3.4 Economic Integration Pages 309-313 Print pages 1,3,5-9

Learning Objectives Distinguish between bilateral and multilateral (WTO) trade agreements. Explain that preferential trade agreements give preferential access to only certain products Distinguish between a free trade area, a customs union and a common market. Explain that economic integration will increase competition among producers within the trading bloc. Compare and contrast the different types of trading blocs. Explain that a monetary union is a common market with a common currency and a common central bank. Discuss the possible advantages and disadvantages of a monetary union for its members.

Key terms Economic Integration occurs when countries link their commerce laws and facilitate greater trade. Bilateral trade agreement: When only two countries agree to some level of economic integration. Multilateral (Trading Bloc): A group of countries agree to some level of economic integration. 1,3,4,6,7,8

6 stages of increasing economic integration: Preferential trading area Free trade area Customs union Common markets Economic and monetary union Complete economic integration

Preferential Trading Areas Preferential access to certain products from certain countries. Tariffs are reduced – but usually not eliminated Eg: PTA between EU and the ACP (Africa, the Caribbean and the Pacific- 71 countries) EU gets supply of raw material form the ACP

Free Trade Areas This occurs when a group of countries agree to eliminate trade barriers among themselves. They are able to trade with countries outside of the free trade area in whatever way they wish. Eg: NAFTA (North American Free Trade Area) EFTA (European Free Trade Association SAFTA (South Asia Free Trade Association) NZ has FTA with China, Australia and Malaysia and FTA with India and Korea

Customs Union A FTA plus: they also agree to adopt common external barriers against any country attempting to import into the customs union For example, countries A, B, C and D have joined a customs union. If they agree to put tariffs on the products from country E, these will be imposed by A,B, C and D all. Eg- East African community EU customs union

Common Markets A custom union plus: common policies on product regulation and free movement of goods, services, capital and labour Eg- EU CSME -The CARICOM (Caribbean community) Single Market and economy

Monetary union Complete Integration A common market plus: a common currency. Eg- Eurozone (EU minus UK, Sweden, Spain) Therefore a common monetary policy (any cons?) And a common exchange rate (any cons?) Complete Integration A monetary union plus: complete harmonisation of fiscal policy – what are the cons? Final stage of Economic Integration

5 General Advantages: Greater production for successful exporters, thus increased GDP Increased competition due to imports leads to greater efficiency More choice and lower prices for consumers More Investment or FDI due to larger market size Possibly greater political stability and cooperation

5 General Disadvantages: Common Commerce Legislation (law) requires giving up a degree of self-rule. To some degree tax law will be changed. Temptations for a brain drain? How about cross border purchases? Social policies will be “Coordinated.” Tax income for government might decrease.