4.4.1 Understanding Economic Integration

• Economic integration occurs as countries reduce trading barriers between themselves and become more interdependent
   
• There are several ways in which economic integration can deepen

1. Through the development of trade agreements
2. Through the creation of trading blocs
3. Through the formation of a monetary union
    

1. Trade agreements

There are 4 common types of trade agreements

 

• A preferential trade agreement (PTA) is an agreement between two or more countries providing preferential (better)
  terms and conditions of trade to member countries
  • E.g. Vietnam has preferential tariff rates with Australia
     
• A bilateral trade agreement is a preferential trade agreement between two countries and aims to reduce or eliminate barriers to trade
  • E.g. Vietnam signed a bilateral trade agreement with Korea in 2015
     
• A regional trade agreement (RTA) is a preferential trade agreement usually between more than two countries in the same geographical region
  • E.g. Armenia created an agreement with the EU in 2019 to create the EU-Armenia RTA
     
• A multilateral trade agreement is a legally binding preferential trade agreement between more than two countries or trading blocs and is usually negotiated and overseen by the World Trade Organisation (WTO)
  • E.g. The East African Community was created in 2005 between seven African countries

 

2. Trading Blocs

• There are generally three types of trading blocs - Free Trade Areas (FTAs), Customs Unions, and Common Markets
  • Each successive bloc has a higher level of integration

 

3. Monetary Unions

• Monetary Unions often develop once there is integration at a Common Market level
• Nations in the Common Market may desire the creation of a common central bank and convergence of monetary policy