International bodies made up of several countries.
Economic Unions are international bodies made up of several countries. Since the 1970s, these regional integrations became popular and nations have become more connected and intertwined. Many countries around the world have embraced this union due to shared beliefs.
The question that is asked is why countries want to form this association. To answer this question, it's important to understand how things worked before these regional associations.
In the 1960s things were very different from now, specifically in regards to international trade. This is very true, especially in Europe which comprises several different nations. Each nation sought to fend for itself and to be self-reliant.
This in itself caused a lot of challenges for a country to attain a competitive advantage on a global scale. This system is the traditional form of an economic strategy that nations inherited from the 19th century and beyond.
After the destruction of World War II, the World started supporting the idea of international corporations and alliances to alleviate global crises. Consequently, the rise of economic unions became inevitable.
What is an Economic Union?
An Economic Union is an international agreement entered into by several nations to gain economic advantage.
This agreement encompasses the free flow of goods and services, the movement of workers, and money. The popularity of forming these regional corporations has led to more globalization.
The Nations that aim to join such a union are always expected to meet certain conditions before being accepted into membership. The members share the benefits of the agreement equally. There have been several Economic blocs established in the past decades.
The following are some of the most common international unions:
- The European Union (E.U.)
This is the world's largest union of several European nations. These nations coordinate on policy and economic strategies.
- The Central American Common Market
This union is based in central America and consists of Honduras, Guatemala, Costa Rica, El Salvador, Nicaragua, and Panama.
- The Eurasian Economic Union
This is a trade block consisting of Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan. This Union is also abbreviated as E.E.U and it was formed in 2014.
- CARICOM Single Market Economy
This is another international economic bloc that is based in the Caribbean. It is also one of the largest unions that regulate economic policy and trade in the Caribbean region.
As seen, the emergence of economic blocs is driven by the need to achieve economic growth. The result of this drive is regional corporations and the harmonization of trade regulations among union members.
Thus, it can be said that the Economic Union is the final stage in the evolution of regional economic integration.
Objectives of Economic Unions
Regional economic integration is very important in this age. Nations are more integrated than ever before. Economic and Monetary integration is deemed as the next frontier of international trade and economic growth.
Several objectives make nations interested in joining Economic blocs.
The following are the objectives of an Economic Union:
It aims to ease international trade by reducing trade barriers that exist between nations. Since every nation has different rules, international trade becomes challenging, so international economic blocs make it easy for nations by reducing these restrictions.
This type of regional integration aims at reducing red tape in the business process between nations. This aims at moving goods from one nation to the other easily. In other words, this relates to the easy import and export of goods and services.
This type of union aims to harmonize trade policies and strategic economic strategies. The union seeks to maintain uniform policies for its members so that they can trade with non-members in the same way.
This regional integration also aims at having well-organized institutions to regulate policies and nations. For instance, institutions like the European Central Bank are an example of regulatory institutions commissioned by the European Union.
This union also aims at creating opportunities for economic growth for its members. The member countries in the union get an advantage when trading with non-member countries.
In this current time, many nations find it challenging to grow economically without some form of agreement with a neighboring country.
The idea of seclusion and self-sustainability has proved to be a challenge for many economies around the globe. Therefore, many nations have joined some form of international cooperation for international trade.
Thus, let us look at the benefits of such a union.
International trade blocks have several advantages for their members and non-members as well. Below are the benefits of international trade blocks.
1. Free trade area
The primary advantage of being a member of a trade block is the right to trade in any member country without hardships.
A nation can easily import and export goods and services to another nation without red tape and complexity in regulations and requirements.
2. Uniformity of Customs and tax policy
The second advantage of being part of this block is that it provides uniformity of international trade policy for its members.
This makes international trade easier and faster because there is no confusion in the documentation or requirements for international trade.
3. Common Market
Thirdly, economic unions provide a free flow of resources and factors of production. Human capital can easily move from one country to the other.
An example of such movements of labor can be seen within the European Union. As such, capital flows to and fro easier within the union.
4. Stable Economic policy
Fourthly, economic unions enable uniformity in economic policy for their members and provide an equal opportunity for their members.
Therefore, member countries can trade with one another but also can trade with non-member countries with a uniform trade and economic policy. This allows members of the union to maximize revenue from international trade with non-members.
5. Common currency
Lastly, economic blocs adopt a common currency for their members. For instance, the European Union issues and uses Euro for transactions.
This is important because it prevents exchange volatility which may make trading with member states difficult for a nation.
6. Reduced unemployment
A nation that is a member of an economy tends to benefit from employment from such a union. Citizens in one country benefit from the jobs in another country.
To everything, there is a downside. This is also true when it comes to economic and trade blocs. The benefits that come with this international cooperation come at a price.
The following are the disadvantages that come with such a trade body.
1. Rising prices of land
This is because of the openness of the nations which results in the free flow of capital. In this case, investors seek to buy cheaper land which pushes prices for land up.
2. Challenge to standardize policy
There is an inherent difficulty in attaining standardized policy in these economic bodies. This is one of the biggest challenges for the union.
This is because every country is unique and has unique circumstances, thus it is difficult to attain standard economic and international policy.
3. An unbalanced level of power
This relates to the amount of influence a country may have over others. This dominance by a few countries may be because of the size of these economies. This has been one of the criticisms of the European Union.
4. Loss of economic Independence
Individual independence of a country is lost to the union. In other words, the member nations are not allowed to make economic decisions that branch off from the union's economic strategy or goal.
5. Loss of talent and brain drain
As a result of open trade and the flow of capital, most skilled people leave their countries to go and work in countries with more pay.
This has been the case in the European Union, people from low-income economies like Greece and the Balkan nations mostly moved to Germany, the United Kingdom, and France.
6. High competition.
High competition tends to crush small domestic companies. This means those small local businesses in the country get swept by big multinational companies.
A good example is the United Kingdom after its successful exit from the European Union with its Brexit campaign. According to the Research case study by professor Paul Whitely, some of the disadvantages stated above are the reasons why the United Kingdom left.
Economic Unions Vs Custom Unions
There is a difference between an economic and a customs union. It's not strange that people confuse the two, however, there is a fine line between them.
The following table shows the differences between an economic and a customs union.
|Economic Unions||Customs Union|
|These regional integrations are complex and encompass a broad spectrum of agendas.||Customs unions are narrow in perspective as compared to economic unions.|
|They aim at having well-organized institutions to regulate policies and nations. For instance, institutions like the European Central Bank are an example of regulatory institutions commissioned by the European Union.||The Customs union does not aim at creating any regional regulatory institutions. The sole aim of the customs union is trade and harmonization of customs policy.|
|Economic unions allow the free flow of capital and create a common market. The capital that flows through such a trade bloc includes both Financial and Human capital.||While customs unions aim at enabling the free flow of goods and services across borders.|
|These economic blocs adopt a common currency for their members. For instance, the European Union issues and uses Euro for transactions within the region. The advantage of this is that it prevents exchange volatility.||Customs unions on the other hand do not possess, issue or use a common currency.|
However, it is important to note that there are similarities between the two types of regional bodies. The following are the similarities between an economic and a customs union.
Both are regional agreements aimed at promoting economic development. Member countries that join such groups, do so to liberalize international trade and harmonization of trade policies.
Both allow nations to agree on trade policies. The only difference is about depth and coverage of such policies.
In simple words, both economic and trade blocs have certain similar features. These features tend to confuse people as a result they mix the two.
However, the two forms of economic integrations are different in complexity, mandate, power, and to some degree objectives
- Economic Unions are international bodies that are made up of several countries. Some examples of these unions are the European Union, Central American Economic Union, and others.
- These regional bodies aim to ease international trade by reducing trade barriers that exist between nations.
- Since every nation has different rules, international trade becomes challenging thus, international economic blocks make it easy for nations by reducing these restrictions.
- They provide a free flow of resources and factors of production. Human capital can easily move from one country to the other. An example of such movements of labor can be seen within the European Union.
- They often adopt a common currency for their members. For instance, the European Union issues and uses Euros for transactions.
- Economic blocs enable uniformity in economic policy for their members and provide an equal opportunity for their members. Thus, member countries can trade with one another but also can trade with nonmember countries with a uniform trade and economic policy.