Regional Economic Integration

Presented By:
Shawon Das (15th Batch)
Student ID: EV193071013
Course: International Business
Chittagong University Center for Business Administration
Topics to be Covered
Regional Economic Integration:
Meaning
Degrees/Levels of REI
Effects of REI
A. Trade Creation
B. Trade Diversion
 Regional Economic Integration (REI)
Definition:
Regional Economic Integration refers to agreements between countries
in a geographic region to reduce tarrif and non-tarrif barriers to the free
flow of goods, services and factors of production between each others.
Examples:
NAFA: North American Free Trade Agreement
(3 members, Currently USMCA)
EU: European Union (27 members)
ASEAN: The Association of South East Asian Nations (10 members)
SAARC: South Asian Association for Regional Cooperation (8 members)
 Levels of REI
(Regional Economic Integration)

Preferential Trade Area (PTA)

Free Trade Area (FTA): A
Custom Union (CU):A+B
Common Market (CM):A+B+C
Economic Union (EU):A+B+C+D
Political Union (PU):A+B+C+D+E
 Levels of REI
PTA (Preferential Trade Area): The member countries
lower/reduce barriers to imports of identified products
from one another.
Example: South Asian Preferential Trading Agreement
(SAPTA)

FTA (Free Trade Area): All barriers to the trade of

goods and services among member countries are
removed (no internal tarrifs) but members determine
their own trade policies with regards to non-members.
Example: North American Free Trade Agreement
(NAFTA: among US, CANADA,
 Levels of REI
CU (Customs Union): The removal of Trade barriers
between member countries and adoption of a common
trade policy with respect to non member countries.
Example: Central American Common Market (CACM) &
Carribean Community And Common Market
(CARICOM)
CM (Common Market): CM has no barriers to trade policy
and the free movement of factors of production including
labor, capital and technology among member countries.
Example: The Southern Common Market Treaty
(MERCOSUR)
 Levels of REI
EU (Economic Union): EU involves the free flow of
products and services and factors of production between
members. The adoption of a common external trade policy,
a common currency harmonization of the member
countries’ tax rates and a common monetary and fiscal
policy.
Example: European Union

PU (Political Union): A central political apparatus co

ordinates the economic, social and foreign policy of the
member states.
Example: No Such Example
 Economic Effect of REI
 Static Effect (Short Term Effects: Shift of Production)
 Trade Creation: Production Shift to efficient member
countries from more inefficient outside
 Trade Diversion: Production Shift to Inefficient member
countries from more efficient outside

 Dynamic Effect: (Long Term Effects)

 Cost reduction due to economies of scale.
 Cost reduction due to increased competition.