The disadvantages of regional integration include limited fiscal capabilities, cultural centralization, creation of trading blocs, diversion of trade and surrendering some degree of sovereignty. Regional integration refers to various economic and political agreements that are formed between sovereign countries.
Some examples of regional integration treaties include the Association of Southeast Asian Nations treaty, the European Union, the North American Free Trade Agreement and the Organization of Petroleum Exporting Countries.
Some regional integration treaties, such as the European Union, create a common currency, and this leads to fiscal crises. With regional integration, individual countries are not able to control the supply of their currency to meet their economic conditions. When a more powerful entity controls that currency, such as the euro, individual countries give up the power to control their currency, and this weakens their economy.
Regional integration leads to cultural centralization, which can result in the loss of unique cultures within a region. For instance, the European Union only considers a few languages as official means of communication, leaving out languages used by remote communities in Europe, such as Breton, Welsh and Frisian.
Most regional integrations tend to increase barriers against all nonmember countries, resulting in the creation of trading blocs. When trade barriers are created, countries divert trade to member countries regardless of the loss they are likely to incur. For instance, a member country stops trading with a nonmember country manufacturing goods at a cheaper price and opts for a member country manufacturing the same goods at a higher cost.
When regional integration treaties are formed, member countries are required to give up some powers over key policies, such as fiscal, trade and monetary policies.