Regional Economic Cooperation (REC) is a form of economic cooperation where the countries in a specific geographical area form a group voluntarily in order to protect and promote the economic benefits of the whole region. Under any REC, the countries with geographical proximity come together to maximize the collective benefits of the region.
The REC started to grow from the early 1980s globally, and there are large number of such co-operations in the world. The basic idea of forming a REC is interdependence between the countries of the same region in the form of resources and market and they can maximize the benefits from such interdependence through their collective and joint efforts. So, the REC tries to promote intra-regional trade, investment, employment, and technology transfer in order to make all member countries better off.
Importance of Regional Economic Cooperation (REC)
- Promotion of intra-regional trade and investment by minimizing the barriers.
- To maximize the benefits from the resources and market competitiveness.
- Optimum utilization of available natural, financial, and technical resources.
- Deal with the common regional problems such as natural disaster, human trafficking, terrorism and pandemic etc.
- Benefits from economize of scale or large scale production due to larger market.
- Attraction of more foreign investment in the country and within the region.
- Improve the regional bargaining power at global level through collective action.
- Minimizes the dependent on the distant market.
- Development of regional infrastructure to promote regional growth and development.
- Protection and promotion of culture, heritage, tradition and technologies of the region.
- Technology transfer and knowledge sharing to deal with the similar nature problem.
Types of Regional Economic Cooperation
REC is a form of economic integration and cooperation among the countries of a specific geographical region. In order to protect and promote their economic well being. Given the degree of inter dependence and integration, there are different types of RECs in practice.
1. Preferential Trade Area (PTA)
This is the most basic form of REC where the member countries agree to provide preferential market access to the products of the other member countries. They have preferential trade agreement with the objective of providing the preference for the goods and services of the member country within the region. There is the agreement on providing preferential access but no other specific agreement like making the trade free by removing the barriers related to the trade.
Examples
- Asia-Pacific Trade Agreement (APTA)
- Common Market for Eastern and Southern Africa (COMESA)
- South Asian Preferential Trading Arrangement
2. Free Trade Area (FTA)
In this type, the member countries have agreed to develop the area (region) as free trade area. There is the agreement on removal of all the barriers related to trade and make the intra-regional trade free. It means there is no restriction for the movement of goods from a country to other within the region. However, they are free to deal with the products from non-member countries.
3. Custom Union (CU)
In this type of REC, there is no restriction for the movement of goods and services within the region. Similarly, there is common custom policy to deal with the products of non-member countries. It means all the member countries have the same custom for the products of non-member country.
- A customs union is an agreement between two or more countries to:
- Remove tariffs and trade restrictions among themselves (free trade area).
- Adopt a common external tariff (CET) against non-member countries.
- Focus: Trade policy coordination.
- Example: The Southern African Customs Union (SACU).
4. Common Market (CM)
In this form of REC, there is no restriction for the movement of product within the region. There is a common custom for the products of non-member countries. In addition to this, there is no restriction for the movement of the factors of production such as labor, capital etc.
- A common market goes a step further than a customs union.
- In addition to:
- Free trade among members.
- Common external tariff (CET).
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It also allows the free movement of factors of production such as:
- Labor (workers can move freely).
- Capital (investment across borders).
- Services (service providers can operate freely).
- Focus: Economic integration beyond trade, closer to a single economy.
- Example: The European Union (EU) single market.
5. Economic Union (EU)
This is the highest form of REC practiced so far. In this type of REC, there is no restriction in the movement of the products and factors within the region. There is the common custom policy for the products of non-member countries. In addition to this, they have agreed for common currency and common monetary policy as well as harmonization of the fiscal policy among the member countries.
6. Political Union (PU)
This is highest stage of cooperation where there is complete integration of political system with the economic union.
Factors required for successful REC
The success of any REC depends on various socio-economic, political factors. Given the differences in such factor, some of the REC are more successful in promoting intra-regional trade and investment while some are dis-integrated in terms of economic activities. For example, SAARC is less integrated where as ASEAN is more integrated in terms of intra-regional trade, investment, employment and technology transfer.
The following are the major factors responsible for the success of any REC
- Political will and commitment of the member country.
- Economic complementarity among the courtiers.
- Regional infrastructure and connectivity.
- Strong institutional framework such as regional organization dispute settlement mechanism etc.
- Public trust and support for REC.
- Fair distribution of benefits from the regional cooperation.
- Similar size of the economy and the common interest.
- Supportive external and global environment.
- Policy harmonization and co-ordination among the countries for regional benefits,
- Adequate financial, technical and human resource to execute and monitor the regional agreement.