Economic Integration

Simple Free Trade Area

The most basic type of economic integration is a simple free trade area. In this form, attention is focused almost exclusively on a reduction of the tariffs and quotas that restrict trade. Emphasis is placed almost entirely on increasing the exchange of goods. The articulation of transnationalized production chains, trade in services, labor mobility, and more sophisticated forms of economic integration are not an explicit goal and emerge as merely tangential to the primary goal of securing access to foreign markets for domestic firms.

Second-Generation Free Trade Area

In a second-generation free trade area, the basic nature of simple free trade is expanded to include trade in nongoods such as services. Where a simple free trade area need only address the question of tariffs and quotas, the trade in services and a widening of trade in goods raises questions of regulatory convergence and the harmonization of rules of operation and governance. At this stage, attention needs to be turned to such things as the transferability of professional certifications as well as questions of labor mobility, particularly for the highly skilled professions such as legal, accounting, technology, and medical services. The increased interdependence between the participating economies that comes with expanded trade in all economic areas, and a measure of regulatory convergence can lead to an increased distribution of production chains across national boundaries.

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