Before proceeding to the topic let's see the relevance of this topic in the new syllabus of UGC Net Commerce examination issued by NTA.
Unit I – Business Environment and International Business
Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state.
A trade agreement is a contract/agreement/pact between two or more nations that outlines how they will work together to ensure mutual benefit in the field of trade and investment. This can be bilateral (2 countries) or multilateral (more than 2 countries).
There are different levels of Economic Integration as follows:
1. Economic Market
2. Common Market
3. Custom Union
A preferential trade agreement, is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration.
A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them. Example - ASEAN FTA (Trade agreement within the Southeast Asian Nations).
When the countries go beyond FTA and agree for a greater degree of economic integration which includes improving the attractiveness to capital and human resources, and to expand trade and investment, it would result in CECA or CEPA. While CECA comes first with elimination of tariffs, CEPA comes later including trade in services and investments. CEPA has a bit wider scope than CECA.
An agreement among countries to have free trade among themselves and to adopt common external barriers against any other country interested in exporting to these countries. Example: Gulf Cooperation Council (GCC).
A type of custom union where there are common policies on product regulation, and free movement of goods and services, capital and labour.
An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy.
When an economic union involves unifying currency it becomes a economic and monetary union. E.g. – Euro.