Question

. define economic integration. explain the benefits of economic integration.

Answer 1

1. definition (by Business Dictionary) Economic integration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non tariff barriers to the free flow of goods or services and factors of production among each others; any type of arrangement in which countries agree to coordinate their trade, fiscal, and/or monetary policies are referred to as economic integration. Obviously, there are many different stages of integration. a. integration as an outcome – integration as something static; integration can be achived when certain criteria are fulfilled b. integration as a process – integration as a dynamic process; represented by stages of integration going form FTA to political integration 2. objective An increase of welfare has been recognized as a main objective of economic integration. The increase of trade between member states of economic unions is meant to lead to the increase of the GDP of its members, and hence, to better welfare. 3. Stages of economic integration The degree of economic integration can be categorized into five stages: 1. Free trade area 2. Customs union 3. Single market 4. Economic and monetary union 5. Complete integration (political union) These differ in the degree of unification of economic policies, with the highest one being the political union. A free trade area (FTA) is formed when at least two states partially or fully abolish custom tariffs on their inner border. Free trade area is a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs, quotas on most (if not all) goods traded between them. To exclude regional exploitation of zero tariffs within the FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA. Unlike a customs union, members of a free trade area do not have a common external tariff (with respect to non-members), meaning different quotas and customs. To avoid evasion (through re-exportation) the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods. Goods that don't cover these minimum requirements are not entitled for the special treatment envisioned in the free trade area provisions. Examples of FTA: