A “regional economic arrangement” or the “regional economic integration” is an arrangement between different countries that helps the countries improve their economy. This is done either by means of reduction or elimination of barriers, or by agreed upon monetary or fiscal barriers among others. The aim of such regional agreements is to ensure that consumers and producers in both countries face reasonable costs only. Reduced costs will help the economy of the countries. The more the integration is, the better the savings for individual economies in the regional economic agreement.
Costs and Benefits of Participation
In analysing for the costs and benefits of participation, it would be essential to look at the forms of economic integration arrangements, as this highlights the specific benefits. There could be different aspects of mediating variables when it comes to time and costs based on the economic arrangements.
Firstly, there is what is called the free trade agreement form of the economic integration. In the free trade agreement, most of the member countries seek to improve trade benefits to one another by removing the barriers to trade between themselves (Carpenter & Dunung, 2011). The free trade agreement is a popular style of economic integration and has been helpful for improving trade between two countries. For instance, if country A was in an economic agreement with country B where they have removed the trade barriers in the form of costs, then the industries in the countries would be able to reduce most of the losses they have to face in the form of tariffs. The tariffs are economic barriers that countries usually impose in order to make the domestic goods have a better competitive advantage compared to the imported goods. These forms of tariffs were necessary in cut throat global trade. However, when countries come together for mutual benefits such as in the case of the economic integration, then these forms of tariffs can be removed. All states involved will mutually agree upon standpoint in order to ensure everybody benefits. The removal of trade barriers here means the countries understand each other well and seek to work with shared benefits in costs among others. An example of this form of economic regional integration is the North American Free Trade Agreement (NAFTA) (Rose & Van Wincoop, 2001; Rose, 2005). Here the costs and benefits are only for the members, as opposed to the Customs Union and the common market style. In terms of benefits of participation, the benefits are mostly monetary and are quite restricted, as this form of agreement does not give either of the participating entities any form of leverage in global trade. The leverage is primarily in the context of inter-trade. The buyers within the participating countries do benefit. As Kenneth (1963) states,
“Before creation of the free-trade area, tariffs were presumably applied equally against all countries and, therefore, while the prices paid by consumers included the duty, nevertheless the relative levels of the prices paid by consumers reflected relative prices to producers for all foreign sources of supply. After elimination of inter-area tariffs, it may be that even though prices to producers are identical, prices to consumers will be higher for purchases of non-member goods, on which a duty must be paid, than for purchases of member goods, on which no duty need be paid” (Kenneth, 1963, p. 626).