The evolution of global markets has focused attention on ways to eliminate barriers to international trade and some of the recent developments include Economic Integration, Preferential Trade Agreements, Free Trade Area, Customs Union, Common Market, Economic Union, Most Favored Nation Principle.
It is a process which aims at abolishing the trade barriers between different member countries of the groups. This integration eliminates various forms of economic discrimination among the member countries by removing restrictions on movement of capital, goods, services and labor. This integration ranges from preferential trade agreements to free trade areas, customs union, common markets, and economic unions. The European Community (EC), Commonwealth of independent States (CIS) and North American Free Trade Agreement (NAFTA) are some important recent examples.
Preferential Trade Agreements
It provides that participating nations will have lower trade barriers on trade among themselves as compared to non-participating nations. British Commonwealth Preference Scheme established by the United Kingdom with members of Commonwealth is the best of example of Preferential Trade Agreement.
Free Trade Area
It is the form of integration wherein member nations remove all trade barriers among themselves, but each nation retains its own barriers on trade with non-members. European Free Trade Association (EFTA), formed in 1960 by the United Kingdom, Austria, Denmark, Norway, Portugal, Sweden and Switzerland, with Finland as an associate member, is the best example. Association of Southeast Asian Nations (ASEAN) is another living example.
It allows no barriers on trade among the members, as in Free Trade Area and in addition, it harmonizes trade policies towards the rest of the world. Zollverein (Customs Union) established in 1834 by a large number of sovereign German states was the first step in this direction. The European Economic Community (EEC) or European Common Market is the known example of the Customs Union. North American Free Trade Agreement (NAFTA) is another example of this type of integration.
A common market is a still more integrated group than customs union. This arrangement allows the free movement of labor and capital among the member nations. The European Economic Community (EEC) has almost reached the stage of common market since 1970.
The Economic Union harmonies the monetary, fiscal and tax policies of the member nations. This is the most innovative kind of economic incorporation. Benelux, the group formed in 1960 by Belgium, the Netherlands and Luxembourg and which is now part of EC, is the best example of economic union in the world. The USA is in fact complete example of economic and monetary union.
Most favored Nation Principle
It emerged after the promulgation of The Trade Agreement Act, 1934 in USA. This non-discrimination principle operates between the trading partners reciprocally, as all the participating nations reduce their tariff barrier bilaterally. However, such groupings are against the basic charter of the World Trade Organization (WTO) which has been brought into operation for promotion of free trade internationally.