In “The theory of economic integration” (1961), the Hungarian economist Béla Balassa established five different forms or stages of the regional integration process, depending on whether it is more or less advanced. These are: the free trade area, the customs union, the common market, the economic union, and the economic and monetary union.

1- The Free Trade Area The free trade agreement is the simplest form of economic integration. It only involves the liberalization of trade between the member countries of the area. The trade of originating goods is free. Within the area, there are no customs duties or quantitative limitations. However, regarding the rest of the world, each country maintains its own trade and tariff policy, notably by setting customs duties to protect its economy.

2- The Customs Union In addition to the free trade of originating products among the economic agents of the member countries, the customs union is characterized by the adoption of a common trade policy. A Common External Tariff (CET) is set concerning exchanges with the rest of the world. Member States lose their sovereignty in fixing gate duties. The power to set or modify the tariff now belongs to the Union.

3- The Common Market The common market consists of opening up to all markets. In addition to the product market as in the case of the free trade area and the customs union, the opening is based on the labor market and the capital market, meaning on the free movement of individuals and capital.

The objective of the first three forms of integration lies in creating a large market in which barriers to intra-community trade are removed.

4- The Economic Union The Economic Union combines the removal of barriers to the free movement of goods and factors of production with the achievement of a certain level of harmonization of national public policies in order to abolish any discrimination attributable to disparities between these policies. In addition to the common market, it involves the harmonization of economic policies. It is characterized by:

• a single market within which individuals, goods, services, and capital can circulate freely;
• a competition policy and other measures aimed at strengthening market mechanisms;
• coordination of macroeconomic policies.

5- The Economic and Monetary Union The Economic and Monetary Union is the most advanced form of regional integration, and the European Union is the finest example. In addition to the liberalization of intra-community trade, it involves the creation of a customs union with the adoption of a Common External Tariff (CET), the free movement of factors of production (labor and capital), the coordination or harmonization of economic policies and certain sectoral policies, and the adoption of a common currency.

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This text is an extract from the book “BETTER KNOW CUSTOMS” written by Idrissou IMOROU.

We invite you to read the following article “THE TAXPAYER’S OBLIGATIONS IN CUSTOMS MATTERS“.