Content, prerequisites and objectives of regional economic integration

In modern conditions, regional economic integration leads to the establishment of closer economic (and on this basis, political, scientific, cultural) ties between the participating countries. Economic integration completely eliminates or significantly weakens barriers to international migration of goods, services, capital and labour.

The following conditions contribute to the creation of integration groupings.

The proximity of the levels of economic development and the degree of market maturity of the economies of the integrating countries. Usually, interstate integration takes place either between developed countries or between developing countries. Within the groups of both developed and developing countries, integration processes are taking place between states that are at approximately the same level of economic development. If this condition does not exist, integration begins with the conclusion of various transitional agreements aimed at bringing closer together the levels of development of countries that have expressed a desire to integrate. Geographical proximity of integrating countries, the presence of a common border and historically established economic ties. Most of the integration associations in the world initially covered several neighboring countries located on the same continent in close proximity to each other, having sufficiently developed transport communications. Geographical features, for example, the shape of the relief can economically both unite and divide countries. For example, the mountainous terrain of western Latin America, combined with poor transport infrastructure, has long been a significant obstacle to the integration of the member countries of the Common Market of the Southern Cone (MERCOSUR). The need to develop the Andean mountain range predetermined the common interest of economic rapprochement between the countries of the Andean Pact regional group. Commonality of economic and other problems facing countries. It is obvious that countries whose main problem is the creation of the foundations of a market economy cannot immediately create more developed forms of integration associations with countries with developed market economies. Or, say, developing countries that are trying to solve the problem of providing the population with basic necessities cannot integrate with states discussing the problems of freedom of interstate capital movement.

Participation in international economic integration (MPEI) provides countries with positive economic effects. Thus, in the mid-80s, the Commission of the European Communities, the executive body of the European Economic Community, commissioned a group of experts to assess the losses of integrating Western European countries from the national fragmentation of the Community market. This was carried out within the framework of the project “Costs of the Absence of a United Europe” in 1986-1987, on behalf of the head of the work. the final conclusions of the project were called the “Cecchini Report”, and all materials amounted to 12 volumes of 600 pages each. The report, in particular, notes that administrative and border formalities in only six countries (Belgium, France, Germany, Italy, the Netherlands and the United Kingdom) cost, according to various estimates, 12.9 – 24.33 billion ECU, including administrative costs paid by enterprises – 7.5 billion, losses associated with delays at the borders – 415 – 830 million, lost revenues – 4.5 – 15 billion, customs control costs, paid by the treasury, – 0.5 – 1.0 billion ECU.

Here’s an interesting fact. According to Western economists, transportation, storage and transshipment make up from 20-25% of the value of the goods. As the speed of transportation of goods decreases, this percentage increases in increasing progression. In Western Europe, the presence of border and customs posts at numerous national borders has resulted in a truck carrying a consignment of goods, for example from Antwerp to Rome, moving at an average speed of 20 km per hour. The same distance the US truck covered at an average speed of 60 km per hour. As a result, the additional costs that Western European firms had to incur due to the existence of a “palisade” of national borders in Western Europe made their products less competitive in comparison with those of the United States or Japan.

The economic benefits for individual states from participation in integration associations can be divided into short-term results and long-term effects of integration.

The short-term effects of MPEI include:

1. Microeconomic advantages of highly specialized production, export-oriented due to  the “economies of scale”. The essence of the latter is that with a certain technology and organization of production, long-term average costs are reduced as the volume of output increases, i.e. there are savings due to mass production. Consequently, it will be profitable for countries to trade among themselves, specializing in those industries that are characterized by the presence of economies of scale (or mass production). However, in order for the effect of mass production to be realized, a sufficiently capacious market is needed, which is formed as a result of the progressive development of integration.

2. Increasing the level of price competitiveness by eliminating tariff and non-tariff barriers.

3. Stimulation of intraregional trade through the removal of trade barriers, internationalization of assets of corporations involved in the integration of countries, contributing to the growth of intraregional investment. In this regard, we note that in the last quarter of the XX century, a new phenomenon took shape in the international economy – the so-called “cross-investment”, typical, first of all, for developed countries. Cross-investment tends to be intra-industry in nature and means that many states are both countries of origin and countries of receipt of capital. The participation of countries in regional economic groupings certainly stimulates this process.

Let’s turn to cross-investment in the automotive industry. Mercedes-Benz is one of the co-owners of Volkswagen, and vice versa – Volkswagen is one of the co-owners of Mercedes. A similar pattern is observed between Mercedes and Porsche, etc.

Long-term effects of ME, including:

The emergence of a capacious market. Growth of foreign direct investment (FDI), accompanied by the organization of the production of import-substituting products. Creation of favorable opportunities for further growth of concentration and centralization of production and capital, placement of enterprises throughout the regional block. An example is the merger of the automobile firms Peugeot and Citroen, co-owner, which, in particular, is Fiat.

Regional economic integration develops from simple forms to complex ones, namely from a free trade zone to a customs union, then to a common market and economic union. Let’s take a closer look at each marked form.

Free Trade Zone. The participating countries abolish customs barriers and quantitative restrictions in mutual trade. As a rule, agreements on the establishment of free trade zones provide for the gradual mutual abolition of duties and other restrictions between contracting countries on trade in industrial goods. At the same time, the liberalization of foreign trade policy in relation to agricultural products is limited and usually covers only some items of goods. In addition, countries cannot unilaterally raise customs duties or introduce new trade barriers.

Examples of successful free trade areas include the following: EFTA European Free Trade Association (Austria, Finland, Iceland, Liechtenstein, Norway, Sweden), established in 1960 ; EEA European Economic Area (European Union countries, Iceland, Liechtenstein), existing since 1994 ; Baltic Free Trade Area (Latvia, Lithuania, Estonia), established in 1993 ; Central European Free Trade Area (Czech Republic, Slovakia, Hungary, Poland), operating since 1992 ; North American Free Trade Area NAFTA (USA, Mexico, Canada), existing since 1994 ; the ASEAN Free Trade Agreement, concluded in 1992 ; The Australia-New Zealand Trade Agreement on deepening economic ties of 1983 ANZCERTA and the Bangkok Agreement of 1993 (Bangladesh, India, Republic of Korea, Laos, Sri Lanka).

Customs Union. This stage of integration is characterized by the fact that the free movement of goods and services within the grouping is complemented by a single customs tariff and foreign trade policy in relation to third countries.

It can be said that within the framework of the customs union, a common foreign trade policy of the integrating countries in relation to countries that are not part of the integration grouping is beginning to form. The formation of such a policy requires the creation of a supranational regulatory body and the transfer to it of part of the powers on foreign trade regulation from national authorities.

Examples of customs unions: EU Association with Turkey, 1963 ; Arab Common AFM Market (Egypt, Syria, Jordan, Libya, Yemen, Mauritania, Iraq), 1964 ; CACM Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua), 1961 ; Free trade zone between Colombia, Ecuador, Venezuela, 1992 ; Organization of Eastern Caribbean States (Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines), 1991 

Common Market (Single Market). The creation of a common market means the elimination of barriers between countries not only in mutual trade, but also in the movement of labor and capital. Participating countries are beginning to develop coordinated, joint policies for the development of industries and sectors of the economy. The complementarity and merging of the national economies of the integrating countries make it possible at this stage to begin the formation of common funds to promote the social and regional development of the less developed areas of the integration association.

Common markets include: Cooperation Council for the Arab Countries of the Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE), 1981 ; Andean Common Market (Bolivia, Colombia, Ecuador, Peru, Venezuela), 1990 ; Latin American Integration Association LAIA (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela), 1960 ; COMMON MARKET OF THE SOUTHERN CONE MERCOSUR (Argentina, Brazil, Uruguay, Paraguay), 1992 ; and the Caribbean Community and caricom Caribbean Common Market (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago), 1973 .

Economic and monetary union. The development of integration processes leads to the fact that the above forms of integration are gradually complemented by the unified economic, monetary and financial policy pursued by the member states, a unified system of interstate regulation  of regional socio-economic processes is being created. The governments of individual countries are ceding more and more of their functions to the created transnational bodies.

This level of integration is characterized by: the European Union (Austria, Belgium, Great Britain, Denmark, Germany, Luxembourg, Greece, Ireland, Spain, Italy, the Netherlands, Portugal, Finland, France, Sweden), 1993 ; Economic Union – Benelux (Belgium, Netherlands, Luxembourg), 1948 ; Commonwealth of Independent States of the CIS (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan), 1991 ; Arab Maghreb Union (Algeria, Tunisia, Libya, Mauritania, Morocco), 1989 ; Intercountry Initiative (Burundi, Comoros, Kenya, Madagascar, Malawi, Mauritania, Namibia, Rwanda, Seychelles, Tanzania, Uganda, Zambia and Zimbabwe), 1993 ; The Lagos Plan of Action (all sub-Saharan Africa), 1973 ; Manu River Union (Guinea, Liberia, Sierra Leone), 1973 ; West African Economic and Monetary Union (Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, Togo), 1994 

The division of the world economic space into large regional subsystems, which are various forms of political and economic interaction of states, is becoming the most important feature of modern world economic development. Most experts believe that economic integration is becoming the dominant feature of the world market and may lead to the fact that the role of the main subjects of international economic relations will belong to regional integration groupings. At present, almost all countries with market economies are members of one or another regional group that unites states by various kinds of economic agreements, of which there are more than 100.