Regional economic integration refers to an international business strategy that creates a healthy environment for international business enterprises in different countries to collaborate in order to create wealth and economic stability for citizens. Ordinarily, the participating countries sign agreements that give the details of how the collaboration will be managed. Regional economic integration is characterized by the desire by participating countries to reduce or completely get rid of the tariff as well as non-tariff barriers that hinder economic activities across borders.
This paper aims to determine whether international businesses should promote or fight the creation of regional trading blocs.
Arguments for and against the Creation of Regional Trading Blocs
Different approaches to regional economic integration offer different benefits to participating countries. Free trade area, for example, encourages the removal of barriers that are encountered with regards to the trading of goods and services among member states. Examples include the European Free Trade Association (EFTA) and the North American Free Trade Agreement (NAFTA). The use of custom unions such as Andean Pact is another approach that focuses on eradicating possible barriers between member states. Others include common markets and economic union. Under the common market, no trade barriers exist among the member states while under economic union, the free flow of products and factors of production is highly encouraged among the participating countries.
From the examples given above, there are several reasons for supporting the creation of regional trading blocs. First, regional trading blocs make it possible for countries to focus on supplying the market with goods and services they can produce best. This eliminates competition and makes it possible for member countries to offer high-quality products and services. Secondly, all countries that are involved in free trade get their economies stimulated, and this eventually enables member states to reap greater benefits from trading activities. Third, regional economic integration creates an opportunity for member states to advance by learning from other countries. Fourth, regional economic integration also generates a strong foundation for political cooperation among the participating countries. Healthy relationships among the member states, in turn, lead to peace and stability within the region.
There are, however, some drawbacks associated with the creation of regional trading blocs. One of the drawbacks is that costly domestic producers may end up being replaced by cheaper alternatives from neighbouring countries and this may lead to job loss and hence an increase in unemployment rates. In some cases, member states may be compelled to replace low-cost suppliers with high-cost suppliers who are associated with the regional trading bloc. The NAFTA agreement, for example, led to the exportation of a huge number of jobs from the United States to Canada. Companies in some of the member states that subscribed to the NAFTA agreement also got subjected to highly competitive market environments that required them to improve their level of efficiency. In addition, there was a loss of national sovereignty and a need for member states to undergo economic restructuring.
In spite of the shortcomings, the creation of regional trading blocs should be encouraged. As explained in this paper, member states are bound to benefit greatly through regional economic integration. Among other things, the creation of regional trading blocs promotes peace and stability within a region and also creates an environment where participating countries can learn from each other and grow.