Economic Integration

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Five major types of economic integration

• Free Trade Area (FTA)

Encourages trade among its members by eliminating trade barriers (tariffs, quota, and other nontariff barriers) among them. Each member is free to establish its own policies against nonmembers, Griffin and Pustay (2005:278). Ball and McCulloch (2008:120) outline The North American Free Trade Agreement (NAFTA) and the European Free Trade Association (EFTA) as examples of FTA’s.

• Customs union

Adds common tariffs to the FTA. It is a logical extension of FTA: There are no tariffs between countries in the customs union, and the tariffs charged by member-nations to the rest of the world are consistent among the member-nations. Example is the South African Customs Unions (South Africa, Lesotho, Namibia, Swaziland and Botswana) Ball and McCulloch (2008:120).

• Common market

Griffin and Pustay (2005:278) outlines that in a common union, members of the common market eliminate internal trade barriers among themselves and adopt a common an external trade policy towards nonmembers. This allows movement of the factors of production (labour, capital and technology) among members. An example of a common trade market is the European Economic Area, which is an agreement by EU members and several other European countries to promote the free movement of labour, capital and technology among them.

• Economic union

Represents full integration of the economies of two or more countries. In addition to eliminating internal trade barriers, adopting common external trade policies, and abolishing restrictions on the mobility of factors of production among members, an economic union requires its members to coordinate their economic policies (monetary policy, fiscal policy, taxation, and social welfare programs) I order to blend their economies into a single entity, Griffin and Pustay (2005:278).

• Political...
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