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§1 Types of Regional Economic Integration Regional economic integration: A process in which states enter into a regional agreement in order to enhance regional economic cooperation through regional institutions and rules. Preferential tariff arrangement The countries involved reduce but do not undertake to eliminate totally their import tariffs (customs duties) on the trade in goods flowing between them; meanwhile, they retain tariff protection on goods entering their economies from outside. The least restrictive and loosest form of economic integration among countries. 2. Free trade area A group of countries that eliminate all tariffs on trade with each other but retain autonomy in determining their tariffs with nonmembers. Each country continues to set its own policies in relation to nonmembers. For all goods or only for certain classes of goods and services. The most notable are the European Free Trade Area (EFTA) and the North American Free Trade Agreement (NAFTA). 3. Customs union Members of a customs union dismantle barriers to trade in goods and services among themselves. In addition, a common trade policy with respect to nonmembers, typically, this takes the form of a common external tariff. Arrangements of this kind are clearly discriminatory, since they represent free trade within the bloc but discrimination against the rest of the world. 4. Common market A common market has no barriers to trade among members and has a common external trade policy. In addition, however, factors of production are also mobile among members. When factors of production are freely mobile, then capital, labor, and technology may be employed in their most productive uses. The Treaties of Rome in 1957 established a common market within the European Community (EC). 5. Economic union An economic union is now frequently described as economic and monetary union. The “economic” aspect of economic union
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