Advantages and disadvantages of the levels of economic integration

Free trade Agreement

Free trade agreements bring benefits that are related to aspects of a commercial nature, but also that
are positive for the economy as a whole: they allow to reduce and in many cases eliminate tariff and
non-tariff barriers to trade; they contribute to improve the competitiveness of the companies, they
facilitate the increase of the flow of foreign investment, by granting certainty and stability over time to
the investors; they help to compete on equal terms with other countries that have achieved access
advantages through similar commercial agreements as well as to obtain advantages over countries
that have not negotiated preferential trade agreements; and, finally, they encourage the creation of
jobs derived from greater export activity. On the other hand, the commercial opening generates
greater integration of the country into the world economy, which makes it possible to reduce the
volatility of its growth, the level of country risk and the cost of financing private activity in general.

However, not all sectors of the economy benefit in the same way from free trade agreements. There
are undoubtedly products of greater sensitivity in the negotiation process that must be protected with
certain commercial defense mechanisms. However, the negative effects on certain products can also
be mitigated and better if appropriate measures are taken to boost their competitiveness or, in any
case, encourage their conversion to activities with greater growth potential.

Custom unión

A customs union creates and diverts trade at the same time. Its main advantage is that it favors
specialization within its territory, since eliminating restrictions on exchange generates opportunities
for a more efficient allocation of resources. In this sense all the member countries are favored.

On the other hand, the demand for imports from foreign countries changes due to higher-cost
products from the member nations, which can outperform the competitors of countries outside the
union only thanks to the common tariff established by the same. The creation of trade will be greater
the more different the economies of the countries that comprise it and, therefore, the less competition
between them.

The advantages of a customs union increase the greater the number of countries that comprise it,
the disadvantages are directly related to the level of protection that the union establishes outward.

Common market

A common market is an agreement between two or more countries in order to ensure the free
circulation and exchange of goods, services and factors of production between their borders.

In a common market, member countries agree to eliminate among themselves, tariff barriers,
restrictions on the movement of people, investments or transfers and obstacles to the establishment
of companies. At the same time, common economic policies are agreed in order to promote joint
growth.

Advantages of a common market are:

  Greater competition: which implies a greater variety of products and a lower price for
consumers.
 Expanded market: companies in the common market have the possibility to increase their
sales and thus boost their growth.
 Cultural exchange: the free movement of people allows cultural exchange, learning new
languages and recognition of the particularities of each member country.
 Exchange of technology and innovation: the free movement of people and capital allows the
development of new technologies and innovative products.
 Broader labor market: workers can access more work options and companies have a wider
market in which to find the right workers.

Disadvantages of the common market are:

 Member countries sacrifice their individual freedom to reach agreements with other countries.
 The process of negotiating the agreements necessary to sustain the common market can be
long and complex.
 Some member countries may violate some of the agreements, which will require an effort of
control and sanction to maintain the stability of the system.

Economic unión

The economic union is the highest international trade treaty, because it implies a total
harmonization between the economic policies of the participating countries with the aim of
achieving a situation of convergence and unification.

Advantages of the economic union:

 Reduction of export costs, so the search for a market outside the national geography will be
much simpler.
 Easier ease of movement between countries.
 More sustainable economic growth that will favor job creation.

Disadvantages of the economic union:

 Assignment of national sovereignty.

 Assignment of the exchange policy as a mechanism.
 Reduction of budgetary sovereignty: Limitations of the public deficit.

Political Union

An economic union is a superior form of integration to which the common market implies. It adds a
greater degree of harmonization of national economic policies in an attempt to eliminate the
discrimination that may result from the disparities in these policies.

As progress is made in the harmonization of common policies, difficulties arise due to the transfer of
sovereignty by the member states, fundamentally harmonizing monetary and fiscal policies, assumes
that the governments of the countries of the area have a smaller margin of acting for its general policy.
As they are the object of integration all economic activities in the spatial field of an economic union,
the conclusion of a common monetary policy.
 Advantages of political union:
 Creation of commerce
 Reduction of direct costs
 Scale economics
 Greater competition
 Less problems in the balance of payments
 Development of new activities of great dimension: aerospace, Airbus, hydroelectric.
 Structural reforms to apply the most advanced patterns

Disadvantages of political union:

 Excessive regional concentration

 Development of the power of monopolies and oligopolies
 Trade diversion
 Loss of sovereignty
 Greater competition in the labor market