Regional Economic Integration

Regional economic integration is the trade unification between the states of

a region by partially or fully abolishing the custom tariffs on the trade taking
place between these states. That result is the evolution of a single market
place where free flow of products or factors of production is possible with no
or limited costs.

The concept came into being after unification of the colonies of Cape, Natal,
Transvaal and the Orange Free State under the name of Union of South
Africa in 1910. Afterwards in 1951 another example of regional economic
integration was formed by the name of European Steel and Coal Community.
It was a six nation international organization created to unify the Western
Europe during the period of cold war by creating a common market for steel
and coal. This organization laid the foundations for the European Union. The
objectives of these early examples of regional economic integration were to
provide welfare to the people and boost up trade and GDP.

The economic integration between regions is a process that starts from

establishing the formal trade relationships with in that region and with
passage of time other trade barriers are removed thus providing a common
and uniform market of the region and if this process further gets
developments that might result in economic, monetary and financial
integration and then up to the maximum of political integration.

This integration might be very beneficial for the whole region but still there
are certain barriers to that integration, which may be the lack of technical
and operational capabilities of that country. Moreover, people of a country
might be reluctant towards this change to increased competition in the home
market, loss of control and sovereignty of the local government. Moreover,
ongoing management and administration issues might also surface. So a
careful understanding and analysis is necessary to opt for the option to
integrate regionally.

The most common example of this integration is European Union which is the
economic and political union of 27 states formed by the Treaty of Maastricht

M. Sarfraz Khan (41)

on November 1, 1993. Out of these 27 states 16 have common currency.
European Union is said to be the best example of legal, monetary, financial
and economic integration in the world. There are other examples as well like
Association of Southeast Asian Nations (ASEAN) formed at August 8, 1967 by
5 states of that region and its members are now increased to 10. The growth
prospects of the ASEAN are very good. Then there is South Asian Association
for Regional Cooperation (SAARC) consisting 8 members of South Asia. It was
formed on December 8, 1985. This alliance is not very much functional due
to clashes of the member countries. Then there is an example of North
American Free Trade Agreement (NAFTA) which is formally a trade block of
USA, Canada and Mexico. This agreement came into force on January 1,
1994. These developments in the second half of 20th century have reshaped
the concept of regional integration a lot.

There integrations have casted a strong effect on how the business was done
in these regions as well as on the globe. These evolutions of these
integrations have increased the business opportunities of the corporation but
on the other side the local industry suffers as there large companies put the
competitive pressure on the local industry. The cultural and traditional
values of the countries of these integrations are reshaped and in some case
the country losses control and sovereignty. On the other hand political and
economic consensus and cooperation increases and the fruits of greater
good are reaped by all the participating economies.

M. Sarfraz Khan (41)