ECONOMIC REGIONAL INTEGRATIONS AS SUBSYSTEMS OF THE WORLD ECONOMY

 

ECONOMIC REGIONAL INTEGRATIONS AS SUBSYSTEMS OF THE WORLD ECONOMY

Review Article

Bakhrom Mirakilov

Research and Consultancy Centre, BSc in Banking and Finance

Management Development Institute of Singapore in Tashkent

 

 

What is economic integration?

Economic integration is the process and agreement among geographically close states to unify national economic policies in terms of the labor’s international division. In addition, at the international level integration also implies political unions, where states adopt the interstate conventions form, being governed by national or interstate bodies.

The main factor of integration is the interlacement of national production processes, structural changes in the economies of the participating countries and the necessity and targeted regulation of integration processes. Generally, states with the similar types of social systems as well as approximately the same level of development, join the integration process. However, a common cultural background and traditions can trigger the process of economic union formation. According to Samuel Huntington's "Clash of Civilizations", the European Union has vividly demonstrated that economic integration proceed faster and farther if it is based on cultural commonality. States are more actively seeking for communion and discover it with the states of similar culture and the same civilization. The relationship between culture and regionalism is most clearly reflected in economic integration, since a common culture stimulates cooperation between states and groups. There are several types of integration that can take form of a gradual flow process from one to another, from a lower to a higher form of economic interaction. The first stage of the integration group is the Free-trade Zone, where countries come to an agreement on the abolition of customs tariffs and quantitative restrictions in mutual trading of goods. Conducting an independent foreign trade policy with regard to third countries is also a sign of an FTA. The second stage of the integration group is the Customs Union, where the abolition of customs tariffs among member states exist, but a common foreign trade policy is carried out on the basis of a common customs tariff towards third countries as the policy is generated and implemented jointly. At the same time, participating countries have the opportunity to protect their single internal market space more reliably. Although the participating states’ some independence is reduced in terms of foreign trade policy, the states reap benefits by pursuing a common economic policy. The third stage of economic integration is the Common Market, where the principles of free trade and the movement of goods of the customs union are mutually combined with the exchange of services and the free movement of capital, labor and technology between countries. The fourth stage of integration is the Economic Union. It is an association of states based on the free movement of four factors - the pursuit of a single economic, currency, fiscal and monetary policy in the economic, legal and information space. At higher levels of development, it is possible to adopt a uniform currency with a single monetary policy and a single issuing center. The Economic Union forces participating countries to subordinate their own interests to the common interests of the Union, but cannot compel them to completely abandon them. Within the Union, there might be competition for the domestic market as well as entering new markets between countries. There is also the highest form of intergovernmental association, in which full integration combined with a factor of political union is implied, including a common foreign policy and policy in the sphere of justice and interior affairs, the adoption of a single citizenship and so on.

The unification of countries into integration associations allows to solve much problems in a collective manner and brings advantages in numerous ways such as expanding the capacity of domestic markets, which in turn increases GDP and the purchasing power of the population, boosts production efficiency and investment attractiveness, accelerates the establishment of more efficient production structure and growth rate of economic development. However, participating states can encounter certain costs. For example, the reduction of fiscal revenues as a result of waiving customs levies, changes in the external economic climate of countries, the uneven distribution of benefits between each country, as more economically developed countries can benefit from less developed member countries. However, in order to minimize less developed countries’ losses, more developed countries assist them by using capital, technology and market experience. Within integration process participating states can also reap the benefits from strengthening and expanding cooperation in the political, military, social, migration, cultural, humanitarian and other fields.

 

The world largest international and regional trading blocs

Almost in every part of the world there are various economic alliances and blocs of different types. One of the important examples of economic and political unification is the European Union (EU), which includes 28 European states of Europe. Legally, the Union was enshrined in the Maastricht Treaty in 1992, which was aimed at forming a single economic, monetary and political union. At the beginning and by the mid of 2000s, an economic and monetary union was formed, as well as the European Constitution, in which the main directions were elaborated in terms of the reform of the institutional structure, the establishment of the presidency of the EU, the empowerment of the European Parliament, and so on. A distinctive characteristic of the EU institutional structure is a supranational principle, when the priority of EU legislation is superior towards national authorities. The formation of the EU economic union has assigned the task of pursuing a common economic and social policy, as well as policies in industry, agriculture, science, technology, energy, transport, etc. Another example of an economic union is NAFTA - the North American Agreement on Free Trade Zone between the USA, Canada and Mexico aimed at stimulation of mutual trade and investment of member countries, development of concerted business conditions for companies, guaranteeing fair competition in the region, and also the development of mutual economic cooperation. In Latin America, the integration group Mercosur was also established, where the strategic goal was to create a common market, as well as the free movement of goods, people and national currencies. In future it is planned to create an economic union based on the European model embracing the establishment of single currency, passport and a parliament, while in Southeast Asia, ASEAN (Association of South East Asian Nations) comprising ten countries (The Philippines Singapore, Vietnam, Indonesia, Cambodia, Thailand, Brunei, Laos, Malaysia and Myanmar) is aimed at military-political stabilization, establishment of a customs union, promotion countries’ economic growth. Apart from regional integration there are also transcontinental unions such as APEC (Asia Pacific Economic Cooperation Forum), comprised of 21 countries and the territory of the Pacific Basin, the goals of which are stimulation of mutual trade and investment. The economic potential of APEC is huge as its priorities include promoting economic growth of countries, strengthening the multilateral trading system, taking into account the high economic interdependence of the participating countries and conducting trade and investment liberalization.

In the post-Soviet space, economic integration processes have also expanded. For example, in the early 1990s, the Commonwealth of Independent States (CIS) was established with the main focus on the economic cooperation with a common economic space. After the USSR collapse, each republic was dependent on the supply of raw materials and final products from other countries, since the republics were integrated into a single national economic complex. The CIS has become a revival of the inter-republican connected system. However, the widespread protection by republics of their own market, differences in pricing, financial, banking and monetary policies, customs regulation and the degree of state management of the economy resulted in not fully functioning integration association. The most significant integration association in the post-Soviet space is the Eurasian Economic Union (EEU), where there is a freedom of transportation of services, goods, capital and labor as well as the implementation of a collective and coordinated common economic policy, and creation of favorable conditions for stable development.

 

The International Economic Union is the highest stage of development, characterized by a gradual evolution from a free-trade zone to full integration, where the main prerequisites for the formation are the economic interdependence of countries, the similarity of systems, cultural commonality, and geographical proximity. An alliance is represented by a space with the free movement of goods, services, capital and people, with a single monetary and financial system, a single legal system and mutual coordination of internal and external economic policies.

 

References

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