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achieve peace, stability and wealth. It results in the creation and diversion of
trade. It supports overall growth of the region, coupled with efficient trading
practices. Trade creation increases production and income and also leads to
new entrants in the market and, therefore, results in tougher competition.
The transfer of technology is also faster.
It includes reduction on traffic and prohibitions. It spread goodwill among
member countries and also helps in reducing the chances of conflict.
Types of Regional Integration:
a) Preferential Trading Agreement: It gives preferential access to
certain products from the participating countries. This can be called as
a limited or sector based free trade area. It is a trade pact between
countries. It is the weakest type of economic integration and aims to
reduce taxes on few products to the countries who sign the pact.
b) Free Trade Area: It includes the reciprocal removal of tariffs on
member countries goods. In an FTA, each member is free within the
limits specified by the
GATT/WTO system on deciding the level of external tariffs that will be
applied to nonmembers. As there is flexibility on the interactions with
the third countries, the
members in an FTA are free to establish or join other FTAs.
c) Custom Union: It is a type of agreement that include determination of
the common external tariff (CET), in addition to the elimination of the
internal tariff rates. Generally, determination of the CET is done
through taking an average of all partners before union tariff levels.
d) Common Market: It is where there is free factor mobilitycapital,
investment and labor in addition to the customs union requirements
that determine free flows of goods and services. This integration
requires governments to employ coordinated actions in order to ensure
the equal treatment for all factors in the member countries of the CM.