sector development.
2. The development of infrastructure programs in
support of economic growth and regional
integration. Electricity Plants, transmission lines,
oil and gas refineries, storage reserves, ports,
nuclear plants
Functions of Regional Integration
Initiatives- What are the ultimate goals?
3. The development of strong public sector
institutions and good governance.
4. The reduction of social exclusion and the
development of an inclusive civil society.
Functions of Regional Integration
Initiatives- What are the ultimate goals?
5. Contribution to Peace and security in the region.
6. The building of environment programs at the
regional level.
7. The strengthening of the regions interaction with
other regions of the world.
Forms of Regional Integration- An
Overview- Scale of 1-10.

0 5 10

No Single Market Total

integration Integration

Economic Political
Integration Integration
Meaning of Economic Integration

 Simplysaid, It is the process by which different

countries agree to remove trade barriers between
them.
 Forexample, Canada, Mexico and the United
States have formed the North American Free
Trade Agreement (NAFTA).
Meaning of Economic Integration Cont’d

1. PREFERENTIAL TRADE AREA

 Asmentioned above, these include arrangements
whereby one country offers preferential tariffs to
another country or to a group of countries on a
unilateral basis. Usually involves selected goods.
 Thecountry offering the preference removes or lowers
import tariffs on imports from these countries without
obtaining the same preferences in return. Such
arrangements focus usually on trade in goods.
Meaning of Economic Integration Cont’d

 A key example here are what are called Generalised

Scheme/ System of Preferences (GSP): a unilateral
preference programmes offered by many developed
countries (e.g. US, Switzerland, Japan and the EU) to a
number of developing and least developed countries. 
 Preferential rules of origin are applied in order to prevent
third party countries from taking advantage of the
preferential tariffs offered to the selected GSP countries.
 If A and B have a FTA =, B has to be sure all goods not
subject to tariff originate from A not C.
Meaning of Economic Integration

2. FREE TRADE AREA

 Countries remove all barriers to trade between themselves, but are

free to independently determine trade policies with non member
nations. The main goal here is to develop economies of scale and
comparative advantage which promotes economic efficiency.
 A Free Trade area helps nations to focus on issues that are relevant
to their stage of development as well as to encourage trade
between neighbors.
 Example- the North American Free Trade Agreement
Case Study: The North American Free
Trade Agreement.
Initially the USA nd Canada signed the United
States -Canada Free Trade Agreement. Shortly
after it was implemented, USA went on
negotiations for a similar agreement with
Mexico. Cananda asked for consideration to be
included so it does not lose its MFN clause-(that
Mexico does not get a better deal). NAFTA was
signed in 1992 and implemented in 1994
Case Study: The North American Free
Trade Agreement.
 In the 1980’s Mexico had tariffs as high as 100% on select
goods. Over the first decade into the agreement, almost
all tariffs among the 3 were phased out.
 Rules governing origin of content are key to NAFTA. As a
FTA, each country has its own trading rules with non
member countries.
Case Study: The North American Free
Trade Agreement.
 NAFTA rules ensure that a foreign exporter will not just ship into one NAFTA
country with the lowest tariff for non member countries. NAFTA rules demand
that at least 50% of the net cost of most products must come from or be
incurred in the NAFTA region.
 The requirements are higher for footwear and cars.
 You don’t want cheap products from China coming into Mexico on lower
tariffs and ending up in USA and Canada where they would have been subject
to higher tariffs.
 Maquiladoras have flourished in Mexico- A final production stop for goods
going into Canada or USA. Mostly in border towns importing materials and
exporting goods to USA and Canada.
Case Study: The North American Free
Trade Agreement.
 A maquiladora is a Mexican assembly plant that imports
materials and equipment on a duty-free and tariff-free
basis.
 Maquiladoras receive raw materials from companies in the
U.S. to assemble and export back as finished products.
 Maquiladoras are generally owned by U.S. companies that
are incentivized to build Maquilas in Mexican border towns
in return for low-cost labor and savings .
Case Study: The North American Free
Trade Agreement.
 According to the Trump administration, NAFTA led to trade deficits, factory
closures, and job losses for the U.S.
 NAFTA is an enormous and enormously complicated deal—looking at economic
growth can lead to one conclusion, while looking at the balance of trade leads
to another. 
 The deal coincided with a 29% drop in manufacturing employment, from 16.8
million jobs at the end of 1993 to 12.1 million at the end of 2016.
 Leaders of the three nations renegotiated the deal in November 2018—now
known as the USMCA—with new provisions.
Tutorial Work

 Explain the causes and process of transition from NAFTA to USMCA.

Case Study: The North American Free
Trade Agreement.
 Low cost Mexican Agricultural products available in USA.
 USA companies entered Mexican market.
 Many manufacturing facilities in Mexico rather than Asia.
Meaning of Economic Integration Cont’d

3. CUSTOMS UNION
 There is economic cooperation as in a Free Trade Area.
 Barriers to trade are removed between countries. The
main difference is that members agree to treat trade with
non member countries in a similar manner. Example- The
Gulf Cooperation Council for the Arab States of the Gulf.
 They address the problem of re- exports; using
preferential tariffs in one country to enter another
country.
Meaning of Economic Integration Cont’d

4. COMMON MARKET/ SINGLE MARKET

 Trade barriers are removed, as there no
restrictions between movement of labour and
capital between member countries.
 Like customs unions, there is a common trade
policy with non member nations.
Meaning of Economic Integration Cont’d

 Theprimary advantage of this is that non members no

longer need a visa or work permit to work in another
country of a common market. An example is COMESA.
 Eachcountry however maintains its regulations and
product standards.
Afurther step in the process of economic integration
might be adoption of a common currency, with
monetary policy regulated by a single central bank.
Meaning of Economic Integration Cont’d

5. ECONOMIC UNION/ TOTAL INTEGRATION

- Countries enter into an economic agreement to

remove barriers to trade and adopt common
economic policies. An example is the EU.
 Monetary and Fiscal policies are harmonized and
it can go as far as a monetary union with a
common currency.
POLITICAL INTEGRATION
POLITICAL INTEGRATION
 As the economies of the co-operating countries become completely
integrated into a single market, there appears a need for common
policies in social policy (education, health care, unemployment
benefits and pensions) and common political institutions.
 Its culmination occurs when the co-operating countries are so
integrated that they share the same foreign policies and merge their
armies. In effect, they form a new country.

 Sources: John McCormick. The European Union: Politics and Policies. Westview Press: Boulder Colorado,
1999.
A CASE FOR REGIONAL INTEGRATION

 Trade Creation- there are more opportunities created for countries to

trade with one another by removing the barriers to trade and
investment. Due to a reduction or removal in tariffs, cooperation
results in cheaper prices for consumers in the bloc countries. Studies
have shown that regional economic integration contributes to the
relatively high growth rates in the LDC’s.
A CASE FOR REGIONAL INTEGRATION

 Employment Opportunities- by removing restrictions on labor movement,

economic integration can help expand job opportunities.
 Consensus and Cooperation-Member nations may find it easier to agree with a
smaller number of nations. Regional understanding and similarities may also
foster closer economic cooperation.
A CASE AGAINST REGIONAL INTEGRATION

 Trade Diversion- members may trade more with each other than non
member nations. This may mean increased trade with less efficient or
more expensive producers because it is a member country. In which
case weaker companies get protected as the trade agreement acts as
a trade barrier.

 Employment shifts and reductions. Countries move production to

cheaper labour markets in member countries. Similarly, workers may
move to gain access to better jobs and wages. These shifts in
employment can affect resources of member countries- taxation and
human resources.
A CASE AGAINST REGIONAL INTEGRATION
CONT’D
 Loss of national sovereignty. Nations may find themselves giving up
their political and economic rights. The economic crisis in Greece
threatened the whole EU as well as the right of Greece and other
member nations to determine their own domestic economic policies.

 Retaliation.