c


„

   

 

 
  
   



 






  

 
    
   
 




 
  


 
  



 

Description
One of the first economic blocs was the German Customs Union (

j initiated in 1834,
formed on the basis of the German Confederation and subsequently German Empire from 1871.
Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the
collapse of Communism. By 1997, more than 50% of all world commerce was conducted under
the auspices of regional trade blocs. Economist Jeffrey J. Scott of the Peterson Institute for
International Economics notes that members of successful trade blocs usually share four
common traits: similar levels of per capita GNP, geographic proximity, similar or compatible
trading regimes, and political commitment to regional organization.

Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue,
encourage regional as opposed to global free trade. Scholars and economists continue to debate
whether regional trade blocs are leading to a more fragmented world economy or encouraging
the extension of the existing global multilateral trading system.Trade blocs can be stand-alone
agreements between several states (such as the North American Free Trade Agreement (NAFTAj
or part of a regional organization (such as the European Unionj. Depending on the level of
economic integration, trade blocs can fall into different categories, such as:preferential trading
areas, free trade areas, customs unions, common markets and economic and monetary unions.



 



conomic integration refers to trade unification between different states by the partial or full
abolishing of customs tariffs on trade taking place within the borders of each state. This is meant
in turn to lead to lower prices for distributors and consumers (as no customs duties are paid
within the integrated areaj and the goal is to increase trade.

The trade stimulation effects intended by means of economic integration are part of the
contemporary economic Theory of the Second Best: where, in theory, the best option is free
trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic
option, and although realized within certain developed states, economic integration has been
thought of as the "second best" option for global trade where barriers to full free trade exist.

tymology
In economics, the word    was first employed in industrial organisation to refer to
combinations of business firms through economic agreements, cartels, concerns, trusts, and
mergers²horizontal integration referring to combinations of competitors, vertical integration to
combinations of suppliers with customers. In the current sense of combining separate economies
into larger economic regions, the use of the word    can be traced to the 1930s and
1940s. Fritz Machlup credits Eli Heckscher, Herbert Gaedicke and Gert von Eyern as the first
users of the term 
 
   in its current sense. According to Machlup, such usage
first appears in the 1935 English translation of Hecksher's 1931 book  

( 

 in Englishj, and independently in Gaedicke's and von Eyern's 1933 two-volume
study   
 

    

 


 


3
ective
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. This is one of the reasons for the global
scale development of economic integration, a phenomenon now realized in continental economic
blocks such as ASEAN, NAFTA, SACN, the European Union, and the Eurasian Economic
Community; and proposed for intercontinental economic blocks, such as the Comprehensive
Economic Partnership for East Asia and the Transatlantic Free Trade Area.

The other objective for the states pursuing economic integration is to become or stay regionally
and globally competitive, as the goods of the states outside economic blocks become more
expensive.

Stages
he degree of economic integration can be categorized into six stages:

1.| Preferential trading area

2.| Free trade area, Monetary union
3.| Customs union, Common market
4.| Economic union, Customs and monetary union
5.| Economic and monetary union,
?| Fiscal union
6.| Complete economic integration

These differ in the degree of unification of economic policies, with the highest one being the
political union of the states.

A "free trade area" (FTAj is formed when at least two states partially or fully abolish custom
tariffs on their inner border. 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.
A "customs union" introduces unified tariffs on the exterior borders of the union (CET, common
external tariffsj. A "monetary union" introduces a shared currency. A "common market" add to a
FTA the free movement of services, capital and labor.

An "economic union" combines customs union with a common market. A "fiscal union"
introduces a shared fiscal and budgetary policy. In order to be successful the more advanced
integration steps are typically accompanied by unification of economic policies (tax, social
welfare benefits, etc.j, reductions in the rest of the trade barriers, introduction of supranational
bodies, and gradual moves towards the final stage, a "political union".

c  GR3c 3 RGI3 cRDIG B3S²3c

K3 as regional integration agreements (RIAsj²is one ofthe major international relations
developments of recent years.Most industrial and developing countries in the world are members of a
regional integration agreement, and many belong to more than one: more than one-third of world trade
takes place within such agreements.1The structure of regional agreements varies hugely, but all have one
thing in common²the objective of reducing barriers to trade between member countries. At their
simplest they merely remove tariffs on intrabloc trade in goods, but many go beyond that to cover
nontariff barriers and to extend liberalization to trade and investment. At their deepest they have
the objective of economic union, and they involve the construction of shared executive, judicial, and
legislative institutions. During the last decade the move to regionalism has become a headlong rush.
Figure 1.1 gives the number of regional agreements notified to the General Agreement on Trade and
Tariffs and the World Trade Organization (GATT/WTOj2each year, and makes apparent the dramatic
increase that occurred in the 1990s. Of the 194 agreements notified at the beginning of 1999, 87 were
notified since 1990. Description of some of the major agreements made in recent years is given in box
1.1, and table 1.1 lists selected trading blocs, their memberships²and their acronyms. The last 10 years
have witnessed qualitative, as well as quantitative, changes in regional integration schemes. There have
been three major developments. The first is the recognition that effective integration requires more than
reducing tariffs and quotas. Many other barriers have the effect of segmenting markets and impeding the
free flow of goods, services, investments, andideas, and wide ranging policy measures²going well
beyond traditional trade policies²are needed to remove these barriers. This so-called deep integration
was first actively pursed in the Single Market Program of the European Union (EUj, and elements of this
program are now finding their way into the debate in other regional agreements. The second is the move
from ³closed regionalism´ to a more open model. Many of the trading blocs that were formed between
developing countries in the 1960s and 1970s were based on a model of importsubstitutingdevelopment,
and regional agreements²with high external trade barriers²were used as a way of implementing this
model.3 Thenew wave of regional agreements²including resurrection of some old
agreements²have generally been more outward-looking, and more committed to boosting, rather than
controlling, international commerce. The third development is the advent of trade blocs in which both
high-income industrial countries and developing countries are equal partners
in agreements designed to bolster the economies of all the membercountries.4 Perhaps the most important
example of this is the North
American Free Trade Area (NAFTAj, formed in 1994 when the Canada- U. S. Free Trade Agreement was
extended to Mexico. EU has linked with the transition economies of Eastern Europe through the Europe
Agreements, and has developed the EU-Turkey customs union and a Mediterranean
policy potentially incorporating agreements with nearly every Mediterranean country. There has been
discussion of replacing the EU¶s trade preferences of the Lomé agreements with reciprocal trade
agreements with these developing countries. These developments have occurred against the backdrop of
globalization. New technologies and more liberal trading regimes have led to increasedtrade
volumes,larger investment flows, and increasingly footlooseproduction. All these considerations point to
the need for a new analysis of regional integration agreements²one that takes into account political as
well as economic effects, that assesses the opportunities for deep integration, and captures the new
potentials created by North-South agreements.

production. All these considerations point to the need for a new analysis of
regional integration agreements²one that takes into account political as
well as economic effects, that assesses the opportunities for deep integration,
and captures the new potentials created by North-South agreements.

º
 
   
  
 
|
|
 S P D  RG R3 I c  Rc SRG
of activity, with the implementation of the Single Market Program in 1992, enlargement of its membership,
and numerous agreements with other countries. These agreements account for two-thirds of the agreements
notified to GATT/WTO since 1990 and include the European Economic Area, the Europe Agreements
with the countries of Eastern Europe, the EU-Turkey customs union, and the development of a Mediterranean
policy potentially incorporating regional agreements with most countries on the southern and eastern
shores of the Mediterranean. In Latin America, MERCOSUR was formed in 1991 and the Group of Three in 1995.
The Andean Pact and Central American Common Market (CACMj were resurrected in 1991 and 1993, respectively.
In Sub-Saharan Africa, the blocs in West Africa were reformed and reorganized. The Southern African
Development Community (SADCj developed out of an earlier defense-based organization, Southern African
Development Coordination Conference, and was supplemented²for many of its members²by the Cross-Border
Initiative. The East

 S P D  RG R3 I c  Rc SRG

of activity, with the implementation of the Single Market Program in 1992, enlargement of its membership,
and numerous agreements with other countries. These agreements account for two-thirds of the agreements
notified to GATT/WTO since 1990 and include the European Economic Area, the Europe Agreements
with the countries of Eastern Europe, the EU-Turkey customs union, and the development of a Mediterranean
policy potentially incorporating regional agreements with most countries on the southern and eastern
shores of the Mediterranean. In Latin America, MERCOSUR was formed in 1991 and the Group of Three in 1995.
The Andean Pact and Central American Common Market (CACMj were resurrected in 1991 and 1993, respectively.
In Sub-Saharan Africa, the blocs in West Africa were reformed and reorganized. The Southern African
Development Community (SADCj developed out of an earlier defense-based organization, Southern African
Development Coordination Conference, and was supplemented²for many of its members²by the Cross-Border
Initiative. The East

c     

   
  
   
   

-
 



   
   formerly European Economic Community (EECj and European

 Community, !"#Belgium, France, the Federal Republic of Germany, Italy, Luxembourg,
the Netherlands; !#$Denmark, Ireland, United Kingdom; !% Greece; !%&Portugal,
Spain; !!"Austria, Finland, Sweden.

   
 !!'EU, Iceland, Liechtenstein, Norway.
 (   
 
 ) ( *Bilateral agreements, !!"EU and
Tunisia; !!&EU and Morocco.


    !!'EC and Hungary, Poland; !!"
European Community and Bulgaria, Romania, Estonia, Latvia, Lithuania, Czech Republic,
Slovak Republic, Slovenia.
+   (,-,./   !%%Canada, United States.
0 
./  )0./* !!'Canada, Mexico, United States.
 1


 
+   )1+* !%!Australia, Brunei Darussalam, Canada,
Indonesia, Japan, Malaysia, New Zealand, Philippines, the Republic of Korea, Singapore,
Thailand, United States; !! China, Hong Kong (Chinaj, Taiwan (Chinaj; !!$Mexico,
Papua New Guinea; !!'Chile; !!%Peru, Russia, Vietnam.
A 
 


  revived in 1991, Bolivia, Colombia, Ecuador, Peru, Venezuela.
+  +

+   )++ * !&2revived in 1993, El Salvador, Guatemala, Honduras,
Nicaragua; !&3Costa Rica. - + +   ) 
 + 4
-5 6+7-6* !! Argentina,
Brazil, Paraguay, Uruguay.
8  / !!"Colombia, Mexico, Venezuela.
 
  
  )*formerly Latin American Free Trade Area,
!&2revived 1980, Mexico, Argentina, Bolivia, Brazil, Chile, Colombia,
Ecuador, Paraguay, Peru, Uruguay, Venezuela.
+  + 9 +   )+6+7 * !#$Antigua and Barbuda,
Barbados, Jamaica, St. Kitts and Nevis, Trinidad and Tobago; !#'Belize, Dominica,
Grenada, Montserrat, St. Lucia, St. Vincent and the Grenadines; !%$The Bahamas (part of
the Caribbean Community but not of the Common Marketj.
^^   

 - 
 !!3Burundi, Comoros, Kenya, Madagascar,
Malawi,
Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe.
 
+    !&#formerly East African Community, broke up in 1977 and
recently revived, Kenya, Tanzania, Uganda.

 
   9+ 9 +

 !!'formerly Union
DouanièreetEconomique de l¶AfriqueCentrale, !&&Cameroon, Central
African Republic, Chad, Congo, Gabon; !%!Equatorial Guinea.

 
+ 9 :
- )+7:-* !#"Benin, Burkina Faso, Cape
Verde, Côte d¶Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania,
Niger, Nigeria, Senegal, Sierra Leone, Togo.
+      - 
 !!$Angola, Burundi,
Comoros, Djibouti, Egypt, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Mozambique,
Rwanda, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe.

-
 !
   "#Comoros, Madagascar, Mauritius, Seychelles.
- 

+ 9)-+* !%2formerly known as the Southern
African Development Coordination Conference, Angola, Botswana, Lesotho,
Malawi, Mozambique, Swaziland, Tanzania, Zambia, Zimbabwe; !!2Namibia; !!'
South Africa; !!"Mauritius; ¦!!%Democratic Republic of the Congo, Seychelles.

 
+ 9 :
 !#$revived in 1994 as West African Economic and
Monetary Unit, Benin, Burkino Faso, Côte d¶Ivoire, Mali, Mauritania, Niger, Senegal.
:

 
   9  !!'Benin, Burkina
Faso, Côte d¶Ivoire, Mali, Niger, Senegal, Togo, !!#Guinea-Bissau.
- 
+  )-+* ! 2Botswana` Lesotho, Namibia, South Africa,
Swaziland.

 
+ 9 +  8   !#&Burundi, Rwanda,
Democratic Republic of the Congo.
—


 
   ^
  $  ^$ !&#ASEAN Free Trade
Area was created
in 1992, Indonesia, Malaysia, Philippines, Singapore, Thailand; !%'Brunei Darussalam;
!!"Vietnam; !!#Myanmar, Lao People¶s Democratic Republic; !!!Cambodia.
8
+   + 

)8++* !% Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the
United Arab Emirates.
-  
   6 
+    !%"Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, Sri Lanka.

c  

     ! "#

$%       %  


 |
| 
|||
|
 
|
|

 |
| |  |!

 |" |# |#
||
$%%
 |
% |
|
|&

|

'  |()|**
|*

*|  +
| *|%  |
|*
|, %

|
|
| 
|
|
(-)|$ 
||
 
|%*|
|

#|
||
|.

|/

| 
|
!% 


|!
*
 |0 |-11|$ %

|%% 2
#|3|
4|'$|.56|

4|
|

|||
.537|

|($
#|0  | |
|3|8#|-1|/|9 
)|

$%$  &  '$&#"

| | 
|/|" :|, 
|
|

0 |
/|à

à  

 

à 

àà 
à
à à


à


  à


%"#8 |/|



|
|* 
;< |

$($ ( |

8 
|
|3|#| 2|
  
|

 | |
| %
| |
|
| 

#|(  )|
=,|
|, ,|

|
| %
|*
*| 

#|

|
| %
| 

#|
||

|-|+ |0
#|

0 |

|
| %
|.

|
> 
| *|+
|
| 
|
| 0| |

 |(-)| |
*|
| ||
 | #% | ?*|>%*|
|

|8

|8
*|'
#|'*||
å
#|!
|!
#|"
,|"

|"2  |
|$ 
|$ 
 |> 
| ,|
 ,
||
%
|+
||/

 |
|
|.

|@
 
'  |, ,|0 || 
|0A
| *

| 0|

 |

||

| 0|% 
*|*
*|

|2*
,||
*

*

|
$ %

|

|
|31-|
|
||B
#|-11|(

)|
'$|($$$)|

|
|.56|

|(-11|
| !|9 |8*
 ||*|-1)|

$&)( &  &   *  & &    

=00*| 
| |,|

#|
|%
 |
|$ 
  |

 |
|-|*||+
|
|
#| 0| 
*C
|
8| |
*| 


|?|$ #|. #|
|&
?| *
||
 |
*| ,| |  |* |
|$| *
| |,|
** |
|%0

|
|
|

|
|
00|
0
| 0|0| |2* |


|
|

* 
||| 0|
| 
| |
|  ,|

 |

'  |!

 

| 0||

 |0 |**

| 0| 

|*
*|, %

| |
|
*|D
*||

,


|%
*

|
|* 

|% ,
#|
$ %

| |

|-7|
|% %|(B#|-11|
|| !|9 |8*
 )|
'$|($$$)| 0| |

|.5-6|

|(-11|
|| !|9 |8*
 )|

%c%  c

 

 

| 
|
||B
#|6|
 | 
|2* |
|
|.

|

 | 0|*|

'  |

|
| |
||

 |% 
|*


|0 |0|
||

* |
,


| %% 


 |
|%
*
|

*
|% %
#| 
|

$ %

| 0| ,|61|
|(B#|-1|
|| !|8*
 ||*|-1)|
'$|($$$)|.51|

|(/0
/ +|-11|
)|

&      

  &   
0 


|
 |

|!
|, |/%|$

|
||"
|

+$&*+$  &   

!


|
|B
#||#|
|0 | |00*
,|*
*|* %

|* |
||
 A$*0*|> 
|

 |
|
| | 
| |$ %E |>%*| 0| 
|å
|
@
 
||
!

 |B%
|>%*| 0|@ |# |2* |/+|F
|$%|/+|'
|$|
$%
 ||
> |
% | 
 |%|
|.

|

 |
|&
|/|

%

|0 * |
|
|
|*
*|  |G|* 


|
| %
|
|
,


|
|
*
*||
0 |+

|
| 
|0 | 

|*
*|  +
|$  ,|*

| 0|
00 |
|
|

| |