Your answers should address all parts of the question asked and each response sh

Question

Your answers should address all parts of the question asked and each response should be between 250-500 words. Describe the four types of regional trading agreements discussed in class and show how each type creates a greater and greater level of economic integration. Using the European Union as your example, describe the challenges associated with the various stages of economic integration. Contrast the EU with NAFTA and provide your rationale for why NAFTA has not, to date, reached the same level of economic integration as has occurred in Europe.

Explanation / Answer

According to their level of integration amongst participating nation-states, RTAs can be described as the following categories.

First, at the most basic level, Preferential Trading Agreements (PTAs) lower trade barriers among members. Such preferential trade is usually limited to the portion of actual trade flows from LDCs, and is often non-reciprocal. An example of such an agreement is the Papua New Guinea - Australia Trade and Commercial Relations Agreement (PATCRA II) that has been in effect since 1977.

Second, a Free Trade Agreement/Area (FTA) is a reciprocal arrangement whereby trade barriers (usually tariffs) between participating nations are abolished. However, each member determines its external trade policies against non-FTA members independently. Most commonly, barriers to trade are reduced over time, but in most cases, not all trade is completely free from national barriers. A prominent example of a FTA is the North American Free Trade Agreement (NAFTA).

The third level of economic integration is the Customs Union. In a Customs Union, trade barriers among members are eliminated. Also, the participating nations adopt a common external trade policy (e.g. common external tariff regime or CET). A Customs Union is equivalent to an FTA plus a common external trade policy. The Customs Union of the Southern Cone -Mercosur-represents such an arrangement.

The fourth level of economic integration is the Common Market. In a Common Market, countries remove all barriers to movement of both goods and factors, and retain the common external trade policy. It is equivalent to a customs union plus free mobility of factors. One example of Common Market is the Common Market for Eastern and Southern Africa (Comesa).

The fifth level of economic integration is the Economic Union. In an Economic Union, besides the free goods and factor movements, member countries also adopt common macroeconomic policies. One example of Economic Union is the European Union (EU)

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