Regional Economic Integration in the European Union

Regional economic integration is the agreement between a group of countries within a specific geographical region to promote free and fair trade. These countries enhance this free and fair trade through the four types of economic integration — free trade areas, customs unions, common markets, and economic unions (Hill & Hult, 2018). International managers need to understand regional economic integration and other forms of cross-national cooperation because it enables them to enhance the companies’ functions by leveraging on the created economies of scale and the country’s comparative advantage.

The firm can enjoy economies of scale since the production of goods and services is cheaper due to the increased market size and reduced trade barriers (Hill & Hult, 2018). Additionally, the firm might increase its size, allowing it to enjoy better interest rates from international and local banks (Hill & Hult, 2018). Moreover, the firm increases its chances of sustainability in the single market created through regional agreements (Hill & Hult, 2018). Knowledge of regional and other cross-national cooperation will enable international managers to learn to leverage their country’s comparative advantage, enabling them to produce specific products and services at a lower opportunity cost than their trading partners (Hill & Hult, 2018). Therefore, their firms will enjoy increased profits from the unrestricted trade compared to when the trade was restricted due to the reduced cost of production. This knowledge enables international managers to make efficient decisions on the cost of production and enhance their products’ value in the global market.

Opportunities and Threats in E.U.

Assuming my firm, Xaeto, wishes to expand to a European Union (E.U.) country. There are various opportunities and threats that the firm is likely to face. The opportunities include reduced cost of production, centralization of the firm, increased employment opportunities for member states, increase goods and service efficiency. Additionally, another opportunity that might arise is the increased possibility of realizing cost economies, which allows a country to produce goods for the wider E.U. market centrally. On the other hand, the threats that Xaeto is likely to face are increased competition, the decline in price differentials across nations in a single market, enhanced efforts of companies to improve their competitive position in the single market and being shut out of the single market due to the created trade fortress (Hill & Hult, 2018). Increased competition is due to increased price competition with the European Union member states due to the lowering of barriers to trade and investment. Other threats include the formation of mergers and acquisitions by competitors and opposition to free trade areas by another member state.

Proliferation of Agreements

The proliferation of trade agreements has significant advantages and disadvantages for world trade. The advantages of the proliferation are the increase in world production of goods and services, enhanced economic growth among the signatories, and advancement of technological, entrepreneurial knowledge between member states, and enhanced political weight and cooperation between the signatories (Hill & Hult, 2018). The disadvantages include job loss due to the shift of some companies to signatories with low production costs, loss of national sovereignty, and trade diversion (Hill & Hult, 2018). Generally, the advantages of the proliferation of these agreements outweigh the disadvantages (Hill & Hult, 2018). Therefore, these agreements are beneficial for most signatories that they would have been without them. However, there is the need for some adjustments to prevent the looming incidence of trade diversion caused by regional economic integration.

Trade Agreements

The type of trade agreement that is better for world trade is the one that ensures trade creation exceeds trade diversion. Trade creation occurs when the expensive domestic producers are replaced by cheaper ones within the free trade area (Hill & Hult, 2018). Additionally, it can happen when the expensive external producers are replaced by the cheaper ones (Hill & Hult, 2018). Trade diversion occurs when the expensive suppliers within the trade area are replaced by cheaper ones (Hill & Hult, 2018). Signatories can only establish an agreement that is better for the world trade once they adjust their set tariffs that are lower and unrestrictive to other countries than those previously in effect. Currently, there is not a better trade deal for the world due to the likely incidences of trade diversions caused by insufficient coverage of high non-tariff barriers by the current agreements.


Hill C. W.L. & Hult G. T. M. (2018). International business: Competing in the global marketplace, 13th edition. McGraw-Hill Education.

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