Economic Integration
Cooperation and coordination between countries and their economic policies, to make them more economically interconnected.
Countries hope to derive benefits through cooperating as they could:
- Start by lowering trade restrictions between nations and minor economic barriers.
- This leads to very strong integration of policies and markets.
There are different degrees of these economic integrations which determine how interconnected certain economies are to each other. This is discussed below.
Preferential Trade Agreements
Preferential Trade Agreements
An agreement between countries to reduce the amount of trade restrictions imposed between them on specific products.
A PTA, oftentimes are settled on certain products, whilst other products can still have trade barriers.
- PTAs make it easier for member (part of PTA) countries to access the foreign market of the specific goods compared to non-member nations.
- It could involve cooperation between nations in specific economic policies and take multiple forms as discussed below.
The goal for all these agreements is ultimately to achieve trade liberalisation.
Trade Liberalization
To free up international trade by removing trade barriers.
Bilateral Trade Agreements
- Bilateral trade agreements involve two countries agreeing to reduce or eliminate trade barriers.
- These agreements are customised to meet the specific needs and interests of the two parties involved.
The Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong, signed in 2004, aimed to enhance cross-border trade and investment by reducing tariffs and non-tariff barriers.
Regional Trade Agreements
- Regional trade agreements (RTAs) involve multiple countries within a specific geographic area.
- These agreements aim to promote economic integration (foster closer economic ties) by reducing trade barriers among member states and taking advantage of their closeness in distance.
Multilateral Trade Agreements
- Multilateral trade agreements involve three or more countries and are often facilitated by international organisations.
- These agreements aim to create a global framework for trade by reducing barriers on a larger scale.
Multilateral agreements often take years to negotiate due to the diverse interests of participating countries. This complexity can delay the realisation of benefits.
Common MistakeStudents often confuse regional and multilateral agreements! Remember, regional agreements focus on specific geographic areas, while multilateral agreements involve countries from different regions.
The Role of the World Trade Organisation (WTO)
The WTO includes many countries leading to all the agreements being multilateral and aiming for trade liberalisation.
- It encourages the reduction of trade barriers between countries with a non-discriminating objective.
- Therefore, countries cannot impose different restrictions on different nations (with the exception of some regional and bilateral agreements).
- It provides a platform for resolving trade conflicts between member states and offers technical assistance and flexibility in implementing trade rules.
The WTO is discussed in further detail in 4.4.6 The World Trade Organisation.
Theory of KnowledgeHow can political relations between countries determine which people in the world deserve to gain or lose?
Self reviewCan you identify a real-world example of each type of trade agreement? What are the key benefits and drawbacks of each?
