Stages of economic integration

Indian Economy glossary

Also called: Balassa stages · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT

Meaning

The stages of economic integration describe how countries can join their economies step by step, from shallow to deep. Bela Balassa (1961) set out this ladder. Each stage adds something new to the one before it:

  1. Preferential trade agreement (PTA): tariffs are reduced, not removed, on an agreed list of goods.
  2. Free trade agreement (FTA): tariffs are removed on substantially all trade, but each member keeps its own tariff on outsiders.
  3. Customs union: an FTA plus a common external tariff (the same tariff on imports from outside).
  4. Common market: a customs union plus free movement of labour and capital.
  5. Economic union: a common market plus harmonised fiscal, monetary and regulatory policies.
  6. Monetary union: a common currency and a single monetary policy.
  7. Complete integration: a supranational authority (one body above national governments) runs economic policy.

Example

The EU climbed these stages: customs union (1968), Single Market (1993), then the Eurozone (1999). India's deals mostly sit at the PTA stage (APTA, SAPTA) or the FTA stage (SAFTA, India–Sri Lanka).

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