Regional Economic Integration / Regional Trade Blocks


Regional economic Integration refers to cooperation between various countries of a particular region in order to develop that particular area. It includes economic integration of various trading areas of different countries. It is also known as Regional trade block, Regional economic forces and Regional grouping. A regional trade block is a type of inter-governmental agreement, in which barriers to trade are reduced or eliminated among participating countries. Regional economic integration is a collaborative arrangement between different countries in order to take advantage of market opportunities and to promote economic growth and stability.

Major Trading Blocks that have emerged during recent years include:

  1. European Union

  2. North American Free Trade Agreement (NAFTA)

  3. Association of South East Asian Nations (ASEAN)

  4. Asia Pacific Economic Cooperation (APEC)

  5. South Asian Association for Regional Cooperation (SAARC)

Levels of Regional Economic Integration →

Regional Economic Integration

Preferential Trading Agreement – It is a loosest form of economic integration where a group of countries make a formal agreement to trade goods and services on preferential terms. It results is reduced tariffs and sometimes a special quota is allowed for preferential access. These agreements are generally made between developed and developing countries to promote economic development of developing nations. Example – The European Union has a preferential trading agreement with the Middle East and Latin America.  

Free Trade Agreement – It is a permanent arrangement usually between the neighboring countries. It involves complete removal of tariffs on goods. However, it is not applied to agricultural sector, fishing or services. The member countries are free to charge their own external tariffs from countries outside the free trade area. Therefore each member country has full freedom over trade with external countries. Example – North American Free Trade Agreement (NAFTA) and European Free Trade Association (EFTA)

Customs Union – Just like the members of Free Trade Area, the members of Custom Union also remove barriers among themselves. In addition they also have a common trade policy with respect to non-member countries. Due to the common trade policy, a common external tariff is charged from non-member countries and revenue is shared among the member countries. Example – Association of Southeast Asian Nations (ASEAN)

Common Market – The common market has no barriers to trade among the member countries and there is also a common external policy for trade with non-member countries. In addition the restriction on the movement of the factors of production is also removed. Factors of production include Labour, Technology, Capital etc. The restriction is abolished on immigration, emigration and cross border investments. This is done to employ the best resources in the best possible manner. Example – European economic community

Economic Union – Economic Union involves full integration between two or more economies. There are no trade restrictions between member countries, they follow a common external tariff policy and the restriction on the mobility of factors of production is also abolished. In addition there is coordination between the member countries on their economic policies such that the nations have coordinated monetary policy, fiscal policy, social welfare programs etc. and usually a common currency is used in trade. Example – European Union

Political Union – Political Union involves all features of Economic Union and also complete political integration between member countries. The member countries share a common decision making and judicial body and there is complete unity between member nations. The best example is United States of America which includes thirteen separate colonies operating under Article of Confederation.

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