It is hard to survive alone in the modern world, all countries of the world have understood this. Sustainable growth requires access to a large common market and participation in the international division of labor. At the same time, states seek to protect their economies. In order to strike a balance between protecting their markets and gaining access to strangers, various forms of regional integration are applied. These are objective processes, countries participate in various integration projects in order to get maximum benefits for their economic agents.
The concept
Regional integration is the strengthening of the interaction of a group of countries in various fields - military, economic, political, cultural. Countries create the most favored nation treatment for members. Integration involves the creation of a new community, which is trying to gain benefits through a larger, “economies of scale”. The combined resources make it possible to resolve issues that are not within the capabilities of individual countries. In the process of integration, the economies of the countries interact, adapt to joint work, and merge.
Signs
Based on the definition of regional integration, the following main features are distinguished:
- it is beneficial to all countries that are members of the association, all receive benefits that could not be obtained individually;
- integration is a voluntary affair, based on partnerships, therefore forced unification as a result of wars is another case;
- as a result of integration, a certain separation of a group of countries from global peace takes place, favorable conditions for participants are created within the union and barriers are put for other states;
- countries pursue a coordinated domestic and foreign policy, an example of the deepest integration is the European Union, where there is a single economic space and an agreed position on the main foreign policy positions;
- there is a common regulatory framework and supranational bodies, for example, the Eurasian Economic Union has a single Customs Code and a common management body, the Eurasian Commission, which deals with the functioning of the association;
- a single vision of a common future and destiny, often based on a common story.
Of course, the degree and depth of conformity of the association depends on the type, form and at what stage of development the process of regional integration is.
Degree of integration
Depending on the level of integration, the following forms of regional integration are distinguished:
- Free trade zones. They imply the removal of barriers to trade; most duties and quotas are usually removed. They can be created both between countries and between integration associations and countries, for example, between the Eurasian Economic Union and Vietnam.
- Customs unions are the next degree of integration. The countries, in addition to removing barriers to trade among themselves, adopt uniform customs rules, tariffs and pursue a common trade policy in relation to third countries: the customs union of Russia, Belarus and Kazakhstan.
- Common Market Countries. The free movement of capital, labor, goods and services is implied, a general tax and trade policy is being pursued. An example is the Latin American Mercosur, which includes Argentina, Brazil, Paraguay and Uruguay.
- Economic unions. The most advanced form of regional economic integration, implies the implementation of a common trade, tax, budget policy, a common currency is introduced, and policies regarding third parties are often agreed upon.
Sometimes another form of integration is introduced - a political union, but already at the stage of an economic union, effective work is impossible without a political union.
Tasks
The main tasks facing regional unions are strengthening the position in the global market, strengthening stability and peace in the region, and creating economic growth. In the course of development of regional economic integration, associations of countries begin to deal not only with economic, but also with political issues. For example, ASEAN is engaged not only in trade between countries, but also in economic relations with other countries, and issues of peace and stability in the region. One of the organization’s goals is to create a nuclear-free zone in the region.
Goals
By creating regional associations, countries strive to provide favorable conditions for the development of their countries, hoping to increase the efficiency of the national economy by obtaining preferences from regional economic integration. The objectives of the association include, inter alia, benefiting from economies of scale, reducing the costs of foreign trade, gaining access to regional markets, ensuring political stability and improving the structure of the economy. Not all goals are always achieved, for example, Kyrgyzstan joined the Eurasian Economic Union to get incentives for economic growth and attracting investment. However, so far the effect is rather weak due to the influence of external factors.
Factors
The reasons why countries unite are very diverse, the processes of regional integration do not occur spontaneously. This is a conscious choice of countries that go a long way in the development of economic and political ties. Key factors contributing to the organization of regional integration:
- an increase in the international division of labor;
- strengthening globalization of the global economy;
- increasing openness of national economies;
- increasing the degree of specialization of countries.
In general, all factors characterize the complexity of economic life. Individual countries no longer always have time to rebuild production in accordance with the pace of innovation. The globalization of the economy forces us to compete with the best goods.
Background
In most cases, the main stimulus for the development of regional integration is the territorial neighborhood. In many cases, these are countries with a common history, for example, the Eurasian Economic Union arose as an association of countries of the post-Soviet space. An important factor for successful regional economic integration is the similarity of levels of economic development. Many integration projects in developing countries are inefficient due to too large differences in the level of economies. On the other hand, the European Union began as a project of the most developed countries in Europe. The coal and steel union brought together countries that had common economic and political problems: increasing trade and eliminating the possibility of war between Germany and France. Successful examples of international regional integration are pushing other countries to join such alliances.
Principles
About thirty integration associations work in the world. The countries participating in them have come a different way. From the Pacific Partnership, formed in 2016 and never started working, to the European Union, the most advanced integration project. Therefore, starting a project of international economic integration, regional actors understand that they will not be able to solve all their problems at once. Graduation is one of the principles of the unification process. The second principle is a community of interests, integration is a common project, during which it is necessary to build a system of complex economic ties. It is possible, in some areas, to go to not entirely favorable conditions for the country to help achieve a common goal. In order for there to be sustainable regional development, integration, we need an adequate decision-making model. Usually, all major decisions are worked out by consensus.
Economies of scale and increased competition
The countries, initiating the project of regional integration, strive to get the maximum effect from work in the common economic space. A larger market provides an opportunity to increase production, increase competition and stimulate increased production efficiency, reduce the influence of monopolies. The companies included in the association can increase production and sales because they will gain access to the markets of countries included in the integration project. Cost savings are due to increased production volumes and trade savings due to the removal of customs barriers and duties. In addition, working in a common free market can reduce costs by accessing cheaper labor and advanced technologies. Economies of scale are especially important for small countries where large local companies quickly monopolize the local market. When a country opens, competition intensifies. Enterprises, competing with a large number of economic entities, are forced to reduce costs and conduct price competition. Negative consequences may be the washing out of entire industries in small countries that cannot withstand competition. For example, after joining the European Union, the Baltic countries were left without most industries.
Expansion and reorientation of trade
Removal of trade restrictions and duties may contribute to a change in the geographical structure of trade. The common free market makes goods from the union countries competitive in local markets, including by reducing tariff barriers. As a result, local and imported goods are replaced. Having gained access to regional markets, manufacturers focus their efforts on the production and sale of goods in which they have comparative advantages, for example, by removing duties and quotas. There is an expansion of trade. More efficient manufacturers are crowding out products from other countries because they can take advantage of regional integration.
Countries receive their specialization within an integration association. Market pooling leads to a geographic reorientation of trade. Obtaining preferences in trade within the association stimulates an increase in domestic trade by reducing trade with third countries. Especially if the removal of restrictions within the integration association is accompanied by tightening trade conditions for other countries. Expansion and reorientation lead to a change in the country where the production activity is located. Moreover, often this is unbalanced, some countries gain advantages, in others entire industries are washed out.
The largest projects
The globalization of the economy is forcing countries to seek to join one or another association. All major regions of the world have their own economic associations. The most successful integration unions: European Union, North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations, Latin American Common Market (MERCOSUR). The largest and most advanced integration project, the EU brings together 27 countries. NAFTA has comparable economic power, including the United States, Canada and Mexico, where one country plays the dominant role. However, the weakest economy in this alliance benefits.
For example, in Mexico there are a significant number of automobile enterprises that operate in the US market. ASEAN's largest Asian project has developed as a manufacturing base for the global economy. The largest association in the post-Soviet space of the EAEU has existed since 2014.
