Types of Economic Integration

Economic integration occurs as countries reduce trading barriers between themselves and become more interdependent
A trading bloc is a group of countries who come together and agree to reduce or eliminate any barriers to trade that exist between them
Each subsequent type of trading bloc has increased levels of economic integration

Different Types of Trading Blocs

Trading Bloc

Explanation

Free Trade Area

A free trade area is a bloc in which countries agree to abolish trade restrictions between themselves but maintain their own restrictions with other countries
- E.g. Canada–United States–Mexico Agreement (CUSMA)

Customs Union

A customs union is an agreement between countries in which all goods/services produced by members are traded tariff free
- Additionally, countries agree on common tariff rates on imports from all external (third-party) countries

Diagram: A Customs Union

4-1-5-customs-union

In the diagram above, countries in the European Union have eliminated all tariff barriers between themselves but impose common tariff barriers on third party countries such as the UK or China
Countries inside the union also agree on common policies, such as:
- Environmental policies
- Safety standards
- Competition laws

Common Market

E.g. Single European Market (SEM)

Similarly, to a customs union, goods/services are traded tariff-free in common markets
Additionally, the four factors of production flow freely between member countries
- The goal is to improve the allocation of resources between the common market members and lower the costs of production
- Labour can move freely and people can live and work in any member country
The Single European Market (SEM) was created in 1993
- 27 Member states have access to market size of over 500 million people
The SEM is a customs union and a common market
Members receive capital Funding throughout its years of membership which supports activities such as improvement in infrastructure; re-training grants

Monetary Union

A monetary union takes integration a step further. Members enjoy all of the benefits of a customs union and common market, but then also establish a common central bank which issues a common currency and controls the monetary policy of member countries

Prior to Brexit, the UK was a member of the European Customs Union and common market but never joined the Eurozone
At the start of 2023, 20 of the 27 countries in the EU are also members of the Eurozone

The Role of the World Trade Organisation (WTO)

The World Trade Organisation (WTO) was established in 1995 to promote free trade
- They believe free trade is the best way to raise living standards, create jobs and improve people's lives
Trade liberalisation is the process of rolling back the barriers to free trade e.g. removing tariffs
The WTO has two main roles in liberalising trade

It brings countries together at conferences and encourages them to reduce or eliminate protectionist trade barriers between themselves e.g. The Doha Round conferences
It acts as an adjudicating body in trade disputes. Member countries can file a complaint if they believe a trading partner has violated a trade agreement. The WTO will then run a hearing and make a judgement

The Objectives and Functions of the WTO

Objectives of the WTO	Functions of the WTO
Improving people’s lives Promotion of fair competition Protecting the environment	Trade negotiations Implementation and monitoring of trade agreements Dispute settlement Building trade capacity between nations Outreach to governments and influential organisations on behalf of member countries

In March 2022 there were 320 regional trade agreements globally
While these are beneficial to the members in the agreement (as they strengthen ties and create more trade between them), they also create conflicts with the stated aim of the WTO - to liberalise trade

Regional agreements often shift trade from a non-member who is more efficient in producing certain goods/services, to a member country who is less efficient
Regional trade members then often institute common trade barriers on non-members which is the opposite of trade liberalisation (protectionism)