Regional trade agreement
Regional trading agreements refer to a treaty that is signed by two or more countries to encourage the free movement of goods and services across the borders of its members. The agreement comes with internal rules that member countries follow among themselves. When dealing with non-member countries, there are external rules in place that the members adhere to.
Types of Regional Trading Agreements.
Regional trading agreements vary depending on the level of commitment and the arrangement among the member countries.
1. Preferential Trade Areas.
The preferential trading agreement requires the lowest level of commitment to reducing trade barriers, though member countries do not eliminate the barriers among themselves. Also, preferential trade areas do not share common external trade barriers.
2. Free Trade Area.
In a free trade agreement, all trade barriers among members are eliminated, which means that they can freely move goods and services among themselves. When it comes to dealing with non-members, the trade policies of each member still take effect.
3. Customs Union.
Member countries of a customs union remove trade barriers among themselves and adopt common external trade barriers.
4. Common Market.
A common market is a type of trading agreement wherein members remove internal trade barriers, adopt common policies when it comes to dealing with non-members, and allow members to move resources among themselves freely.
5. Economic Union.
An economic union is a trading agreement wherein members eliminate trade barriers among themselves, adopt common external barriers, allow free import and export of resources, adopt a set of economic policies, and use one currency.
6. Full Integration.
The full integration of member countries is the final level of trading agreements.
Regional trade agreement. (2024). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/economics/regional-trading-agreements/