Multinational market groups take several forms, varying significantly in the degree of cooperation, dependence and interrelationship among participating nations. There are five fundamental groupings for regional economic integration ranging from regional cooperation for development, which requires the least amount of integration to the ultimate integration of political union.
Regional Cooperation Groups
The most basic economic integration and cooperation is the regional cooperation for development (RCD). In the RCD arrangement government agree to participate jointly to develop basic industries beneficial to each economy. Each country makes an advance commitment to participate in the financing of a new joint venture and to purchase a specified share of the output of the venture. An example is the project between Colombia and Venezuela to build a hydroelectric generating plant on the Orinoco River. They shared jointly in construction costs and they the electricity produced.
Free trade Area
A free trade area (FTA) requires more cooperation and integration than the RCD. It is an agreement between two or more countries to reduce or eliminate customs duties and non-tariff trade barriers among partner countries while members maintain individual tariff schedules for external countries. Essentially an FTA provides its members with a mass market without barriers to impede the flow of goods and services.
A customs union represents the next stage in economic cooperation. It enjoys the free trade area’s reduced or eliminated internal tariffs and adds a common external tariffs on products imported from countries outside the union. The customs union is a logical stage of cooperation in the transition from an FTA to a common market. The European Union was a customs union before becoming a common market. Customs unions exist between France and Monaco, Italy and San Marino and Switzerland and Liechtenstein, to name some examples.
A common market agreement eliminates all tariffs and other restrictions on internal trade, adopts a set of common eternal tariffs and removes all restrictions on the free flow of capital and labor among member nations. Thus a common market is a common market place for goods as well as for services (including labor) and for capital. It is a unified economy and lacks only political unity to become a political union. The Treaty of Rome, which established the European Economic Community (EEC) in 1957 called for common external tariffs an the gradual elimination of intra market tariffs, quotas and other trade barriers. The treaty also called for elimination of restrictions on the movement of services labor, and capital prohibition of cartels coordinated monetary and fiscal policies common agricultural policies, use of common investment funds for regional industrial development; and similar rules for wage and welfare payments. The EEC existed until the Maastricht Treaty created the European Union, an extension of the EEC into a political union.
Latin America boasts three common markets: the Central America Common Market (CACM), the Andean Common Market, and the Southern Cone Common Market (Mercosur). The three have roughly similar goals and seek eventual full economic integration.
Political union is the most fully integrated form of regional cooperation. It involves complete political and economic integration, either voluntary or enforced. The most notable enforced political union was the Council for Mutual Economic Assistance (COMECON) a centrally controlled group of countries organized by the Soviet Union. With the dissolution of the Soviet Union and the independence of the Eastern European bloc, COMECON was disbanded.
A common wealth of nations is a voluntary organization providing for the loosest possible relationship that can be classified as economic integration. The British Commonwealth comprises Britain and countries formerly part of the British Empire. Its members recognize the British monarch as their symbolic head although Britain has no political authority over any common wealth country. Its member states had received preferential tariffs when trading with Great Britain but when Britain joined the European Community, all preferential tariffs were abandoned. A common wealth can best be described as the weakest of political unions and is mostly based on economic history and a sense of tradition. Heads of state meet every three years to discuss trade and political issues they jointly face, and compliance with any decisions or directives issued is voluntary.
Two new political unions cane into existence in the 1990s: the Common wealth of Independent States (CIS), made up of the republics of the former Soviet Union, and the European Union (EU), The European Union was created when the 12 nations of the European Community ratified the Maastricht Treaty. The members committed themselves to economic and political integration. The treaty allows for the free movement of goods , persons, services and capital throughout the members states; a common currency common foreign and security policies, including defense common justice system, and cooperation between police and other authorities on crime terrorism and immigration issues. Although not all the provisions of the treaty have been universally accepted each year the EU members become more closely tied economically and politically. Now that the Economic and Monetary union is put in place and all participating members share a common currency, the EU is headed toward political union as well.