Economic integration among trading nations progresses through distinct hierarchical stages, ranging from basic trade privileges to full policy harmonization. What is the correct sequence of these stages of regional trade integration, arranged from the lowest level of integration to the highest level of integration?
- 1Free Trade Area (FTA): Internal tariffs and quotas on trade between member nations are eliminated, but each member maintains its own separate tariff policy against non-member countries.
- 2Customs Union (CU): Internal trade tariffs are abolished and member countries adopt a shared Common External Tariff (CET) on imports coming from non-member nations.
- 3Common Market: In addition to free trade in goods and a common external tariff, factors of production (labor and capital) are permitted to move freely across member borders.
- 4Economic Union: Economic policies, fiscal measures, and monetary systems are fully harmonized across members, frequently accompanied by a shared central bank and common currency.
Answer
The correct sequence from lowest to highest degree of regional integration is: Free Trade Area, Customs Union, Common Market, and Economic Union.
Regional economic integration moves systematically from basic reduction of trade barriers to full economic convergence. A Free Trade Area eliminates internal barriers; a Customs Union adds a Common External Tariff; a Common Market enables the free movement of production factors (labor and capital); and an Economic Union harmonizes monetary, fiscal, and regulatory policies.
Step-by-Step Solution
Key Concept
Stages of Regional Economic Integration