Economic Integration and Different Stages

By Sudheer Kumar K|Updated : February 23rd, 2021

Economic integration is a gradual process that involves a series of steps to completely integrate a country with the world economy. The process starts from PTA to FTA, and to CECA/CEPA to Customs Union to Common/Single Market to Monitory Union, to Fiscal Union and finally to Political Union.

Economic Integration and Different Stages

Also Read: Economic Integration Part-1 (PTA, FTA, CECA and CEPA)

Customs Union

A customs union is a formal agreement between a group of countries who come together to form one to remove tariff barriers among themselves and accept a common external tariff against non-members.

Imports and exports of goods between member countries of a customs union are freely traded without any tariffs, whereas when a non-member country exports to the customs union, it has to pay customs duty at a single point once it passed the borders. The tariff revenue is shared between the members and the country, which collects the tariff retains some portion.

Examples of Customs Union:

  • Mercosur- Southern Common Market – It composed of 6 members viz., Argentina; Bolivia; Brazil; Paraguay; Uruguay; and Venezuela)
  • Gulf Cooperation Council (GCC) – composed of 6 members viz., Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates
  • East African Community (EAC) – composed of 5 countries in the African Great Lakes region in eastern Africa viz., Burundi, Kenya, Rwanda, Tanzania, and Uganda.

Common Market

Common Market, also referred to as ‘single market’, is more integrated than the customs union.

The important features of a common market are:

  • Extension of free trade from just tangible goods, to include all economic resources
  • Reduction or elimination of all tariff and non-tariff barriers to allow the free movement of goods, services, capital, and labour

Significant harmonisation of micro-economic policies, and common rules regarding product standards, and anti-competitive practices etc. is essential for a successful common market.

Economic union

Economic union nothing but a trading bloc, which has not only a common market between members but also a common trade policy towards non-members, although members are free to pursue independent macro-economic policies.

The best example of the Economic Union, the European Union (EU), which came into being on November 1st 1993, with the signing of the Maastricht Treaty.

Monitory Union

The monetary union includes scrapping individual currencies and adopting a single, common currency.


  • Euro is the official currency of 19 of the 27 member states of the European Union
  • East Caribbean Dollar is the currency of 11 islands in the East Caribbean region

Economic and Monitory Union

It includes both the Economic Union and Monitory Union.

Fiscal Union

It next higher integration of economies with common tax policies, public spending and borrowing and agree on common national budget deficits etc. EU envisioned a flexible version of the fiscal compact in 2012.

Complete Economic Integration

It involves the harmonisation of all policies, rates, and economic trade rules, i.e. includes all the above:

  • a single economic market,
  • a common trade policy,
  • a common currency,
  • a common monetary policy,
  • a single fiscal policy

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