Suranovic (2008) argued that, economic integration is the combining of coordination relating trade, fiscal, and/or monetary policies among countries. The claimed benefits include lower trading cost, exploiting specialization and utilizing comparative advantage concept for optimal production of goods and services.
According to Suranovic (1998), there are six types of economic integration which describing each integration level, there are preferential trade agreement (PTA), free trade area (FTA), customs union, common market, economic union and market union which stated below.
Preferential trade agreement (PTA): It is a form of tariff reduction, not necessarily elimination, to a selected group of countries in a certain range of products. This means that tariffs still apply to remaining countries and toward remaining product categories. This is the weakest form of economic integration.(Suranovic,1998)
Free trade area (FTA):It is the elimination of tariff among a selected group of partners. Nonetheless, external tariffs on imports from other countries still apply. Two examples of FTA are ACFTA and NAFTA. However, the original rules concept is placed in high consideration about preventing transship products into FTA-associated countries with the lowest tariff and then transfer to other countries with higher tariffs.(Suranovic,1998)
Customs union: This practice eliminates tariffs to selected partners and agrees to set common external tariff on imports from other countries. (Suranovic,1998)
Common market: This is another form of economic integration which is similar to customs union with additional benefit of free mobility of capital and labor across countries.