Stages
The degree of economic integration can be categorized into seven stages:
- Preferential trading area
- Free trade area, Monetary union
- Customs union, Common market
- Economic union, Customs and monetary union
- Economic and monetary union
- Fiscal union
- Complete economic integration
These differ in the degree of unification of economic policies, with the highest one being the political union of the states.
A "free trade area" (FTA) is formed when at least two states partially or fully abolish custom tariffs on their inner border. To exclude regional exploitation of zero tariffs within the FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA.
A "customs union" introduces unified tariffs on the exterior borders of the union (CET, common external tariffs). A "monetary union" introduces a shared currency. A "common market" add to a FTA the free movement of services, capital and labor.
An "economic union" combines customs union with a common market. A "fiscal union" introduces a shared fiscal and budgetary policy. In order to be successful the more advanced integration steps are typically accompanied by unification of economic policies (tax, social welfare benefits, etc.), reductions in the rest of the trade barriers, introduction of supranational bodies, and gradual moves towards the final stage, a "political union".
| Stages of Economic integration | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Trade pact type | activities inside the trade bloc | common barriers in external relations | |||||||||||
| eliminating barriers for exchange of | Shared policies | goods | services | capital | labour | ||||||||
| goods (tariffs) | goods (non-tariff) | services | capital | labour | monetary | fiscal | Tariff | Non-tariff | |||||
| Preferential trade agreement | TIFA | BIT, TIFA | |||||||||||
| Free trade agreement | |||||||||||||
| Economic partnership | |||||||||||||
| Common market | |||||||||||||
| Monetary union | |||||||||||||
| Fiscal union | |||||||||||||
| Customs union | |||||||||||||
| Customs and monetary union | |||||||||||||
| Economic union | |||||||||||||
| Economic and monetary union | |||||||||||||
| Complete economic integration | |||||||||||||
Read more about this topic: Economic Integration
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