5.1 Regional economic integration
Economic integration is an agreement among nations to decrease or eliminate tariffs. It involves the establishment of trans-national rules on economic activity that lead to greater trade and economic cooperation between countries: that is, a group of nations negotiates a set of commonly accepted rules on intra-group trade and other economic relations that lead to increased commercial dealings among them.
Regional economic integration has two facets: it is both a process and a state of affairs. As a process, it encompasses measures designed to abolish discrimination between economic units (businesses) that belong to different national states. As a state of affairs, it represents the absence of discrimination between national economies.
When we look around the world at the major examples of economic integration such as the European Union (EU) and the North American Free Trade Agreement (NAFTA), it is obvious that geographic proximity is an important factor in the integration of regional economies. The principal reasons for which neighbouring countries become involved in integrative activities are that:
- transportation distances are relatively short
- consumer tastes are more likely to be similar and distribution channels can be fairly established
- neighbouring countries may have a common history and an awareness of common interests, and hence they are willing to coordinate policies
However, we should note that there is one important exception to the effect of close geographic proximity - the General Agreement on Tariffs and Trade (GATT) which became effective for more than 120 nations (148 as at October 2004) around the world on 1 January 1995 under the aegis of the World Trade Organisation (WTO).
WTO is exceptional in a number of ways as we shall see in the next section which deals with the various forms of economic integration. Note that your textbook refers to levels of economic integration rather than forms of economic integration. The terms are synonymous, however.
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