Economic integration is the unification of economic policies between different states through the
partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior
to their integration.
Preferential Trade Area
Preferential Trade Areas (PTAs) exist when countries within a geographical
region agree to reduce or eliminate tariff barriers on selected goods imported
from other members of the area. This is often the first small step towards the
creation of a trading bloc.Agreements may be made between two countries
(bi-lateral), or several countries (multi-lateral).
Free Trade Area
Free Trade Areas (FTAs) are created when two or more countries in a region
agree to reduce or eliminate barriers to trade on all goods coming from other
members. The North Atlantic Free Trade Agreement (NAFTA) is an example of
such a free trade area, and includes the USA, Canada, and Mexico.
Customs Union
A customs union involves the removal of tariff barriers between members, plus
the acceptance of a common (unified) external tariff against non-members.
This means that members may negotiate as a single bloc with 3rd parties, such
as with other trading blocs, or with the WTO.
Common Market
A common market is the first significant step towards full economic
integration, and occurs when member countries trade freely in all economic
resources not just tangible goods. This means that all barriers to trade in
goods, services, capital, and labour are removed. In addition, as well as
removing tariffs, non-tariff barriers are also reduced and eliminated. For a
common market to be successful there must also be a significant level of
harmonisation of micro-economic policies, and common rules regarding
monopoly power and other anti-competitive practices. There may also be
common policies affecting key industries, such as the Common Agricultural
Policy (CAP) and Common Fisheries Policy (CFP) of the European Single
Market (ESM).
Economic Union
Economic Union is a term applied to a trading bloc that has both a common
market between members, and a common trade policy towards non-members,
but where members are free to pursue independent macro-economic policies.
Monetary Union
Monetary union is the first major step towards macro-economic integration,
and enables economies to converge even more closely. Monetary union
involves scrapping individual currencies, and adopting a single, shared
currency, such as the Euro for the Euro-16 countries, and the East Caribbean
Dollar for 11 islands in the East Caribbean. This means that there is a
common exchange rate, a common monetary policy, including interest rates
and the regulation of the quantity of money, and a single central bank, such as
the European Central Bank or the East Caribbean Central Bank
Thanks to its sustained economic growth over the last several decades, Asia has become the
worlds most dynamic region. Maintaining this impressive growth rate, however, requires market
integration to ensure the free flow of goods, services, and capital across borders (ADB 2013).
Indeed, interplay of market forces and increased participation in trade have been decisive in the
growth of emerging Asian economies. Until now, most of Asias final goods have been exported
to Europe and the United States. Access to large markets allowed Asian countries to exploit
their economies of scale on the one hand, and stimulate growth in their productive sectors on
the other. With the rise of Asia, it is time for these countries to cooperate and become an
integrated market of their own.
Economic integration under the South Asian Association for Regional Cooperation
(SAARC) regime was not explicitly envisaged until as late as the 1990s.
Since the early 1990s, however, several attempts have been initiated to boost South
Asian economic integration through a number of trade pacts at the bilateral,
subregional, and plurilateral levels. As the umbrella organization in South Asia, SAARC
has taken initiatives to enhance integrationthe South Asian Preferential Trading
Arrangement (SAPTA) and the South Asian Free Trade Area (SAFTA), and more
recently the SAARC Agreement on Trade in Services (SATIS), which was signed in
2010 (SAARC Secretariat 2004, 2010).
Little has been achieved under these instruments, and barring Afghanistan and Nepal,
all the South Asian economies depend heavily on markets outside the region as their
export destination. However, this does not mean that intra-subregional trade has
declined. Indeed South Asias trade with both its subregional and external partners has
increased significantly since 1990s, although trade growth with external partners has
been faster.
Statistical evidence suggests that intra-subregional trade among SAFTA members is
rising slowly and steadily. As indicated in Table 1, South Asias intra-subregional trade
share increased from 2.7% in 1990 to 4.3% in 2011.