Economics commentary. The above article taken from Bernama, the Malaysian national news agency, talks about economic integration in the continent of Asia and how this would lead to the betterment of the Asian economies

Economic integration can be both a merit and demerit for a country’s economy. This integration can be of many types, which are explained below.

1. Trading Bloc: This is integration where some countries join hands to gain trading benefits from cooperation on some fixed level.  A trading bloc too can be of many types:

1. FTA: An FTA is a free trade area which is an agreement made by a group of countries agreeing to trade amongst themselves without any trade barrio whatsoever and dealing with the countries outside their FTA individually.

• Highly beneficial for the Asian countries as they can join hands to promote their economies competing against the west and dealing with other eastern and west countries on their own terms.
• An example of an FTA can be the NAFTA.

2. Custom Unions: Countries agree to trade freely amongst them and apply similar protectionism towards other countries, exists in the EU.

• This might be helpful for the partner nations but would attract protectionism and trade barriers for it from other countries

3. PTA: Preferential trading areas give a priority access to some selected product from specific countries done by the reduction of tariffs. This sort of trading bloc exists between EU and ACP.

• This might be a risk free option but of less use for the economy as it focused on some products only.

4. Common Markets: Custom union with common agreed policies on regulation of commodities and free movement of goods/services etc. The perfect model of this is the EU.

5. Economic and Monetary Union: This defines the Eurozone, as it is a trading bloc with a standard currency and market.

6. Complete Economic Integration: Involves a group of countries with complete economic integration having no individual control on their economy, full monetary union along with similar fiscal policy.

Economic integration has it’s own advantages and disadvantages. The benefits of being in economically integrated are:

1. Increased market size, better for exports along with increase in the competition producing more efficient markets as the consumers get lower prices, better quality and more choice.
2. Enhanced political and social stability based on cooperation as it becomes easier to trade for members without having to pay the currency conversion charges while trading.

However, there do exist some costs like:

1. Increased investment for conversion and joining a trading bloc.
2. Discrimination by the trading members towards other countries conflicting the regulations of the WTO.

As attractive as integration may seem, there exist many challenges for it to occur. One of the biggest challenge to this would be the internal public opposition arguing that integration would undermine a country’s political sovereignty and economic control if it reaches the stage of custom union. This is especially important in patriotic countries like USA.

Entering a custom union creates costs and benefits for a country like:

1. Trade creation: When a country enters the union, it causes the transfer of the production of a good from a high to a low cost producer within the union.

Boxes b and d represent the regained world efficiency and consumer surplus. This is better for the consumers as well as the whole economy.

Trade Diversion: This happens when the production of goods gets transferred to a low cost to a high cost producer example, the one outside the union which leads to the imposition of tariff on it’s products and hence increasing its price causing inefficient domestic production with higher prices.