Economic Integration Levels, 2015

Economic Integration Levels, 2015

The global economy presents a complex landscape of various levels of regional economic integration. Most countries are members of the World Trade Organization, implying that they abide by the principles of non-discrimination and reciprocity in trade relations. Additionally, several countries have established trade agreements going beyond the standard WTO principles, and that involve growing levels of complexity:

  • Multilateral free trade agreement. Concerns a wide range of countries that have established free trade agreements involving several partners. The most salient are NAFTA and ASEAN.
  • Customs union. Concerns countries that have opted for a free trade agreement as well as adopting common tariffs for external trade. Mercosur is the most salient example.
  • Common market. Concerns countries that have a customs union in addition to the freedom of movement of the factors of production (capital and labor). The Common Economic Space (Russia, Kazakhstan and Belarus) and the European Free Trade Agreement (Iceland, Switzerland, Norway and Liechtenstein) are the most salient examples.
  • Customs and monetary union. Relates to a specific group of Western African countries, most being former French Colonies, that opted to have a common currency after WWII. It is subdivided into the West African Franc and the Central African Franc.
  • Economic union. Mostly relate to countries that are part of the European Union, but have kept the use of their own currencies.
  • Economic and monetary union. Concern countries that are member of the European Union as well as of the Eurozone (using the Euro as currency). Some countries, such as the United Kingdom and Sweden are member of the EU, but not part of the eurozone.

Since the collapse of the Soviet Union in 1991 and its control over Eastern Europe in 1989 (fall of the Berlin Wall), the world’s political landscape has considerably changed. The European Union (EU) has strengthened its foundations with new members in the mid-1990s (Sweden, Finland, and Austria) and growing linkages with Eastern European countries, leading to a new wave of membership in 2004 and 2007. North America merged within NAFTA while South America developed Mercosur and the Andean Pact. Africa, the Middle East, and South Asia have not yet generated significant regional trade agreements but have established multilateral free trade agreements with other countries. The only trading bloc of relevance in Asia is ASEAN, although most Asian economies are important traders.