Aims & Objectives of Economic Integration
More and more countries are looking to cooperate economically and remove or reduce trade barriers. The U.S. and Mexico, for example, took major steps toward economic integration over the past decades. Due to the North American Free Trade Agreement, trade has tripled between 1990 and 2008. The European Union now has 28 member states that share an internal single market, and this number is on the rise. Businesses of all sizes need to understand the impact of international economic cooperation. Depending on where your company is located, you could benefit from lower taxes, reduced operational costs and transparent fiscal policies.
At the most basic level, economic integration is an agreement between countries, which aims to reduce costs for both producers and consumers. Its end goal is to remove barriers to the free flow of goods and services so that member countries can share a common market and harmonize their fiscal policies.
For example, the EU aims to establish an economic and monetary union that uses the euro as its primary currency. It also strives to enhance solidarity among member countries, promote technological progress and achieve balanced economic growth. According to its economic integration policy, freedom, security and justice should have no internal borders.
International economic cooperation takes years to come into effect. It has several phases, including:
- establishment of a free trade area
- creation of a customs union
- development of a common market
- achieving an economic union
For example, countries that share a free trade area allow for the free flow of goods, services, capital and labor. When several regions share a common market, there are no restrictions on immigration and cross-border investment. An economic union is characterized by uniform monetary, taxation and governmental policies. Economic integration in all its forms aims to ensure peace and security among member countries, while protecting their shared interests from external threats. At the same time, it facilitates the exchange of goods and increases labor mobility.
For businesses, international economic cooperation opens up new opportunities. Companies can hire foreign workers more easily, access funds from internal sources and trade goods at lower costs. Additionally, setting up your business in another member state becomes easier and less expensive. You may be able to register the business in a member state with lower taxes and more affordable workforce compared to your home country. Once you take this step, you can expand your reach and grow revenue.
Consumers benefit from economic integration, as well. They can travel without the need for a visa or passport, relocate to other state countries and more easily find work abroad. For instance, EU citizens travel within the European Union using their national ID cards instead of passports. They can also apply to jobs in higher-paying EU countries without having to obtain visa sponsorship. This translates into lower costs for both employees and employers.
Another major advantage of economic integration is its ability to increase peace and security. Member states benefit from greater political cooperation, which results in more stability and peaceful conflict resolution. Moreover, they can borrow and raise funds directly in the international capital market, which allows for faster economic growth.
Economic integration is heavily influenced by the political climate. For example, the United Kingdom voted in 2016 to leave the EU, which will impact British trade and immigration. Those who voted for "Brexit," short for "British Exit," feel having a separate economy will strengthen the U.K. and allow for stronger immigration laws. Opponents feel that leaving the EU will make economic trade more difficult.
The U.S. has also made significant changes to its historical trade agreements with Mexico and Canada. The Trump administration imposed tariffs on steel and aluminum from Mexico and Canada early in 2018. In return, Mexico put tariffs on U.S. steel and farm products. In late 2018, Mexico, Canada and the U.S. signed the new U.S. Mexico Canada Agreement, which is designed to replace NAFTA. The new agreement includes protections for workers' rights and the environment.