Regional Economic Integration refers to
agreement between groups of countries in
geographic region to reduce and ultimately
remove tariff and non tariff barriers to the
free flow of goods, services and factors of
production between each other countries.
Regional trade agreement are design to
promote free trade, but instead the word may
be moving toward a situation in which a
number of regional trade blocks compete
against each other.
There are five levels of economic integration :
• Free Trade Area encourages trade among its
members by eliminating trade barriers (tariffs,
quotas, and other nontariff barriers [NTBs])
I. European Free Trade Association (EFTA) :
Norway, Iceland, Liechtenstein and
II. North American Free trade Agreement
(NAFTA) : Canada, Mexico and United States
• Custom Union combines the elimination of
internal trade barriers among its members with
the adoption of common external trade policies
I. Andean Pact (between Bolivia, Columbia
,Ecuador and Peru) is an example of a
• Common Market eliminating barriers that
inhibit the movement of factors of production
(labor, capital, and technology) among its
I. MEROSUR (between Brazil, Argentina,
Paraguay, and Uruguay )is aiming for
common market status.
• Economic Union represents full integration of
the economics of two or more countries. It also
involves free flows of products and factors of
productions between members countries and
adoption of common currency, harmonization of
member countries tax rates and common
monetary and fiscal policy.
I. European Union (EU) is an imperfect
•Political Union involves a central political
apparatus that coordinates the economic,
social and foreign policy of members state.
I. EU is headed towards at least partial
political union, and United States is an
example of even closer political union.
Economic Reasons for Integration
Political Reasons for Integration
•*opening a country to free trade stimulate
economic growth in the country which creates
dynamic gains from trade.
economic theories suggest free trade and
foreign direct investment is a positive activity in
which all participating countries gain
as an attempt to achieve additional gain from the
free flow of trade and investment between
countries beyond those attainable under
motivate desires to exploit gains from free trade
Attempt to establish trade areas, customs union and
the like. By linking neighbouring economies and
making them increasingly dependent on each other,
incentive are created for political co-operation
between neighbouring states
Integration will reduce potential violent conflict
between the state
By grouping their economies together, the countries
can enhance their political weight in the world
EU is the most important regional trading bloc
in the world.
27 member countries that compose one of the
world‟s richest markets
The creation of EU was motivated by the
desires of two world wars of western europe
to promote peace and the prosperity through
economic and political cooperation.
The first six European nation that signed the
Treaty of Rome (established the European
Economic Community) in 1957 are France, West
Germany, Italy, Belgium, the Netherlands and
In 1970s , followed European nation such as
UK, Denmark, and Ireland joined EEC which
became the European Community, (EC).
GOVERNING THE EUROPEAN NATION
The members of EU are sovereign nation which
agreed to cede their powers to the EU.
Characterized both as an “intergovernmental
government” and “supranational government”.
EU is governed by four orgnizations:
1. The Council of the European Union
2. The European Commission
3. The European parliament
4. The European court of Justice
THE STRUGGLE TO CREATE COMMON MARKET
The Treaty of Rome‟s goal is to create a common
market that would permit free flow of goods,
services, labor, capital and technology.
Unfortunately, conflicting national regulations
affects nearly every good, services purchased and
the completion of the common market
Ways and process of eliminating conflicts and
barriers to establish a common market:
1. Process of harmonization
2. Concept of mutual recognition
3. The issuing of its White Paper
FROM COMMON MARKET TO EUROPEAN UNION
Many EU economist were arguing that
European firms remained at a competitive
disadvantage because of the risks and costs in
so many different currencies
The result was a new treaty known formally as
the Treaty on European Union and informally as
the Maastricht treaty which rests on three pillars
designed to further economic and political
a) A new agreement to create common foreign and
defense policies among members
b) A new agreement to cooperate on police, judicial,
and public safety manners.
c) The old familiar European Community, with new
provisions to create an economic and monetary
union among member states.
European Community became commonly known
as the European Union in recognition of the
increasing integration of Europe.
Five Convergence criteria that were developed
because of the economic policies of its member
was needed to be successful:
1) Inflation rate must be more than 1.5 percentage
2) Long term interest rates must not be more than 2
3) Must have been a member of the EU‟s revised
exchange-rate mechanism for 2 years
4) Government budget deficit must be no more than
3% of its GDP
5) Government debt must be trending toward no
more than 60% of its GDP.
Treaty of Europe ( Treaty of Amsterdam)
furthered the process of European integration in
In 2003, The Treaty of Nice furthered the
integration which became effective to reduce
the risk of political gridlock as the number of
members increased, the treaty reduced the
number of areas.
Two years later, in 2005 they agreed to support
the Treaty of Lisbon called Reform Treaty which
adopted many of the government changes.
North American Free Trade
The goal: to eliminate all the tariffs on bilateral
trade between Canada and U.S. by 1988.
The NAFTA agreements was finalized on
January 1, 1994.
Contain provisions to protect intellectual
Abolition within 10 years of tariff on 99% of the
goods traded among Mexico, Canada and U.S
Removes most restriction on FDI between the 3
Under NAFTA, each country is allowed to apply
its own environmental standard.
NAFTA establishes 2 commissions with the
power to impose fines and remove trade
•The Mercosur Accord
Brazil, Paraguay and
members; Bolivia, Chile,
Originated in 1988, it is a free trade pact
between Brazil & Argentina.
The aim : to establish a full free trade area by the
end of 1994 and a common market sometime
In March 1990, Uruguay and Paraguay joined as
Formed in 1969 when Bolivia, Chile, Ecuador,
Columbia and Peru signed the Cartegena
Based on the EU model but it was less
successful in its achieving goal; to make them
more competitive with larger countries.
Collapsed in the mid 1980s
(Association of South East Asia Nation)
Established in August 1967
To promote regional political and economic
To promote intra-ASEAN trade, members
established the ASEAN Free Trade Area (AFTA),
to slash their tariff to 5 percent or less on
manufactured goods because the progress is
Includes the economic powers of U.S, Japan
To increase multilateral co-operation in view of
the economic rise of the Pacific nations and the
growing interdependence within the region.
Southern African Development Community
To promote the development of their regional
Economic and Monetary Community of Central
to achieve collective autonomy, raise the
standard of living of its populations and
maintain economic stability through harmonious
Economic Community of West African States
To promote co-operation on regional economic
The creation of single market offers significant
opportunities. E.g The French and Italian market
Additional opportunities arise from the inherent
lower cost of doing business in a single market.
Standard and simplified tax regimes.
Firms can serve whole market of the country
from a single location.
Business environment become more
Threat to non- EU lies in the long term
improvement in the competitive position of many
European and North Americans firms.
Being shut out of „Fortress Europe‟ and
„Fortress North America‟ whereby they might
impose barriers to Non-EU and Non-American
firms to trade with the countries.