Economic Integration is best viewed as a spectrum. At one extreme we might envision a truly global economy in which all countries share a common currency and agree to a free flow of goods, services, and factors of production.
Level of Economic Integration:
a. The Free Trade Area
The free trade area is the least restridctive and loosest form of economic integration among countries. In a free trade area, all barriers to trade among member countries are removed.
b. The Customs Union
The customs union in one step further along spectrum of economic integration. Like the members of a free trade area, members of a customs union dismantle barriers to trade in goods and services among themselves.
c. The Common Market
Further still along the spectrum of economic integrations is the common market. Like the customs union, a common market has no barriers to trade among members and has a common external trade policy.
d. The Economic Union
The creation of a true economic union requires integration of economic policies in addition to the free movement of goods, services, and factors of production across borders. Under an economic union, members wolud harmonize monetary policies, taxation, and government spending. In addition, a common currency would be used by all members.
Arguments Surrounding Economic Integration
A number of arguments surround economic integration. They center on (1) trade creation and diversion, (2) the effects of integration on import prices, competition, economics of scale, and factor productivity, and (3) the benefits of regionalism versus nationalism.
European Integration
1. Formation of a free trade area: the gradual elimination of tariffs, and other barriers to trade among members.
2. Formation of customs union: the creation of uniform tariff schedule applicable to imports from the rest of world.
3. Formation of common market: the removal of barriers to the movement of labor, capital, and business enterprises.
4. The adoptional of common agricultural policies.
5. The creation of an investment fud to channel capital from the more advanced to the less developed regions of community.
Economic Integration And The International Manager
Harmonization efforts may result in standardized regulations, which can positively affect rpoduction and marketing efforts. Decisions regarding integrating markets must be assessed from four different perspectives : the range and impact of changes resulting from integration, development of strategies to relate to these changes, organizational changes needed to exploit these changes, and strategies to influence changes in a more favorable direction.
Cartels And Commodity Price Agreements
International commodity price agreements and cartels represent attempts by producers of primary products to control sales revenue and export earnings. The former involves an agreement to buy or sell a commodity to influence prices. The latter is an agreement by suppliers to fix prices, set production quotas, or allocate sales territories. OPEC for example, has had inestimable influence on the global economy during the past 40 years. This system is somewhat analogous to a managed exchange rate system, in which authorities buy and sell to influence exchange rates. International commodity agreements are currently in effect for sugar, tin, rubber, cocoa, and coffee.
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