Levels of Economic Integration: 1. Free trade area: A free trade area is an economic integration arrangement in which barriers to trade among member countries are removed. Under this arrangement each participant will seek to gain by specializing in the production of those goods and services for which it has a comparative advantages and importing those goods and services for which it has a comparative disadvantage. One of the best known free trade arrangements is the north American Free Trade Agreement (NAFTA), a free trade area currently consisting of Canada, the Us and Mexico. Trade between the three members of NAFTA is now in the range of &1 trillion annually. 2. Customs Union: A custom Union is a form of economic integration in which all tariffs between member countries are eliminated and a common trade policy toward non member countries is established. This policy often results in a uniform external tariff structure. Under this arrangement, a country outside the union will face the same tariff on exports to any member country receiving the goods. 3. Common Market: A common market is a form of economic integration characteristics by no barriers to trade among member nations, a common external trade policy and mobility of factors of production among member countries. A common market allows reallocation of production resources such as capital, labor, and technology based on the theory of comparative advantage. Example: EU is the successful common market and is now focusing on political integration. 4. Economic Union: An economic union is a deep form of economic integration and is characterized by free movement of goods, services and factors of production between countries and full integration of economic policies. An economic union 1) unifies monetary and fiscal policy among the member nations 2) has a common currency and 3) employs the same tax rates and structures for all members. 5. Political Union: A political union goes beyond full economic integration, in which all economic policies are unified, and has a single government. This represents total economic integration, and it occurs only when countries give up their national powers to leadership under a single government. Example: We combined independent states into a political union. The unification of west and East German in 1991 has also created a political union, the two nations now have one government and one set of overall economic policies Trade Creation: Trade Creation occurs when members of an economic integration group begin focusing their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other. Example: The US and Mexico have an agreement that allows cars to be assembled in Mexico and shipped into the US. As a result, Mexico, a low cost producer, supplies a large number of vehicles sold in America and both countries prosper. Trade Diversion: Trade Diversion occurs when members of an economic integration group decrease their trade with non- member countries in favor of trade with each other. One common reason is that the removal of trade barriers among member countries makes it less expensive to buy from companies within the group and the continuation of trade barriers with non member countries makes it more difficult for the latter to compete. Thus trade diversion can lead to the loss of production and exports from more efficient non member countries to less efficient member countries that are being protected by tariffs or other barriers. The creation of economic integration groups is beneficial only if trade creation exceeds trade diversion. The European Union: The foundation of the European Union was laid in 1957 by the Treaty of Rome. The six– Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) nations who created the ECSC were the original founders of what was initially called the European Economic Community and later the European Community. By 1991 six other national joined the EC (Great Britain, Denmark, Greece, Ireland, Portugal, and Spain) and by 1995 Austria, Finland and Sweden were also admitted to the EC which was now renamed the European Union. The main provisions of the following treaty of 1957 were: Formation of a free trade area among the members would be brought about by the gradual elimination of tariffs, quotas, and other trade barriers. Barriers to the movement of labor, capital and business enterprises would eventually be removed Common agricultural policies would be adopted. An investment fund to channel capital from the more advanced regions of the bloc to the less advanced regions would be created. A customs union characterized by a uniform tariff schedule applicable to imports from the rest of the world would be created. These nations formed the European Free Trade Association, whose primary goal was to dismantle trade barriers among its member. There are five major institutions that mange the EU: The European Council is composed of the heads of state of each EU member country as well as the president of the European Commission. The purposes of these meetings are to resolve major policy issues and to set policy direction. The Council Of Ministers is the major policy decision making body of the EU. The European Commission has 20 members who are chosen by agreement of the member government. France, Germany, Italy, Spain, and the UK have two representatives each, and the other member’s one each. It handles a great deal of the technical work associated with preparing decisions and regulations. The European parliament currently has 630 members. The individual are elected directly by the voters in each member country. The parliament serves as a watchdog on EU expenditures in addition to evaluating other decisions of the Council. The court of Justice has one judge appointed from each EU member country; this court serves as the official interpreter of EU law.
Posted on: Thu, 18 Jul 2013 10:49:05 +0000
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