WALLIS, Franchelle P.

COA BLK2A
August 5, 2020

5.1.1 Economic Integration and Trading Bloc Activity

1. What are the 5 levels of Economic Integration? Define and give one example for each.

Levels of Economic Definition Examples

Integration

The United States currently has

1. Free Trade Under the Free Trade level of a number of free trade
economic integration, all agreements in place. These
barriers to the trade of goods include multi-nation
and services, such as tariffs, agreements such as the North
quotas, subsidies, or American Free Trade
administrative impediments are Agreement (NAFTA), which
removed among the member covers the U.S., Canada, and
countries. This is made in order Mexico, and the Central
to avoid the distortion of trade American Free Trade
between members as well as to Agreement (CAFTA), which
promote economic efficiency. includes most of the nations of
However, each country keeps Central America. There are
its own tariffs and any other also separate trade agreements
trade policies with regard to with nations from Australia to
third countries (nonmembers). Peru.

Collectively, these agreements

mean that about half of all
goods entering the U.S. come
in free of tariffs, according to
government figures. The
average import tariff on
industrial goods is 2%.

All these agreements

collectively still do not add up to
free trade in its most laissez-
faire form. Amerian special
interest groups have
successfully lobbied to impose
trade restrictions on hundreds
of imports including steel,
sugar, automobiles, milk, tuna,
beef, and denim.
2. Customs Union Under the Customs Union level A good example is the recently
of economic integration, introduced bilateral trade deal
member countries set and between the European Union
References:
https://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/
https://www.investopedia.com/terms/f/free-trade.asp
https://corporatefinanceinstitute.com/resources/knowledge/economics/economic-union/
https://www.intelligenteconomist.com/trading-bloc/
https://www.investopedia.com/terms/e/economic-integration.asp#:~:text=Real%2DWorld%20Example%20of%20Economic,the%20world's%20gross%20domestic%20product.
WALLIS, Franchelle P.
COA BLK2A
August 5, 2020

adopt common external trade and Japan.

policies and tariffs among
member countries, implying The EU and Japan's Economic
that the same tariffs are applied Partnership Agreement entered
to third countries into force on 1 February 2019.
(nonmembers) and through
this, a common trade regime is EU firms already export nearly
achieved.
€70bn in goods and €28bn in
Particularly, customs union is services to Japan every year.
useful to match the competitive
playing field and address the In the past European firms
problem of re-exports by the faced trade barriers when
use of preferential tariffs in one exporting to Japan, which
country to enter another
sometimes made it hard for
country.
them to compete.

The trade agreement with

Japan:

 removes tariffs and

other trade barriers and
creates a platform to
cooperate in order to
prevent obstacles to
trade; and
 helps us shape global
trade rules in line with
our high standards and
shared values, and;
 sends a powerful
signal that two of the
world's biggest
economies reject
protectionism.

In July 2010, Kenyan President

3. Common Market Under the Customs Market Mwai Kibaki formed the East
level of economic integration, African Common Market to
capital and service are free to accelerate economic growth
move within member countries, and development in the region.
expanding scale economies The establishment of a
References:
https://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/
https://www.investopedia.com/terms/f/free-trade.asp
https://corporatefinanceinstitute.com/resources/knowledge/economics/economic-union/
https://www.intelligenteconomist.com/trading-bloc/
https://www.investopedia.com/terms/e/economic-integration.asp#:~:text=Real%2DWorld%20Example%20of%20Economic,the%20world's%20gross%20domestic%20product.
WALLIS, Franchelle P.
COA BLK2A
August 5, 2020

common market in East Africa

and comparative advantages. was an expansion of an
In short, there are no trade existing customs union, which
barriers between member was created in 2005 and was
countries. made up of six countries in
However, each national market eastern Africa: Burundi, Kenya,
has its own regulations such as Rwanda, South Sudan,
product standards. Tanzania, and Uganda.

The EACM was established to

provide the “four freedoms,”
with the aim of boosting the
region’s economy and
increasing productivity. The
four freedoms are:

a. The free movement of goods

b. The free movement of labor
c. The free movement of
services
d. The free movement of capital

The European Union is the

4. Economic Union Under the Economic Union world’s largest trade bloc.
level of economic integration, Importing goods and services
all tariffs are removed for trade from more than 100 countries, it
between member countries, is the biggest import market, as
creating a uniform or a single well as the biggest exporter in
market. Free movements when the world. The EU’s common
it comes to labor that enables currency is the euro, which is
workers in every member used by its 28 member states.
country can also be seen in this
level of integration. The EU countries coordinate their
economic policies, laws, and
In addition, monetary and fiscal
regulations to address economic
policies between member and financial issues. One of the
countries are harmonized, union’s founding principles is free
which implies a level of political trade among its members. It is
integration. also committed to the liberalization
of world trade outside of its
borders.

5. Political Union The Political Union level of The European Parliament is

economic integration considered to be one of the
represents the potentially most examples of a Political Union.
advanced form of integration
with a common government
and were the sovereignty of a
References:
https://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/
https://www.investopedia.com/terms/f/free-trade.asp
https://corporatefinanceinstitute.com/resources/knowledge/economics/economic-union/
https://www.intelligenteconomist.com/trading-bloc/
https://www.investopedia.com/terms/e/economic-integration.asp#:~:text=Real%2DWorld%20Example%20of%20Economic,the%20world's%20gross%20domestic%20product.
WALLIS, Franchelle P.
COA BLK2A
August 5, 2020

member country is significantly

reduced. Through a central
political apparatus, the
economic, social and foreign
policy of member states are
coordinated.
This level of economic
integration is only found within
nation-states, such as
federations where there are a
central government and regions
(provinces, states, etc.) having
a level of autonomy.

2. What benefits do nations get from forming trading blocs?

Nowadays, technology could be considered as a need of a nation for them to be able have a
greater opportunity to leverage their existing capabilities, resources, capital and the like thus
providing a clearer path towards the nation’s development, specifically, economic development.
Through trading blocs, there will be a faster transfer or exchange of technology across borders of a
participating country thus contributes to the economic development of both parties. In addition,
Nation, through forming trading blocs, will have an increase in foreign direct investment and would
therefore benefit the economies of the participating nations also known as the member countries for
the reason that trading bloc increases the overall size of markets for companies or firms. As a whole,
trading blocs would serve a catalyst of a nation’s economic leverage since the wider scope of market
created by trading blocs leads and permits economies of scale. Also, there will be a decrease of cost
of production which would be very beneficial and would therefore contribute to higher profits because
mass production is allowed.

3. What is the largest example of economic integration?

In the year 1993 was the year the European Union (EU) was created and eventually included 28
member states in 2019. Since 2002, 19 of those nations have adopted the euro as a shared currency.
According to the International Monetary Fund (IMF), the EU accounted for 16.04% of the world's
gross domestic product. Thus, European Union is the largest example of economic integration.

References:
https://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/
https://www.investopedia.com/terms/f/free-trade.asp
https://corporatefinanceinstitute.com/resources/knowledge/economics/economic-union/
https://www.intelligenteconomist.com/trading-bloc/
https://www.investopedia.com/terms/e/economic-integration.asp#:~:text=Real%2DWorld%20Example%20of%20Economic,the%20world's%20gross%20domestic%20product.