Regional integration is an arrangement between nation states to cooperate in some comprehensive way for their mutual benefit. The term usually applies to neighboring states, and it usually entails a series of agreements to benefit the well-being of the region—for example, by promoting free trade, enabling easier flow of financial transactions, implementing uniform environmental and other legal standards, and allowing easier travel within the region. The scope of integration can grow to issues like security, culture, environmental protection, and social issues, and may extend also into the political realm. The aim of the integration is explicitly to benefit the members of the region (or bloc), but it comes at the cost of national sovereignty.

According to Luk Van Langenhove and colleagues, regional integration initiatives have the potential to fulfill important functions that are beyond the sphere of trade integration, such as the creation of an appropriate enabling environment for private sector development; the development of infrastructure programs in support of economic growth and regional integration; the development of strong public sector institutions and good governance; the reduction of social exclusion and the development of an inclusive civil society; contribution to peace and security in the region; the building of environment programs at the regional level; and the strengthening of the region’s interaction with other regions of the world.

There are several forms of regional integration, each with varying levels of commitment and influence. Oded Shenkar and Yadong Luo discuss four forms of economic integration (or trading blocs) as follows: First, a free trade area is the least restrictive and loosest form of trading bloc among countries and aims to abolish all barriers to trade among member countries. The North American Free Trade Agreement (NAFTA) is an example of this form of integration. The next level is the customs union, whereby member nations dismantle barriers to trade in goods and services among themselves; it establishes a common trade policy with respect to nonmembers—for example, the Central American Common Market. A common market includes the features of the customs union with additional mobility of factors of production such as capital, labor, and technology as well as a common external trade policy by which members should cooperate closely in monetary, fiscal, and employment policies. Finally, the economic union is the ultimate form of regional economic integration that simply aims to eliminate all barriers that may impede trade and other economic interactions among member nations. As with the example of the European Union (which evolved from the European Common Market), members aim to harmonize monetary policies, taxation, and government spending, and a common currency would be used by all members. Beyond this level is the concept of “political union” that results in a single political entity like the United States.

Examples of prominent regional economic agreements are the Andean Community of Nations (CAN for Comunidad Andina de Naciones), Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), European Union (EU), Mercosur/Mercosul, and North American Free Trade Agreement (NAFTA). These agreements are never etched in stone and often change. However, the general historic trend is toward growth, strengthening, and affiliation to these blocs. For example, beginning from the Treaty of Rome in 1957, six European nations (France, Germany, Italy, Netherlands, Belgium, and Luxembourg) formed a customs union that grew in stages to become a common market and, in 1995, to the EU with 15 members. In 2007 EU membership was extended to Romania and Bulgaria so that total membership is now 27 members, and ongoing negotiations for future membership are also under way with a number of other states including Turkey.

More recently, in 2008, the Union of South American Nations (UNASUR or UNASUL) was formed largely by merging two existing South American customs unions (Mercosur and CAN) as part of a continuing process of South American economic and political integration. UNASUR is modeled on the European Union. However, it is unique in that it includes every sovereign nation on the continent (with the exception of French Guiana), and is currently working for the introduction of a regional identity card that will eliminate the need for passports for travel by citizens of members within South America.

The overall effect of these trends is not only a strengthening of regionalization but also adds to general globalization trends. Opinions differ as to whether this is a good or bad effect. Authors like Luk Van Langenhove, Isabella Torta, and Ana-Cristina Costea, who believe that institutions need to counter the trends toward globalization, argue that regional integration can itself be a significant factor in tackling deleterious global trends and forces. They argue that regional governance structures can be important in backing and complementing nation states and other international organizations. For example, they believe that, because regionalism entails building relationships among member nations, interactions and cultural ties will also improve, and these will facilitate the reaching of interstate agreements. These agreements have some chance of standing up for the rights and values of citizens of the region. For example, they may value environmental standards, labor conditions, protection of intellectual property, support for basic food prices, or other issues of local rather than global significance.

Bibliography:

  1. Simon Collinson and Alan M Rugman, “The Regional Nature of Japanese Multinational Business,” Journal of International Business Studies (v.39/2, 2008);
  2. Viviana Fernandez and Ali M. Kutan, Do Regional Integration Agreements Increase Business-Cycle Convergence?: Evidence From APEC and NAFTA (Centro de Economia Aplicada, Departamento de Ingenieria Industrial, Universidad de Chile, 2005);
  3. Norbert M. Fiess, Business Cycle Synchronization and Regional Integration: A Case Study for Central America (World Bank, Latin America and the Caribbean Region, Office of the Regional Chief Economist, 2005);
  4. Jong Kil Kim and Pierre-Bruno Ruffini, Corporate Strategies in the Age of Regional Integration. (Edward Elgar, 2007);
  5. Alan M. Rugman and Alain Verbeke, “A Perspective on Regional and Global Strategies of Multinational Enterprises,” Journal of International Business Studies, (v.35/1, 2004);
  6. SAARC Business Conclave, Sadiq Ahmed, and Ejaz Ghani, South Asia, Growth and Regional Integration (Macmillan, 2007);
  7. Luk Van Langenhove, “Regional Integration and Global Governance,” UNUnexions (v.4/August, 2003);
  8. Daniel Johannes Venter and E. W. Neuland, Regional Integration: Economic Partnership Agreements for Eastern and Southern Africa (Richard Havenga ; Associates, 2007).