What Are Five Different Levels of Regional Trade Agreements

Regional trade agreements (RTAs) are agreements between two or more countries to lower trade barriers, such as tariffs and quotas, among the participants. These agreements vary in scope and depth, with different levels of integration. Here are five different levels of regional trade agreements:

1. Free Trade Area (FTA)

The free trade area is the most basic form of regional trade agreement. It is an agreement between two or more countries that eliminates tariffs and other barriers to trade on goods among the participants but retains independent trade policies for external countries.

For example, NAFTA (North American Free Trade Agreement) is an FTA between Canada, the United States, and Mexico, which eliminates tariffs on goods traded among these countries, but each country retains the right to impose its own tariffs and other regulations on imports from outside the trade bloc.

2. Customs Union

The customs union takes the free trade area one step further. It not only eliminates tariffs on goods among the participants but also establishes a common external tariff on imports from outside the trade bloc. This means that all members agree to charge the same tariffs to non-members, and the revenue from those tariffs is shared among the members.

For instance, the Southern Common Market (MERCOSUR) is a customs union composed of Argentina, Brazil, Paraguay, Uruguay, and Venezuela. These countries have a common external tariff on imports from outside the bloc, and each member is not allowed to negotiate its individual trade agreements with non-member countries.

3. Common Market

The common market is a customs union that goes beyond the free movement of goods to include the free movement of services, capital, and labor among the participants. This means that citizens of member countries can live, work, and invest in any other member country without restrictions.

The European Union (EU) is an example of a common market. It not only eliminates tariffs on goods among the members and has a common external tariff, but it also allows free movement of goods, services, capital, and people among its 27 member countries.

4. Economic Union

The economic union is a common market that further integrates the economies of the member countries. It includes the harmonization of economic policies such as fiscal, monetary, and regulatory policies. It also establishes a common currency and a central bank to manage the currency.

The best-known example of an economic union is the European Union`s Economic and Monetary Union (EMU), which created the eurozone. It comprises 19 EU member states that have adopted the euro as their common currency and operate under a single monetary policy set by the European Central Bank.

5. Political Union

The political union is the most integrated form of regional trade agreement. It involves the transfer of significant sovereignty from member states to a central authority. It includes common policies on defense, foreign affairs, and justice, and a common constitution and parliament.

The African Union (AU) is an example of a political union in the making. It aims to create a single political entity with a common currency, parliament, and judicial system for its 54 member states. The EU also represents a form of political union, with its own parliament, executive, and judiciary.

In conclusion, regional trade agreements come in different forms, from the basic free trade area to the most integrated political union. The choice of the level of integration depends on the goals of the participating countries and their willingness to share sovereignty.