Economic integration

Economic integration is the merging of multiple countries' economic policies to increase trade among those countries. Integrating the economies of a group of nations usually involves removing commercial tariffs, or taxes, on imports and aligning fiscal policies so producers and consumers can trade with greater ease and lower costs. Economies in which trade is uninhibited by tariffs and other government restrictions are called free markets.

Many groups of nations around the world in the twentieth and twenty-first centuries formed international cooperative organizations devoted to economic integration. Most of these organizations were regional, meaning they were intended to create free markets or otherwise less restricted markets among neighboring countries in particular geographic areas of the world. These organizations include the European Union (EU), the Association of Southeast Asian Nations (ASEAN), and the Gulf Cooperation Council (GCC).

Background

At its most basic level, economic integration involves eliminating government restrictions on trade so that two or more nations or different areas of the same nation can increase the movement of goods and services among them. These restrictions are often tariffs—taxes placed by national governments on products imported from other countries. International trade may also be regulated by several non-tariff restrictions, including discriminatory rules of origin for imported products, bans on certain products, unreasonable product quality standards, onerous customs laws, and requirements for specific import licenses.

Economic integration is designed to remove all or most of these trade restrictions so that selling and buying products from other countries or from different districts of one country becomes easier and less costly. Fewer trade restrictions ideally translate into increased trade, which benefits all countries involved in global markets. This is because the countries' economies will expand from the sale of exports while the nations themselves acquire goods they need through imports.

Several types of economic integration exist. The most unrestricted type is free trade, which takes place within a free market. Free trade is commerce engaged in by nations with either greatly reduced import tariffs or no tariffs at all. Free trade is meant to facilitate economic competition among participating countries, thus driving up product quality and decreasing prices.

Countries may also integrate their economies through customs unions. These unions are similar to free markets, but they impose tariffs on imports. The nations in a customs union usually agree to set these tariffs at one level and honor them for all participating countries. A common market, meanwhile, permits goods and services to move among member states with no restrictions, but each individual member state imposes its own restrictions, such as taxes or quality standards, on trade within its boundaries.

An economic union, or single market, is a form of economic integration in which participating countries form a singular free market among themselves so that goods, services, and laborers may move from country to country entirely without tariffs or other trade restrictions. Member states of such economic unions may also synchronize their monetary policies so the single market they have created operates even more fluidly. Economic unions can also feature a common currency across member states, as in the case of the eurozone countries of the European Union, which use the monetary unit the euro.

Impact

Since approximately the mid-twentieth century, many nations around the world have successfully integrated their economies with those of other countries. These nations are usually geographic neighbors that seek to strengthen the general economy of their region of the world, although some economic partnerships have formed with the intention of integrating economies from disparate areas around the globe.

One of the most notable economic and political partnerships in the world is the European Union, featuring twenty-seven member states in the twenty-first century. Six European countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) worked from the late 1950s to the early 1990s to establish a singular economic market that would work for all member states. They realized their plans with the Maastricht Treaty of 1992, which founded the European Union the next year and eventually allowed the euro to be created as the organization's common unit of currency.

The United Nations Conference on Trade and Development (UNCTAD), meanwhile, was established in 1964 as an agency of the United Nations dedicated to helping developing countries integrate themselves into the global economy. The council does this by encouraging dialogue among international delegates for the betterment of their respective countries' economies. The nations that are struggling the most to fortify their economies are given the most attention.

The next several decades saw efforts at economic integration appearing all over the world. The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by the governments of Indonesia, Malaysia, the Philippines, Thailand, and Singapore to facilitate political, economic, and cultural integration in Southeast Asia. Fewer restrictions on trade among ASEAN member countries into the twenty-first century helped reduce poverty rates in those countries and, beginning in the year 2000, enabled ASEAN to grow its collective profits by about 5 percent annually. In 2008, the association joined the ASEAN-Japan Comprehensive Economic Partnership (AJCEP), and in 2010, the ASEAN-China Free Trade Agreement (ACFTA) was implemented. In 2020, the ASEAN signed the Regional Comprehensive Economic Partnership (RCEP), the largest trade agreement on record.

Similarly, the African Union, which became active in 2002, was formed to politically and economically unite fifty-five African nations and make trade easier. The union was seen as necessary to rid Africa of its dependence on commodities, such as precious metals and other raw materials for export. The African Union planned to integrate its members' economies by simplifying trade restrictions, creating free trade areas and customs unions, and creating an African Central Bank. In 2023, the African Union brokered an agreement, creating the African Continental Free Trade Area (AfCFTA), improving regional trade. The same year, the union was made a permanent member of the G20 (Group of 20).

In 1994, the North American Free Trade Agreement (NAFTA) became active in the United States, Canada, and Mexico. The agreement sought to integrate the three North American economies through the elimination of almost all tariffs on trade among them. At the time, NAFTA represented the largest free-trade zone in the world.

Some Middle Eastern countries have also worked to integrate their economies. The Gulf Cooperation Council (GCC) was founded in 1981 by Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Qatar, and Bahrain. This was a political and economic partnership of most of the Arab nations of the Persian Gulf. In the early twenty-first century, the GCC was mostly a political union, as its economic prescriptions for trade among member countries were loose compared to other international economic pacts. However, the GCC established a common economic market in 2008, and in 2015, the organization implemented a customs union. In 2018, GCC nations began collecting a 5 percent value-added tax. However, tensions in the region led to GCC members Saudi Arabia, the United Arab Emirates, and Bahrain creating a blockade against Qatar from 2017 to 2021. In late 2024, the first EU-Gulf Cooperation Council Summit was held, focusing on security and improving trade and cooperation between the regions.

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