- Economic integration takes the form of the Preferential Trade Area, Free Trade Area, Customs Union, Common Market and Economic Union.
- A preferential trade area (PTA) is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration.
- A free trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce/abolish trade barriers. e.g. South Asian Free Trade Area (SAFTA).
- A customs union is defined as a type of trade block which is composed of a free trade area with no tariffs among members and (zero tariffs among members) with a common external tariff.
- A common market has the same features as a customs union, but, in addition, factors of production (labour, capital and technology) are mobile among members. Restrictions on immigration and cross-border investment are abolished. e.g. European Common Market (ECM).
- An economic union is the last step in an economic integration process. In addition to free movement of goods, services and production factors, it also requires integration of economic policies, both monetary and fiscal. Under an economic union, members harmonize monetary policies, taxation and government spending. (e.g. European Economic Union).
Why in News?
- British Prime Minister Rishi Sunak has reiterated the U.K.’s commitment to a Free Trade Agreement (FTA) with India as part of the country’s wider focus on enhancing ties with the Indo-Pacific region.