REGIONAL ECONOMIC AFFIRMATION
Regional economic integration (regionalism) is a process when a group of
countries in a certain geographical area form cooperation to reduce or eliminate various
barriers in the flow of goods, labor, and capital. A group of countries in a certain
geographical area that are members of this economic integration is hereinafter referred
to as a regional trading bloc.
1. Free Trade Area
The free trade area is an economic integration that aims to eliminate all forms of
trade barriers between member countries. However, each country still has the freedom
to set trade barriers for countries that are not members. The trade policies set also vary
between countries. A free trade area is the lowest level of economic integration that can
be formed by two or more countries. Free trade area member countries are trying to
eliminate trade barriers, both in the form of tariffs and non-tariff barriers.
2. Customs Union
Custom union is a level of economic integration when there is an agreement to
remove all forms of trade barriers between member countries and establish uniform
trade policies for non-member countries. Thus, the difference between a custom union
and a free trade area lies in the treatment of non-member countries. The member
countries of the custom union establish the same and uniform trade treatment of non-
member countries. Countries that join the custom union can also negotiate as a single
entity with international organizations such as the WTO.
3. Economic Union
Economic union is a level of economic integration in which member countries
agree to remove all forms of barriers to trade, labor and capital flows, establish uniform
policies for non-member countries and coordinate economic policies. Economic
integration has a higher level than the common market because it requires member
countries to equalize policies in the fields of tax, monetary and fiscal and create a
common currency.
4. Political Union
Political union is a form of economic integration that requires member countries
to coordinate various aspects of politics and economic policies. Political unions require
member states to have the same economic and political stance towards non-member
states. However, this form of integration still provides freedom for member countries to
determine political and economic policies regarding their country's territory.
A. Advantages and Disadvantages of Regional Economic Integration
The purpose of establishing economic integration is not only to encourage an
increase in trade and investment flows, but also to improve living standards in member
countries. Economic integration helps member countries to achieve lower product price
levels, more product choices and increased productivity. In addition, economic
integration can also have other goals, namely to protect intellectual property rights and
the environment. Thus, this integration has various advantages that provide great
benefits to member countries. The main benefit is in the form of an increase in the
number or volume of trades (trade creation). Economic integration helps countries to
form agreements on trade and cooperation in the political sphere. In addition, economic
integration also expands employment opportunities by supporting labor flows between
countries. Trade agreements also help reduce tariff costs in favor of the Company
In addition to the benefits, economic integration also has various disadvantages.
Economic integration can lead to trade diversion, which is the diversion of trade from
countries that are not included in the economic integration members. This can lead to
increased trade with less efficient producers or companies in member countries. The
establishment of economic integration also encourages increased efficiency of
companies operating in member countries, while other industries that require less
skilled labor will move to other countries with low wage levels. Thus it will lead to the
flow of labor to countries with lower wage levels. In addition, economic integration is
also related to cultural elements. Some argue that countries will lose the uniqueness of
their national identities because they are required to cooperate and adjust with other
countries that are members of the same economic integration.
B. Regional Integration in Europe
Economic integration efforts in Europe began after World War II. Initially, this
economic integration was an effort of a certain group of countries and involved several
types of industries.
1. European Union
After the end of World War II, Europeans faced a great challenge to
rebuild their nation and increase industrial power. To face this challenge, they
are trying to build cooperation between countries in the region. in 1951, Belgium,
France, West Germany and Italy, Luxembourg and the Netherlands signed the
Treaty of Paris and formed the European Coal and Steel Community. It aims to
remove trade barriers to coal, iron, and copper. Furthermore, in 1957, the
member countries of the European Coal and Steel Community signed the Treaty
of Rome and established the European Economic Community with the aim of
building a uniform transportation system and policy in the field of agriculture.
The scope of this community was later expanded in 1967 by adding various other
industries and adding many new members. The European Economic Community
at that time was renamed the European Community. After further development
in 1973, 1981, 1986, 1995, 2004, and 2007, the community again changed its
name to the European Union (EU).
European Coal and Steel Community. It aims to remove trade barriers to
coal, iron, and copper. Furthermore, in 1957, the member countries of the
European Coal and Steel Community signed the Treaty of Rome and established
the European Economic Community with the aim of building a uniform
transportation system and policy in the field of agriculture. The scope of this
community was later expanded in 1967 by adding various other industries and
adding many new members. The European Economic Community at that time
was renamed the European Community. After further development in 1973,
1981, 1986, 1995, 2004, and 2007, the community again changed its name to the
European Union (EU).
2. European Free Trade Association (EFTA)
Some countries in Europe refuse to join the EU which has quite ambitious
goals. This is due to the fear of opponents and the loss of national sovereignty.
Some countries do not want to become members of the common market, but
want to form a free trade area. Furthermore, in 1960, several countries in Europe
formed the European Free Trade Association (EFTA) which focused on
industrial trade, and not trade in consumer goods. Some of the countries that are
members of EFTA are Switzerland, Iceland, Liechtenstein, and Norway
C. Regional Integration in the Americas
The success of economic integration in Europe has prompted other countries to form
a trading bloc. Countries in the Latin American region began to form economic
integration agreements in the early 1960s. However, this economic integration effort
only began to experience significant development in 1980 and 1990. The following is
an explanation of some of the economic integration that exists in America.
1. North American Free Trade Agreement (NAFTA)
Canada and the United States have long established trade agreements
involving various industry sectors, including automotive. In 1989, the US-
Canada Free Trade Agreement was established as an effort to eliminate all forms
of tariffs on bilateral trade between the two countries. Furthermore, the growing
integration efforts in Europe have created an urgency to form a trading block
area in North America which includes Mexico. In 1981, Canada, Mexico and the
United States then formed the North American Free Trade Agreement (NAFTA).
As a free trade agreement, NAFTA has eliminated all forms of tariff and non-
tariff trade barriers. In addition, this agreement also requires exemption from
government practices, including in terms of providing subsidies.
2. Central American Free Trade Agreement (CAFTA-DR)
In 2006, the United States, along with Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua, and the Dominican Republic, formed the
Central American Free Trade Agreement (CAFTA-DR). Prior to the formation
of CAFTA-DR, its member countries had frequently engaged in trade activities.
The CAFTA-DR agreement provides several benefits to the United States. This
is because CAFTA-DR aims to reduce tariff and non-tariff barriers to export
goods originating from the United States. In addition, the agreement also requires
countries in Central America and the Dominican Republic to reform their legal
and business environments to encourage investment and competition, protect
intellectual property rights and support the transparency of legal regulations.
3. Andean Community (CAN)
Various other integration efforts in Latin America continue to develop. In
1961, the Latin American Free Trade Association (LAFTA) was formed which
aimed to create a free trade area from 1971 to 1980. However, due to the debt
crisis in South America and objections from member states to eliminate the
practice of protectionism, this agreement was dissolved. The dissolution of
LAFTA again prompted the formation of two regional trading blocs, namely the
Andean Community (CAN) and the Latin American Integration Association.
The Andean Community (Comunidad Andina de Naciones or CAN)
involves four countries in South America located in the Andean mountainous
region. The four countries are Bolivia, Colombia, Ecuador and Peru. The main
objectives are to reduce tariff levels among member states, establish uniform
tariff policies for non-member countries and equalize policies in the field of
transportation and some industries. CAN has a goal of reaching the common
market by 1995. However, this goal is hampered by various factors. One of them
is the political ideology of member countries that reject the concept of free trade
4. Southern Common Market (MERCOSUR)
In 1988 Argentina and Brazil formed the Southern Common Market (El
Mercado Comun del Sur or MERCOSUR) which further involved Paraguay and
Uruguay in 1991, and Venezuela in 2006. Some of the fellow members of
MERCOSUR are Bolivia, Chile, Colombia, Ecuador and Peru. On the other
hand, Mexico has the status of an observer of the MERCOSUR community. At
the beginning of its establishment, MERCOSUR successfully pushed for trade
and investment liberalization, including becoming the most powerful trading
bloc in the entire Latin American region.
5. Central America and the Caribbean
Countries in Central America and the Caribbean region form two
integration efforts known as the Caribbean Community and Common Market
(CARICOM) and the Central American Common Market (CACM). CARICOM
was formed in 1973 and consists of 15 full members, 5 fellow members, and 8
observers. Although the Bahamas is a member country of the CARICOM
community, it is not included in the common market. The main goal of
CARICOM is to help a single market that is free from obstacles in the flow of
goods and production factors, including services, capital, and labor. On the other
hand, CACM was formed in 1961 with the aim of creating a common market
between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.
However, the CACM goal could not achieve this goal due to the war between El
Salvador and Honduras and various conflicts in other member countries.
However, with the creation of peace between member countries, it began to
create business opportunities that encouraged economic growth.
6. Free Trade Area of the Americas (FTAA)
The Free Trade Area of the Americas (FTAA) aims to create the largest
free trade area, starting from northern Alaska to southern Tierra del Fuego in
South America. The FTAA consists of 34 member countries that create a trading
bloc along the region. The initial plan of this agreement was formed at the first
meeting in 1994 and is known as the Summit of the Americas. Furthermore, four
years later at the Second Summit, the commitment of member countries was
again strengthened. In 2001, the Third Summit was formed again to deal with
various protests against the FTAA
D. Regional Integration in Asia
Integration efforts outside the U.S. and Europe tend to have looser agreements.
One of the most widely known economic integrations in Asia is ASEAN which was
formed in 1967. Further discussion of the ASEAN community will be discussed in the
next section. In addition to ASEAN, in 1989, countries in Asia also formed another
organization known as Asia Pacific Economic Cooperation (APEC). This organization
began with a forum opened by 12 countries. Currently, APEC consists of 21 member
countries. The establishment of the APEC organization is not aimed at building a new
trading bloc other than ASEAN, but aims to strengthen the multilateral trading system
and expand global economic activities. This is done by simplifying trade and investment
procedures among member countries. APEC managed to reduce the average tariff rate
from 15% to 7.5%. Further developments can provide positive benefits for business
activities in member countries.
E. ASEAN Economic Community
In 1967, five countries in Asia agreed to form an economic integration known as
the Association of Southeast Asian Nations (ASEAN). The five countries are Indonesia,
Malaysia, the Philippines, Singapore, and Thailand. Furthermore, in 1984 Brunei
decided to join, followed by Vietnam in 1995, Laos and Myanmar in 1997, and
Cambodia in 1998. The decision to accept Cambodia, Laos, and Myanmar drew
criticism from the West. However, ASEAN members feel that adding the three countries
can strengthen their coalition against China. This was because at that time, China had
great strength in the form of the availability of resources at cheaper prices, as well as
being rich in labor and capital goods. ASEAN was formed in response to threats
originating from the external and internal environment. This environmental context is
related to the Cold War which began from 1947 to 1989 after the end of World War II.
At that time, there were only two countries that had great power in the political field,
namely the United States and the Soviet Union. In addition, at the regional level, it is
also filled with various regional disputes known as conventional conflicts. Some of
them are the Sabah dispute between the Philippines and Malaysia (1962), the Batu Putih
Island dispute between Malaysia and Singapore (1976), the border tension between
Malaysia and Thailand and the Sipadan and Ligitan dispute between Indonesia and
Malaysia.
During the 1970s and 1980s, almost all ASEAN member countries faced
problems of economic development and political stability. This was responded by
ASEAN through the declaration of the main purpose of the declaration, which is to
restore and harmonize inter-regional relations based on the principles of mutual respect
and peace. The establishment of ASEAN basically has three main objectives. First,
ASEAN was formed with the aim of encouraging economic, social and cultural
development of countries in the Asian region. Second, the establishment of ASEAN
also aims to protect political and economic stability. Third, ASEAN was formed as a
forum to resolve various issues fairly and peacefully.
Thus, ASEAN's economic integration is based on political and economic understanding
to form sovereign states. Furthermore, to build economic cooperation, ASEAN has
emerged three initiatives that are expected to have a regional impact. The three
initiatives are known as the ASEAN Growth Triangle Project, ASEAN Free Trade Area
(AFTA), and ASEAN Investment Area Project. The following is an explanation of each
of the three initiatives
1. ASEAN Growth Triangle Project (SIJORI: Singapore Johor-Riau)
The growth triangle of a sub-regional economic region includes areas that
are geographically adjacent or that cross the border of two, three or four countries
that carry out cooperation and integration of economic activities. The activities
carried out are limited to the political and economic system only, but involve the
flow of goods, services and labor. The idea underlying this growth triangle is the
diversification of production factors between different regions that can
encourage increased competitive advantage The cooperation involving
Singapore, Johor and Riau (SIJORI) was originally proposed by Goh Chok Tong
who was the deputy Prime Minister of Singapore in 1989. This cooperation
provides economic benefits for each country involved which is the main
consideration in forming the ASEAN Growth Triangle. SIJORI is located on a
strategic sea line connecting the South China Sea and the Indian Sea through the
Strait of Malacca. Johor has a large plantation area and good infrastructure. On
the other hand, Riau Island, which is part of Indonesia's Riau Province, is an oil
and natural gas producer that has locations adjacent to Singapore, Bintan, Bulan
and other borders. In addition, Singapore is located between Riau and Johor and
has a progressive economic development.
In March 1996, the concept of the Indonesia-Malaysia-Singapore Growth
Triangle (IMS-GT) was extended to West Sumatra (Indonesia) and Negeri
Sembilan, Malacca and Pahang. At that time, six working groups were formed
and divided into working groups on infrastructure and service (held by
Indonesia), agriculture, natural resources, human resources development and
mobility (held by Malaysia) and tourism and industry (Indonesia). Furthermore,
there are other economic integrations known as the Indonesia-Malaysia-Thailand
Growth Area (IMT-GT) which was formed in 1991 and Brunei-Indonesia-
Malaysia-Philippines (BIMP-EAGA) which was formed in 1993
2. ASEAN Free Trade Area (AFTA)
Another economic cooperation scheme formed by ASEAN is AFTA.
During the ASEAN member meeting in Kuala Lumpur in 1997, the leaders of
the countries reaffirmed their commitment to encourage regional cooperation in
Southeast Asia in the spirit of justice and cooperation that contributes to the
creation of peace, progress and prosperity of member countries. One of the tips
carried out to encourage economic development as well as cooperation and
integration in the economic field is to establish AFTA. The establishment of
AFTA aims to create trade liberalization in the field of services, intensify
regional and sub-regional cooperation, and strengthen the multilateral trading
system. The implementation of AFTA in particular can be found in the Hanoi
Plan of Action (1998). To support this implementation, ASEAN is liberalizing
trade to reduce tariff levels, conducting customs harmonization, standards of
conformity and assessment and other activities.
3. ASEAN Investment Area (IAI)
The establishment of the ASEAN Investment Area (IAI) aims to have
several objectives. First, the establishment of IAI aims to encourage the role of
the private sector in investment cooperation. Second, IAI aims to strengthen
industrial relations between ASEAN member countries. This is done by
providing various incentives to encourage investment flows. Third, IAI also
established a coordinated program with the aim of attracting investment flows,
both from member countries and outside ASEAN members. Furthermore, this
investment opportunity is also open to all types of industries, both manufacturing
and non-manufacturing. To achieve the various goals set, ASEAN also makes
various efforts through the ASEAN Plan of Action on Cooperation and
Promotion on Foreign Direct Investment and Intra ASEAN Investment. In
addition, there are also other programs known as the Joint Promotion Program
on Publicity, Image Building and Marketing of ASEAN's Investment Regime,
Consultation and Information Exchange and Evaluation unit and ASEAN
Investment analysis.
