Types of Regional Integration Agreements

Types of Regional Integration Agreements

Types of the regional integration agreements (RIAs) are mainly defined according to the
different instruments which identified and limited  the scope of regional economic
integration. These instruments include preferential access for specified products, internal
tariff elimination, determination of common external tariff (CET), free factor mobility,
harmonization of economic policies and harmonization of political policies. The
classification depicted in Table 2.1 shows that there is a hierarchical order between each
type of regional integration agreement. For this reason, each subsequent type of the RIA
covers the content of the previous type in addition to its own requirements. Accordingly, it
is possible to distinguish six different types
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 of integration. These types are:

•  Preferential trade area (PTA) which gives preferential access to certain products
from the participating countries. This can be called as a limited or sector based free
trade area.
•  Free trade area (FTA) that include the reciprocal removal of tariffs on member
countries’ goods. In an FTA, each member is free within the limits specified by the
GATT/WTO system on deciding the level of external tariffs that will be applied to
non members. As there is flexibility on the interactions with the third countries, the
members in an FTA are free to establish or join other FTAs. The leading examples
are North American Free Trade Area (NAFTA), ASEAN Free Trade Area (AFTA)
and European Free Trade Association (EFTA). 
•  Customs union (CU) which is a type of agreement that include determination of
the common external tariff (CET), in addition to the elimination of the internal
tariff rates. Generally, determination of the CET is done through taking an average
of all partners’ before union tariff levels. For member countries, such cooperation
                                                
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 While these six types depict that how regional agreements can diversify and extend its limits, this kind of
classification mainly resembles to the evolution of the European Union (EU). The antecedent of the EU
which is now at the level of EMU was the European Coal and Steel Community (ECSC, 1951) which can be
counted as an intermediate agreement between free trade area and customs union (Dam, 1963, p.638).  
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in external tariffs can only be attained through the loss of autonomy in foreign
economic policies. The examples include Andean Community, the CUs of EU with
Andorra, San Marino and Turkey, and Southern African Customs Union (SACU). 
•  Common market (CM), in which there is free factor mobility –capital, investment
and labor– in addition to the customs union requirements that determine free flows
of goods and services. This integration requires governments to employ
coordinated actions in order to ensure the equal treatment for all factors in the
member countries of the CM. Caribbean Community and Common Market
(CARICOM) is one of the examples of this type.
•  Economic and monetary union (EMU) which results from the enlargement of a
common market with the additional requirement of the harmonization of economic
policies, both monetary and fiscal. It further involves the creation of an independent
regional central bank that has control over exchange rate policy and inflation rates.
The only example that arrived to this level of integration is the European Union
(EU). 
•  Complete (political) integration (CI) is a type of agreement which includes the
harmonization of economic and political policies, and so as to become a single
state. This kind of integration necessitates the loss of sovereignty and the creation
of domestic institutions on the international level.

Table 2.1 Types of regional integration agreements  and their coverage (Source: SavaL,
2004, p.177)

  PTA FTA CU CM EMU CI
Preferential access to certain products X X X X X X
Tariff elimination  X X X X X
Common external tariff   X X X X
Free factor mobility    X X X
Harmonization of economic policies     X X
Harmonization of political policies      X
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There is also another classification that is not referred too much. It is the “Economic
Partnership Agreement” (EPA). This term is used to imply that the scope of the agreement
is broader than the elimination of barriers of trade in goods (Aminian, Fung & Ng, 2008,
p.10).Currently, there are more than seventy EPAs of the EU signed with the Africa,
Caribbean and Pacific (ACP) countries. On the other hand, the Japan Singapore bilateral
agreement is called as the “New Age Economic Partnership” (Antkiewicz & Whalley,
2006, p.344).

As it will be studied in Chapter 7, FTAs are dominant types of the regional economic
integration. Furthermore, the experience has shown that the proliferation in the number of
RIAs has coupled with changes in the legal structure of the WTO system. At the beginning
there was only the GATT Article XXIV that enabled the formation of FTAs and CUs, but
in time, nation states began to ask new legal open doors for deeper integration types, like
the Enabling Clause of GATT and GATS Article V. Liberalization and elimination of
trade regulatory policies and harmonization of economic and political policies have
become the new topics of regional economic integration beside trade policy measures.  In
other words, as Tinbergen (1965) dubbed them, “negative integration” involving the
removal of discrimination and of restrictions on the trade flows has been supplemented by
“positive integration” that require the coordination of member countries on modifying the
existing policies and institutions together with the creation of new ones within the regional
integration (Robson, 2000, p.2).

Hence, rather than using the term of regional trade agreements that emphasizes trade side,
tagging these agreements as regional integration agreements (RIAs) would be a correct
description of the existing agreements. Thus, the term ‘RIA’ covers all different types of
economic integration.