Economic integration is the bind of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. (Balassa, 1967) The focus of economic integration is to lower the costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement. Economics integration and regional integration are very similar in many ways. Economic integration has a strong tie with regional integration. Regional Integration is a method in which two or more states or nations form conformity to work collectively to create a mutual strength, wealth, and peace among each other.
It is also an alleyway that persuades trades among the two or more states or nations by reducing the cost of trading and investments in this newly formed region. (De Lombaerde and Van Langenhove, 2007) The five main types of economic integrations are the free trade, the custom union, the common market, the economic union, and the political union. The free trade area (FTA) is the lowest level out of the five. It is a group of countries that dissipate trade barriers among themselves while each nation still upholds dissimilar external policies regarding toward nonmembers.
The customs union is the next level up. With the addition to the framework of FTA, the custom union enforces common external policies on the nonparticipant members in order to fight trade diversion. The common market is the addition to what custom union offers. It authorizes the free movement of goods and people among the participating nations. The economic union is the accumulation to the features of the common market. The members fuse their economies into one by fixing the monetary, fiscal, and taxation policies. The policy union is the integration of the policy and economies affair of a region. The table below is used as a reference.
Source: Google Image
Economic and regional integrations divide the partnering countries into regions or sections known as blocs. The four major world blocs are the European Union (EU), the North American Free Trade Agreement, the Asia Pacific, and the last bloc consists of the rest of the world. The European Union originally started in 1951 when Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany came together to form a community called the European Coal and Steel Community Treaty (ECSC) lead by European statesmen.
This was done in an effort to bring unity among the various countries within the continent. In 1957, six of the countries signed the Treaty of Rome which led to the launch of the European Economic Community (EEC), later known as the European Community (EC). These communities began as Free Trade Area, the EEC/EC progressed to become a customs union and eventually transformed into a common market over a short period of time. More countries joined as time passed. In 1991, 12 member countries signed the Maastricht treaty on European Union in Maastricht, Netherlands to complete the distinct market and establish an economic union and the European Union was officially formed when the treaty fully took force on November 1, 1993. Today the European Union consists of 27 members. (Peng, 2011)
The North American Free Trade Agreement (NAFTA) came into force on January 1, 1994 and was signed by the governments of Canada, United States, and Mexico. It superseded the Canada – United States Free Trade Agreement between the U.S. and Canada. This agreement removed most obstacles to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico are eliminated. (Hufbauer, 2005) Also, many tariffs were eradicated once this agreement took effect, with others being wiped out over the time of 5 to 15 years. This permitted for an organized modification to free trade with Mexico, with full execution beginning January 1, 2008. In terms of combined GDP of its members, as of 2010[update] this trade bloc is the largest in the world1.
There are many more minor blocs that exist in the world like the Common Wealth of Independent States, Andean Community, and the Pacific Island Forums. ASEAN/ APEC/ “The Four Asian Tigers” Economies: Why is Integration Important? Regional Integration in the Asian Pacific is broken down into three different sub blocs. The first sub bloc is the Australia-New Zealand Economic Relation Trade Agreement (ANZCERTA). This sub bloc was formed in 1983.
It created a mutual beneficiary relationship between Australia and New Zealand. In this agreement, tariffs and non-tariffs barriers were removed and the citizens from both countries have the autonomy to work and live in both participating member countries freely at will. The second sub bloc is the Association of Southeast Asian Nations (ASEAN). It was commenced on August 8, 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand2.
According the overview, one of the fundamental principles of the ASEAN community is to have mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations. The ASEAN is consisting of three pillars, the Political-Security Community, Economic Community and Socio-Cultural Community2. The last sub bloc is the Asia-Pacific Economic Cooperation (APEC). This is a fusion between the already formed regional integration units ANCERTA and ASEAN. APEC was formed in response to the growing interdependence among Asia-Pacific economies and to the need to advance Asia-Pacific economic dynamism and sense of community.
APEC began in 1989, when Australia hosted the first annual meeting of Foreign and Trade Ministers from twelve Asia-Pacific economies to discuss ways to increase cooperation in this fast-expanding region of the world. Canada was a founding member of the APEC forum, along with Australia, Brunei Darussalam, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, and the Republic of the Philippines, Singapore, Thailand and the United States3. A widely successful identified regional integration system in East Asia is known as “The Four Asian Tigers.” This regional integration consists of the high-growth economies of Hong Kong, Singapore, South Korea and Taiwan. The Four Asian Tigers constantly preserved high levels of economic growth since the 1960s4, the sources of it power come from exports and rapid industrialization.
This facilitates these economies to join the ranks of the world’s richest nations. By the 21st century, all four have developed into advanced and high-income economies, specializing in areas of competitive advantage. Hong Kong and Singapore are among the largest financial median worldwide, while South Korea and Taiwan are vital centers of global manufacturing in automobile/electronic machinery and information technology, in that order. This paper focuses on the affect of regional integration in the economies of Malaysia and Singapore of the ACEAN block. Malaysia is a federal constitutional monarchy in Southeast Asia. It is made up of thirteen states and three federal territories.
It has a total landmass of 329,847 square kilometers (127,350 sq mi). It is divided into almost equally sized regions, Peninsular Malaysia and Malaysian Borneo, by the South China Sea. The countries that surrounds Malaysia are Thailand, Indonesia, and Brunei, and oceanic borders exist with Singapore, Vietnam, and the Philippines. The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. In 2010 the population exceeded 27.5 million, with over 20 million living on the Peninsula5. Malaysia originated in the Malay Kingdoms present in the area which became subject to the British Empire from the 18th century. In 1946, the territories on Peninsular Malaysia were first consolidated as the Malayan Union.
Malaya became the Federation of Malaya in 1948, and gained independence from Great Britain on August 31, 1957. On September 16, 1963 Malaya consolidated with Sabah, Sarawak, and Singapore which changed the country name to Malaysia Less than two years later in 1965, Singapore was expelled from the federation5. Since independence,Malaysia consists of a diverse ethnicities and cultures. This is a major role player in their politics and government system. The Westminster parliamentary system is the foundation of its government system and the English Common Law is the premises of it legal system. The constitution declares Islam the state religion while protecting freedom of religion.
The king is the head figure leader of the land6. He is an elected monarch chosen from the hereditary rulers of the nine Malay states every five years. The head of government is the Prime Minister. English, Melayu, Chinese, and Tamil are the most common languages in this country. The currency in these countries is the Malaysian Ringgit. Kuala Lumpur is the federal capital and most populous city in Malaysia. The city covers an area of 243 km2 (94 sq mi) and has an estimated population of 1.6 million as of 2012. Greater Kuala Lumpur, also known as the Klang Valley, is an urban agglomeration of 7.2 million. It is among the fastest growing metropolitan regions in the country, in terms of population and economy.
Kuala Lumpur is the seat of the Parliament of Malaysia5. The executive and the judicial branches of the government once resided in this city but they were moved to Putrajaya in early 1999. A small portion of the judicial is still located in Kuala Lumpur. The official residence of the Malaysian King, the Istana Negara, is also situated in Kuala Lumpur. Kuala Lumpur is the cultural, financial, and economic centre of Malaysia due to its position as the capital as well as being a key city.
Since the 1990s, the city has played host too many international sporting, political and cultural events including the 1998 Commonwealth Games and the Formula One Grand Prix. In addition, Kuala Lumpur is home to the tallest twin buildings in the world, the Petronas Twin Towers, which have become an iconic symbol of Malaysia’s futuristic developments. Singapore, officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, 137 kilometers (85 mi) north of the equator. Separated from Malaysia by the Straits of Johor to its north and from Indonesia’s Riau Islands by the Singapore Strait to its south, it is an island country made up of 63 islands. The country is highly urbanized with very little primary rainforest remaining, although more land is being created for development through.
It been a portion of small empires since of its origin, Singapore hosted a trading post of the East India Company in 1819 with permission from the Sultanate of Johor7. The British obtained sovereignty over the island in 1824 and Singapore became one of the British Straits Settlements in 1826. Malaysia was occupied by the Japanese in during World War II, Singapore declared independence, consolidating with other former British territories to form Malaysia in 1963, despite it separation from Malaysia later down in history. Over time, it became a very wealthy nation and a member of the cash cow integration system “The Four Asian Tigers” as I mentioned earlier in this paper. (Chew, 1991) According to Chew, Singapore is a unitary multiparty parliamentary republic with a Westminster system of unicameral parliamentary government.
The People’s Action Party has won every election since self-government in 1959, and governs on the basis of a strong state and prioritizing collective welfare over individual rights such as freedom of speech. (Chew, 1991) Malaysia Singapore’s economic integration system is based on the rules and regulation of the ASCEAN and APEC. Due this, Malaysia and Singapore are able to have their own type of government is that influenced by a democratic process. Greater economic integration with Malaysia and Singapore will have a major effect on the countries’ foreign policy, the economy, and the prevention of another world war. Malaysia current foreign policy has not changed since 1961.
The foundation of its foreign policy is based on the standards of neutrality and maintaining peaceful relations with all countries, regardless of their ideology or political system, and to further develop relations with other countries in the region. A strong tenant of Malaysia’s policy is national sovereignty and the right of a country to control its domestic affairs. Malaysia views regional cooperation as the cornerstone of its foreign policy. It attaches a high priority to the security and stability of Southeast Asia, and has tried to strengthen relations with other Islamic states.
The capital of Malaysia, Kuala Lumpur, was ranked 48th among global cities by Foreign Policy’s 2010 Global Cities Index and was ranked 67th among global cities for economic and social innovation by the “2thinknow Innovation Cities Index” in 20108. Great regional integration will force Malaysia foreign policy to be more flexible. They will be forced to work more cohesively with countries that do not support the Islamic faith. This will help Malaysia to build a better trading relationship with countries like Spain, the United States, and India. This will also force them to build a tie with the Israel, a country they never did any transaction with due the difference in religious preference.
This will also bring more diverse products from other religions for example the food, the clothing, and the different type of raw materials. In contrary to Malaysia foreign policy, Singapore wants to build a relation with all the nations in the world regardless of the difference in religious preference. Good relations are also maintained with the United States; the US is perceived as a stabilizing force in the region to counterbalance the regional powers. The most important relations they build up over the years are the ones with Malaysia and Indonesia because of it is geographical beneficiary. Singapore maintains diplomatic relations with 175 countries but it does not hold a high commission or embassy in many of these countries.
Singapore foreign policy has two main points: it is dictated by the imperatives of being a small state; its primary purpose is to ensure Singapore’s survival, given its small size. (Acharya, 2008) Regional integration will allow Singapore to have better relationship which will lead them to have a better commission and embassy in these countries. They will be able to build a relationship with many more countries. The economy of Malaysia is a newly industrialized market economy. Malaysia has had one of the best economic records in Asia, with GDP growing an average 6.5% for almost 50 years.
The economy has traditionally been fuelled by its natural resources, but is expanding in the sectors of science, tourism, commerce and medical tourism. In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 28th largest economy in the world by purchasing power parity with gross domestic product for 2008 of $222 billion5. At one point in history, Malaysia was largest world producer of palm oil, rubber, and tin. Malaysia is the world’s largest Islamic banking and financial centre. Economic integration will not cause a major difference in the economy of Malaysia but there will be a difference. It can possibly boos it ranking from the 3rd to 1st largest economy ranking in South East Asia by first increasing its GDP with the newly formed relationship to different countries.
Then the growth will increase by the human capital with the freeness of the spread information they will receive from the other countries. Finally by the institutions, the currency will have more value which will allow the citizens of Malaysia to have higher incomes that will increase the value of the dollar in other countries. Singapore is one of the world most prosperous economies. It is the world’s fourth leading financial centre, and its port is one of the five busiest ports in the world. The economy depends heavily on exports and refining imported goods, especially in manufacturing, which constituted 26% of Singapore’s GDP in 2005. On 14 February 2007, the Singapore government announced that economic growth for the whole year of 2006 was 7.9%, higher than the originally expected 7.7%.
Singapore’s unemployment rate is around 2.2% as of 20 February 2009. As of 8 August 2010, Singapore is the fastest growing economy in the world, with a growth rate of 17.9% for the first half of 20107. Regional integration is will lead Singapore to be more In the past, the main causes of wars were due to the difference of religious and political beliefs and preferences. Regional and Economically integration remove these problems through a formal agreement with in the partnering nations. The ASEAN and APEC are prime examples of this with the increasing success of prosperity and maintained peace among the member nations. This also shows in the prosperity of Malaysia and Singapore.
Despite of the small sizes of these nations, both has strong world leadership in economics and foreign policy. The impact of regional/ economic integration on the world economy The chief reimbursement of economic and regional integration are the disputes among the involved countries are solved through a beneficial and profitable method for all the states or nations in the region, the imposed rules and regulations promote fairness and block discrimination from occurring within that region, and leads to raised income and stimulate economic growth throughout the region. Other benefits include a development of a larger market, the easy spread of information throughout the region, and the possible transformation of developing country into a developed country. (Peng, 2010) Meanwhile, regional integration comes along with several different challenges.
Some of the major challenges are the loss of the nations’ sovereignty including experiences, dominant competition in which the larger firms kills off the smaller ones due to the difference in power, and tax diversion which will reduce the export tax for the smaller firms. Greater regional/economic integration will bring more progress of trade throughout the world. All countries that participate in economic integration have a very wide collection of goods and services from which they can choose.
Condensed duties and inferior prices accumulate a lot of additional money with countries which can be used for buying more products and services. An enhanced political integration is also another outcome of greater regional/economic integration will have on the world. Countries inflowing economic integration form groups and have superior political influence as contrast to authority fashioned by a single country. Integration is a vital strategy for addressing the effects of political instability and human conflicts that might affect a region. There will be better opportunities for employment. The wide range of opportunities accessible in economic integration helps to loosen and support trade.
This leads to a market growth due to which elevated quantity of resources is devoted in a country’s economy. This generates higher opportunities for employment of people commencing all over the world. They have the right now to move from one country to another in hunt of jobs or for earning superior pay. Economic/ regional integration is tremendously beneficial for financial markets as it relieves firm to scrounge finances at low rate if interest. This is because capital liquidity of better capital market boost and the consequential diversification end product. This diminishes the risks connected with high investment. Economic/ Regional integration helps to raise the sum of money in Foreign Direct Investment (FDI). Once firms start FDI, through new operation or by merger, takeover, and acquisition, it becomes an international enterprise9. Conclusion
Economic/ regional integration is a powerful unification method that can change a nation’s value and wealth over a short period of time. To be more precise, it changes a nation’s foreign policy, economy, and the financial market. Malaysia and Singapore are two prime examples of integration at its best. It also has the power to mitigate against war that can stem from the differences among the member nations. Thus economic/ regional integration under optimal conditions can produce a win-win situation for all the economies involved in the process. For this reason, it has become a preferred strategy for most countries of the world. Works Cited
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