What are the primary levels of economic integration?

The primary levels of economic integration are preferential trading area, free trade area, customs union, common market, and economic union.

Economic integration is a process where countries agree to reduce or eliminate barriers to trade, and coordinate monetary and fiscal policies. This process can be categorised into five primary levels, each with increasing depth of integration.

The first level is the preferential trading area (PTA). In a PTA, countries agree to reduce or eliminate tariffs on certain products imported from other members. However, each country maintains its own trade policies, including tariffs, with non-member countries. An example of a PTA is the Generalised System of Preferences (GSP) where developed countries offer non-reciprocal preferential treatment to goods originating in developing countries.

The second level is the free trade area (FTA). In an FTA, member countries agree to eliminate tariffs and quotas on most or all goods traded between them. Each member country, however, maintains its own trade policies with non-member countries. The North American Free Trade Agreement (NAFTA) is an example of an FTA.

The third level is the customs union. In a customs union, member countries not only eliminate trade barriers among themselves but also adopt a common external tariff (CET) on imports from non-member countries. The Southern African Customs Union (SACU) is an example of a customs union.

The fourth level is the common market. A common market is a customs union with provisions to facilitate free movement of labour and capital among member countries. The European Economic Area (EEA), which includes the European Union (EU) and three of the European Free Trade Association (EFTA) countries, is an example of a common market.

The fifth and deepest level of economic integration is the economic union. An economic union is a common market with coordinated monetary and fiscal policies. This often involves a single currency, such as the euro in the EU, and a central bank. In addition to free movement of goods, services, labour, and capital, there is also harmonisation of laws and regulations.

Each level of economic integration offers its own benefits and challenges. The deeper the level of integration, the greater the potential for economic benefits, but also the greater the loss of national sovereignty.