Regional Trade Agreements

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Table of Contents

Concept of Regional Integration
Regional Trade Agreement
How the EU works
NAFTA verses the EU
References

Concept of Regional Integration

The term “regional integration” is not easy to define, but attempts to understand it have been made for years. In general terms, regional integration refers to the ‘unification of nation states into a larger whole’ (Viner 1). It has been commonly described as a process that entails a country’s will to share or unite into a whole with other states.

What determines the level of integration is what that country intends to share and the extent to which it is willing to share. Regional integration sometimes entails compromise on the nation states, but this should not be the case. It should actually enhance general eminence of existence for the citizens of the member states.

Regional integration can be also defined along the lines of geographic scope, the substantive coverage and the depth of integration. Geographic scope comprises the number of countries that are involved in the agreement. Substantive coverage means the activity that the integration entails or is involved in, for instance, trade.

Finally, the depth of integration is the extent to which a country is ready to give away its sovereignty. This means that a country can either be shallowly or deeply rooted into the integration.

Then, the question about the reasons for regional integration arises. Regional integration acts as a unity, especially in fragmented economies, like in the Sub-Saharan Africa. Integration creates larger markets to permit economies of scale wider competition and foreign investment.

It also accelerates the opening of enclosed economies to the rest of the world. Integration enhances credibility of national reform through lock-in policy mechanism. It goes ahead to strengthen unity for international negotiations. Finally and most importantly, integration helps avert inter-state conflicts (Viner 2010, p. 2).

There are other reasons for integration, especially in the Sub-Saharan Africa that brought about the integration. They are both traditional and non-traditional benefits.

The traditional benefits include trade gains, increased returns and favorable competition, and finally, there was increased investment all over the continent. The non-traditional gains associated with the integration include among others mentioned earlier on, insurance and security.

Regional Trade Agreement

Regional Trade Agreements have taken different forms since the 50s. It was in 1958 that the first form was established under the Rome treaty and known as the European Economic Community. It was a custom union according to GATT because it was mainly involved in the establishment of a common external tariff defined in the treaty as a common market.

The reason for this definition was because it provided for free trade in capital and labor coupled with goods and services (Lloyd 1). This had set a precedent that was followed by the others. In 1960, the EFTA was formed followed by the Latin America Free Trade Area in the same year.

Central American Common Market was founded the same year while in 1965, the Canada-US Automotive Agreement was created. The others were New Zealand – Australia Free Trade Area formed in 1965 and U.K.- Ireland Free Trade Agreement which appeared in 1965. In the 80s, other agreements came up, so their roots can be easily traced though the list is endless.

Trying to explain the differences in the RTAs in our quest, we can group them into different levels because by understanding these levels, we become aware of their functionalities (Mirus & Rylska 2001, p. 1). The second level of the RTAs are the Free Trade Areas.

They are rather different from the former which did not eliminate all the trade barriers. In the Free Trade Areas, all trade barriers are expelled, but labor or capital markets are not still integrated. Each member is allowed to maintain barriers with non members.

The third level of the RTAs is the custom unions. All the member countries under the Customs Unions must eliminate all the trade barriers, but retain the same trade policies that exist between them and other countries that are not members.

The fourth level of the RTAs is known as Common Markets, and under this level, all the barriers between labor flow and physical capital are not there. This allows the movement of raw material and the products or services from them to flow in and out freely among the member states (SW Learning).

The RTAs are not compatible with the global free trade, but certain practices have been proposed so as to enhance their trade creation effects rather than minimize their trade diversion effects (Park et al. 2009, p. 5). Plummer (2007) suggested some of the best practices and dubbed the Ten Commandments in his article.

They include comprehensive covering of the goods and services within a certain period of time, progress in trade facilitation, intellectual property protection, nondiscriminatory foreign direct investment-related provisions, transparent anti-dumping procedures, dispute resolution, open and nondiscriminatory government procurement, competition policy and low and standardized technical barriers to trade (Park et al. 5).

It is true to say that the UK is a part of the EU. The UK joined the EU in the 70s during which the EU was known as the EEC (European Economic Community). But there has been a lot of criticism by this move. Hopkins (2007) notes in his article that there were a lot of changes since the UK had joined the EU.

While making a contribution to the same, Mangatu (2007) emphasizes that the UK enjoyed the lowest inflation rates in the world. It is also one of the economies that has enjoyed the lowest unemployment figures. These are some of the factors that do not favor the UK being in the EU.

How the EU works

A brief summary of how the EU works is well underlined as follows. The European Union, which represents the member states, has a council which makes the major EU’s decisions. When the EU meets at the Heads of State or Government level, which is now termed as the European Council, its major role is to provide the EU with a piece of political advice on key issues.

Then, there exists the European Parliament, which acts as a representative of the people. Its mandate goes deeper into sharing legislative and budgetary powers with the Council of the European Union.

Finally, the European Commission comes; it is a representative of the EU concerning its common interest with the last one. It is also the main executive body. It has the powers to propose legislation and make sure that the EU policies are rightfully implemented.

NAFTA verses the EU

Starting with the fact that the EU is the largest trading block and the one that has made a very noticeable success. But on the other hand, NAFTA formed in the US does not seem to enjoy the same success. One reason that can be attributed to this misfortune is culture.

The EU has incorporated different cultures which enhance a lot of growth, but looking at their competitor, NAFTA, America and Canada who are the major contributors have more or less the same culture. The lack of diversification makes NAFTA to lag behind the EU (Ramirez 2008, p. 1).

References

Hopkins, M., 2007. ‘ Why Britain does not need the European Union (EU).’ Helium. Web.

Mangatu, I. M., 2007. ‘Why Britain does not need the European Union (EU).’ Helium. Web.

Park, I., & Park, S., 2009. Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade. New York: Division of International Studies.

Ramirez E., 2008.The EU vs. the NAFTA. New Jersey: ALP Publishers.

Mirus, R., & Rylska, N., 2001. ‘Economic Integration: Free Trade Areas vs. Customs Unions.’ Western Centre for Economic Research. Web.

Plummer, M. G., 2007. ‘’Best Practices’ in Regional Trading Agreements: An Application to Asia.’ The World Economy , no. 30, pp. 1771-1796.

SW Learning, 2011. Types of Regional Trade Agreements: Regional Trade Agreements, Bangladesh: Indra.

Viner, J., 2010. The Customs Union Issue. Carnegie Endowment for International Peace, New York: Cengage Publishers.

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