Economic Integration Processes
there must be a well-functioning internal
➢ Characteristic feature of contemporary global
economy.
➢ Attempts to establish regional integrations.
➢ Agreement to reduce series of trade barriers to
benefit and protect each other.
Integration Theory
➢ Identifies economic effects: short and long term.
Free Trade Areas (FTA)
▪ the most frequent form of Integration groupings.
▪ Constitutes the base of the pyramid of
Integration groupings.
▪ Trade creation and deflection.
▪ Aims to bring down barriers in trading.
▪ Occurs only in specific regions.
Customs Union (CU)
▪ Common external tariff and common trade policy
is observed.
▪ Type of trade bloc that occurs in a free trade area.
Common Market (Internal Market)
▪ Not only trade of goods and services but also in
capital and labor.
▪ Group of countries with few or no duties of trade
and has a common tariff.
▪ Positive Effect: brings both micro and
macroeconomic effects.
Negative Effect: initial drop of employment,
intensified competition, disparities and etc.
▪ Solutions: common policies should be enhanced.
Monetary Union
▪ Agreement between states creating a single
currency area.
▪ Irrevocable fixation of exchange rates.
Economic and Monetary Union
▪ Trade bloc with combination of common market,
customs union and monetary union
▪ The peak of pyramid of Integration Groups.
Note: In attaining highest level of integration
market, common competition policies and
socio-economic policies that enables proper
structural adjustments and preventing
deepening of disparities.
Integration Processes in the Global
Economy
➢ The groupings in the Integration have common
features but are also differentiated with their: (1)
achieved integration stages, (2) position in global
economy, and (3) effects for integrating area and
members of the state.
European Union (EU)
➢ Consists of 28 member states, 507 million
citizens.
➢ Implements the highest stage of integration
(economic-monetary union).
➢ Uses two-speed integration process
Background:
▪ 6 countries (founding members) are
characterized by their high level of economic
development.
▪ Less developed new EEC members changed
the socio-economic cohesion of the
organization.
▪ Common Cohesion/ Regional Policy
- Introduced after the EEC expansion.
- Aimed to diminish socio-economic
disparities among member.
- The effectiveness and efficiency of
this is subject of controversy.
▪ Currently, the members of the states are still
differentiated by GDP per capita.
▪ “old members”- achieve much above the
average of EU-28.
▪ rest of the members- below the average
level.
▪ In 2014 double-digit unemployment rates
were observed both in the old and new EU
member states.
 ▪ Since 2008, a number of adverse phenomena
have occurred in the economy of EU: (1)
increase public debt, (2) decline of private
incomes, (3) falling employment rates, and
(4) growing unemployment.
▪ EU-28 still has the biggest share in the world
trade in goods and services even with their
worsening condition during the last decade.
Note: The integration processes have caused an
economic interdependence of the EU member states.
Association of Southeast Asia Nations
(ASEAN)
➢ Formed in 1967.
➢ Established a Free Trade Area (AFTA).
ASEAN Investment Area (AIA) 1998
➢ aimed at enhancing the attractiveness and
competitiveness member countries for Foreign
Direct Investment (FDI).
➢ was followed by agreements that is related to it:
ASEAN Investment Guarantee Agreement and
ASEAN Comprehensive Investment Agreement.
Background:
▪ In 2015, ASEAN Economic Community (AEC) was
established.
▪ In 2002, Free Trade Area (AFTA) was announced
to be formally completed.
- has internal tariffs reduces to 5% or less.
- numerous good were treated as sensitive and
exemptions were accepted.
▪ In 2012, the ASEAN Comprehensive Investment
Agreement (ACIA) is formally completed
- impediments to investment still existed.
- numbers of the states use a reservation list.
Note: Customs Union is a stage of the integration
process which was has not been introduced among
the members of the ASEAN except Singapore that is
why the feasibility of it has been discussed to ASEAN
Customs Union post-2105.
ASEAN Economic Community
➢ consists of 10 member countries, 617 million
citizens.
➢ Members are strongly differentiated with their
development levels.
Background:
▪ The GDP of the ASEAN grouping was about 3.2%
of the world GDP.
▪ The differentiation of GDP per capita in AEC
demonstrates a real division of the ‘old’ and ‘new’
member.
▪ ASEAN as an integration grouping shows
resistance as far as negative consequences of the
global crisis.
▪ The annual GDP grew from 2% in 2009 to 5.2% in
2013.
▪ In 2012, the share if the ASEAN grouping
amounted to more than 6%.
▪ Main Trade partners: China, Japan, EU-28 and
South Korea.
Note: Some ASEAN countries are strongly
dependent on the intra-ASEAN market.
North American Free Trade Agreement
(NAFTA)
➢ Formed in 1994.
➢ Created an integration grouping of three
countries with different levels of economic
development: 2 highly developed countries and 1
catching-up developing countries.
➢ Aimed at the establishment of a Free Trade Area
while containing some provisions that is related
to Foreign Direct Investment.
➢ Member states does not push towards a more
advanced integration stage.
Background:
▪ In the 1990s, the differences in the development
of NAFTA members and the potential
consequences of FTA gave way to controversies.
▪ The assessment of real costs and benefits of
NAFTA is still a subject of discussion.
 ▪ Effects of NAFTA to Mexico is positive but
modest.
- The impact of NAFTA on the Agricultural
Sector of Mexico was controversial since the
small peasant farmers were adversely
affected.
▪ In 2011, a recovery has been observed in intra-
NAFTA trade and investment flows.

Trans-Atlantic and Trans-Pacific

Economic

European Union
➢ Initiated and brought to life many trade
preferential agreements and FTAs.
➢ Trans-Atlantic Trade and Investment Partnership
(TTIP) that aims to bring a greater openness of
both markets for goods and services.
- could introduce changes in the EU pyramid of
trade preferences.

ASEAN
➢ has signed agreements on FTAs with most
important trade partners outside the region.
➢ Developed economic relations with other
countries.
➢ Four countries of the state were involved in the
negotiation of Trans-Pacific Partnership (TPP).

NAFTA
➢ Have put into effect numerous FTAs that have
given other countries preferential access to their
market.
➢ The signing of the TPP agreement creating a FTA
among 12 countries in the Asia-Pacific Region.

Note: Membership in a regional integration

grouping is not perceived as a barrier to the
creations of closer linkages with countries outside
of the organization.