REGIONAL INTEGRATION
OVERVIEW
In addition to the global economic regime based on the General Agreement
on Trade and Tariff (GATT) and International Monetary Fund (IMF) systems,
which has sustained the world economy since World War II, regionalism,
through which neighboring countries seek to strengthen their economies by
entering into some form of “regional integration” has become a major trend.
This trend was triggered by the EU market integration. In both developed and
developing countries, customs unions and free trade areas (FTAs) continue to
increase and expand. Today, they account for a considerable amount of
world trade. In the World Trade Organization (WTO), regional trade agreement
(RTAs) is referred to as customs unions, FTAs, and interim agreements. In this
chapter, we use the term “regional integration” to signify both RTAs and other
forms of regional cooperation. Almost 90 percent of the WTO Members are
parties to such RTAs. Japan, Korea and Hong Kong are among the few
exceptions.
In recent years, moves towards regional integration have been more and
more active, with countries seeking to strengthen their ties with other countries.
In Europe, when the Treaty on the European Union (the Maastricht Treaty) took
effect in November, 1993, the European Union (EU) was created, which
enlarged and built upon the European Community (EC). The enlargement of
the EU took place on January 1, 1995 by accession of three new countries,
Austria, Sweden and Finland, which were former members of the European
Free Trade Association (EFTA). Meanwhile, the September, 1993 signing of the
side agreements to the North American Free Trade Agreement (NAFTA)
launched the free trade arrangement in North America in January, 1994.
Elsewhere, AFTA (the ASEAN Free Trade Area) began reducing tariffs among
its members in January, 1993. It has continued to expand its range of items
covered, and has agreed to make efforts toward the acceleration of the
integration process with a view to implementing the AFTA free trade
agreement by 2003, and to begin negotiations on access to services area. On
the other hand, in the Americas, certain countries in Latin America initiated
the Southern Common Market Treaty (MERCOSUR) in January, 1995.
In November, 1994, an unofficial summit of the leaders of the APEC economies
was held, and a joint declaration was issued “setting a goal of free and more
open trade and investment by the year 2010 in the developed countries, and
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2020 in the developing countries” (the Bogor Declaration). At the Manila
meetings in November, 1996, all members submitted specific Individual Action
Plans (IAP). All members (including new participating members in 1998, i.e. the
Russian Federation, Vietnam and Peru) submitted revisions of the Plans at the
Vancouver meetings held in November, 1997 and at the Kuala Lumpur
Meeting in November, 1998. Thus, steps toward liberalization and facilitation
have been taken.
Regional integration is the process by which two or more nation- states agree
to co-operate and work closely together to achieve peace, stability and
wealth. In an integration there is usually written agreements that describes the
cooperation in detail as well as coordinating bodies representing countries
involved. It is a way to encourage trade flow between member states to
facilitate more efficient allocation of resources by stimulating competition
through increasing the capacity of the internal market. Regional integration
helps countries overcome divisions that impede the flow of goods, services,
capital, people and ideas. These divisions are a constraint to economic
growth, especially in developing countries. The World Bank Group helps its
client countries to promote regional integration through common physical
and institutional infrastructure. Divisions between countries created by
geography, poor infrastructure and inefficient policies are an impediment to
economic growth. Regional integration allows countries to overcome these
costly divisions integrating goods, services and factors’ markets, thus
facilitating the flow of trade, capital, energy, people and ideas. Regional
integration can be promoted through common physical and institutional
infrastructure.
Types of Integration
Economic integration
Economic integration is the process by which different countries agree to remove
trade barriers between them. Trade barriers can be tariffs i.e. taxes imposed on
imports to a country, Quotas i.e. a limit to the amount of a product that can be
imported and boarder restrictions. For example, Canada, Mexico and the United
States have formed the North American Free Trade Agreement (NAFTA) which
reduces trade barriers among the three countries. The trade barriers is only limited
to those countries but can be applied to other countries outside the integration.
Another example is the East African Community (EAC) an intergovernmental
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organization composed of six countries in the African Great Lakes region in
eastern Africa: Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.
The Late John Magufuli, the president of Tanzania who was the EAC's chairman.
COMESA-Common Market for Eastern and Southern Africa…
Single Market Integration
This lies between political and economic integration. It is the point at which
economies of the cooperating states by removing all the barriers to movements
of labour, goods and capital but set a common tariff on goods from other
countries referred to as custom union and adoption of a common currency with
monetary policy regulated by a single central bank.
Political integration
Political integration is related to power structure such as armies, police forces,
budgets, and communications networks in two ways. First, community is
asserted to legitimize a power structure, to make certain uses of force
acceptable. Second, the way in which a power structure develops
influences how a political community grows. This involves setting up of common
policies especially social policy such as health care, education, unemployment
benefits and pensions and common political institutions. They also share the same
foreign policies and merge their armies. Countries joined together transfer all or
part of their constitutional authority to a new unit to form a larger new state
(political union).
Principles of the EAC
The Treaty Establishing EAC stipulates the following principles to enhance policy
harmonization and integration in the EAC region:
The attainment of sustainable growth and development of the partner States
by promotion of a more balanced and harmonious development of the
partner States.
The strengthening and consolidation of cooperation in agreed fields that
would lead to equitable economic development within the partner States and
which would in turn, raise the standard of living and improve the quality of life
of their populations.
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The promotion of sustainable utilization of the natural resources and taking of
measures that would effectively protect the natural environment of the
partner States.
The strengthening and consolidation of the long-standing political, economic,
social, cultural and traditional ties and associations between the peoples of
the partner States so as to promote a people-centered mutual development
of these ties and associations.
The mainstreaming of gender in all its endeavors and the enhancement of the
role of women in cultural, social, political, economic and technological
development.
The promotion of peace, security, and stability within, and good neighborliness
among the partner States.
The enhancement and strengthening of partnerships with the private sector
and civil society in order to achieve sustainable socioeconomic and political
development.
The undertaking of such other activities calculated to further the objectives of
the community, as the partner States may from time to time decide to
undertake in common.
Why regionalism?
Many factors lie behind the recent spurt in regionalism and they include the
following;
i. Governments’ wishes to bind themselves into better policies including
democracy and to signal such bindings to domestic and foreign investors
ii. A desire to obtain more secure access to major markets
iii. The pressure of globalization forcing firms and countries to seek efficiency
through larger markets, more competition, and accessing foreign
technologies and investment
iv. Governments’ desires to maintain sovereignty by pooling it with others in areas
of economic management where most nation states were too small to act
alone
v. A desire to jog the multilateral system into faster and deeper action in selected
areas, by showing that the GATT was not the only game in town and by
creating more powerful blocs to operate within the GATT system
vi. A desire to help neighboring countries stabilize and prosper, both for altruistic
reasons and to avoid spillovers of unrest and population
vii. The fear of being left out while the rest of the world swept into regionalism,
either because this would be actually harmful to excluded countries or just
because everyone else is doing it, shouldn’t we?”
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viii. The collapse of Soviet hegemony, which caused the countries of Eastern
Europe and the Baltic to embrace democracy and capitalism and those of
Western Europe to seek ways of cementing and accelerating their transition;
ix. The change in understanding about the role of openness in development
coupled with a natural political desire to limit the feared adjustment costs of
unilateral nondiscriminatory liberalization
x. The need to create a domestic dynamic for the reforms needed to achieve
greater openness, while at the same time minimizing the political problems of
disrupting existing sources of incomes and rents
xi. The changed attitude of the USA toward trade blocs from actively hostile to
broadly enthusiastic. This both generated RIAs itself and reduced the
diplomatic pressure, overt (through the GATT) and covert, on others to desist.
This change in attitude arose at least partly from an expressed frustration with
the slowness of the multilateral process.
Effects of regional integration
In addition, regional integration is likely to produce the following economic
effects:
1) Stimulating trade creation: The removal of tariff and non-tariff trade barriers
among member states creates new trade in the region.
2) Escalating trade diversion: Preferential treatment for intra-regional trade
discourages member states from importing efficient products from non-
member states and encourages them to import less efficient goods from
other members. Improving terms of trade: Integration amplifies trade
volumes and thus makes trade conditions more advantageous to member
states.
3) Expanding market: The market is expanded to produce economies of scale
and optimal locations.
4) Boosting competition: An influx of low-priced products and foreign-owned
entrants into the market intensifies competition. Domestic oligopolistic
structures are now faced with increasingly intense competition. They are
expected to enhance economic efficiency.
5) Cutting tariff revenues: For many developing countries, tariff revenues are
a major source of fiscal income. Reducing tariff rates means that they may
no longer be able to rely on this source of revenue.
6) Accelerating technology transfer: In the case of regional integration
involving developed and developing countries, trade and direct
investment are expected to accelerate technology transfer and
improvements in total factor productivity. Encouraging domestic reforms:
Domestic policies and systems are coordinated in accordance with
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progress in negotiations for regional agreement and the provisions of the
agreement. This facilitates domestic economic reforms.
7) Attracting more investment: Expansion of markets and enhancement of the
system of joint acceptance of investment increases the influx of direct
investment.
8) Hub effect: If a country acquires a hub position by signing regional
cooperation agreements with many states on a bilateral basis, it is able to
enjoy greater economic and diplomatic advantages than other “spoke”
countries.
9) “Spaghetti Bowl” effect: If many countries execute bilateral regional trade
agreements with numerous other nations, it is presumed that terms and
conditions will vary from agreement to agreement. In this case, they
stipulate different manners of dealing with trade. The administrative costs
and the costs incurred by companies to which these different procedures
are applied are very high.
Challenge in achieving regional integration in Africa
1) Political Stability and Integration
The first important challenge in the economic integration process in Africa is
political stability. Not all countries enjoy an enduring political stability. Political
instability in its subtle form has been expressed in stresses and strains in the political
system and at the other extreme in civil disorder and war. Political instability often
emerges from poor governance, weak development of national unity and
inequitable economic development. Regional economic integration has been
severely disrupted in regions where Member States experienced civil wars, such
as in the ECOWAS.
2) Sovereignty and Nationalism
The concept of sovereignty represents a major challenge in regional economic
integration process in Africa. The idea of sovereignty is associated with the
preservation of national identity. Adherence to sovereign is very strong given the
fact that integrating states are young; most acquired independence in the 1960s
after the end of the Second World War. There is the resilient tendency for the
countries to assert themselves individually in international relations. They operate
collectively in international relations largely from the premises of preservation of
national sovereignty and interest. The loyalties of Member States have not totally
shifted to the ideals of supranational authority and the long term benefits of
integration.
3) Non-State Actors and Integration
As of now, the principal actors in regional economic integration are the
governments of the Member States. Governments initiate the establishment of the
Communities and are by and large responsible for the implementation of
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integrative measures and development programs. Other national actors that are
stakeholders are currently been encouraged to participate in economic
integration process. There is a hiatus in the mobilization of non-state actors to the
understanding of the importance of regionalism and mainstreaming them in the
process. In addition, most of the non-state actors are institutionally and
operationally weak.
4) Weak Infrastructures
Most countries are characterized by deficiencies and poor infrastructures.
Inadequate infrastructures in both, within and among countries in Africa, have
posed considerable challenges to integration and development process. The
network of roads, railways, waterways, ports, airways, telecommunications are
poorly maintained and inadequate. The infrastructures inherited at
independence were inadequate and many countries have failed to bring about
substantial improvements because of sufficient resources or the failure to accord
them adequate priorities they deserve.
5) Weak Institutions
The institutions of most of the regional economic integration arrangements are
weak. Human resource capacity is inadequate for efficient running of the
institutions. The institutions do not have the manpower for technical studies and
implementation of measures on integration and development. They also lack
sufficient financial resources for the implementation of regional integration and
development programs. In effect there is reliance on development partners for
the implementation of regional integration and development programs and
projects.
6) Weak Implementation of Protocols
The important challenge which is the focus of our discussion here is the lackluster
implementation of Protocols. Regional economic integration arrangements
adopt a number of protocols to address specific integrative measures and
deepen integration. However, the experience in most Member States is that these
protocols are not effectively implemented. One of the reasons for this failure is the
delay emanating from the process for legislative approval within Member States
which is cumbersome and time consuming. Legislative approval could be
delayed if there are perceived detriments in the protocols. Secondly,
implementation is delayed or frustrate in Member States without specific institution
to articulate and disseminate information on the protocols to all stakeholders in
the government establishments, private sector, civil society etc. Besides, where
Protocols have been adopted implementation runs into difficulties for lack of
capacity and resources to implement them
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7) Multiplicity of Regional Economic Communities (RECs) and Integration
The multiplicity of RECs in the regions, with attendant overlapping membership by
countries, is an important issue affecting the pace of regional and continental
integration. The reasons motivating countries to belong to more than one REC are
to be found in historical, political, strategic and economic imperatives. Political
and strategic consideration derive from national security needs while economic
imperatives are based on perceived economic, trade, investments etc. that
could rapidly accrue to the country in an integration arrangement.
Recommendations
1) Political Stability: This should be accorded the pride of place by Member
States. Regional economic integration could only be promoted in a politically
stable environment which would allow Member States to promote national
economic development and implement integration measures. Political
instability such as civil war normally diverts attention from regional integration
and its consolidation as regional efforts would be towards ending the war and
preventing it from spilling over to neighboring countries. Thus, support should
be given to Member States to enhance democratic process, good
governance, accountability, and the promotion of human rights and the rule
of law that are the ingredients of political stability.
2) Sovereignty: Regional economic integration entails the integration of the
markets of the integrating states. It in this context involves the coordination and
harmonization of national economic policies towards the formation of regional
economic policies. This process thus, inevitably implies the surrender of national
policies to the supranational authority for the consolidation of regional
economic integration. It is therefore necessary that Member States should
yield to gradual surrender of sovereignty to strengthen integration process
which would ensure long term benefits for integrating states.
3) Actors: Regional economic integration is a political, economic, social and
cultural process. The leadership of governments is vital as they 10 are the
authorities in Member States. RECs are presently taking measures to engage
the private sector, labor unions, academics and the civil society. This process
should be expedited. They should be effectively involved in the articulation
and implementation of declarations, decisions and protocols as the ultimate
goal of integration is the promotion of economic growth and development.
These are important actors in national development process. The more the
private sector, labor unions, academics and civil society are involved the
faster would be the pace of regional integration.
4) Infrastructure: Regional economic integration will not be beneficial in the
context of inadequate regional infrastructure. Most of the RECs have
elaborate studies on regional infrastructure but which are not implemented for
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lack of funds. The Member States should allocate more budgetary resources
to infrastructure and attract foreign direct investments to complement their
efforts. Regional economic integration is about free movement of goods,
capital and labor. The trade and investment benefits of regional economic
integration to Member States would be minimal as long as the infrastructures
are inadequate both with and among them.
5) Institutions: The Secretariats of the RECs represent the moving force in regional
economic integration. It is imperative that excellent coterie of technocrats
should be recruited to ensure their day-to-day operations. Secretariat
technocrats should be in the position to assist in the articulation and
preparation of protocols. The Secretariats should play leading role in advising
Ministers and Summits of integration as stipulated in their Treaties in order to
deepen regional economic integration. The more the expert advice and
leadership role of the Secretariats the faster would be the movement of the
RECs in the attainment of its objectives. At the national level, efforts should be
made by Member States that have not done so, to create sound Ministry as
focal point for the coordination of regional integration activities; its articulation
and dissemination to all stakeholders for effective implementation. Regional
integration will stagnate if there are no strong national institutions for
coordination, implementation and oversight at the national level.
6) Protocols: Protocols are important instruments for the intensification of regional
economic integration. Member States should expedite the ratification of
protocols and provide adequate institutional arrangements, improve
capacities and provide adequate resources for their effective
implementation, by all stakeholders, at national level. Regional economic
integration would spill around if protocols are not promptly implemented.
There could be frustration and unwillingness by Member States to embark on
the adoption of further protocols that are necessary for the amplification of
integration.
7) Membership in RECs: Membership in more than one REC poses challenges
especially when RECs are in the phase of Customs Union when they erect
common tariffs against third countries. The AU is engaging the RECs at the
Expert and Ministerial levels to address this challenge. The solution to this
problem seems more in the political realm; that is a political decision
encapsulated in some economic benefits justification. It is envisaged that
these processes would in due course result in mutually acceptable formula on
this subject.
8) Finance: Like any organization, finance is an important determinant of the
process of regional integration. Thus far, regional integration arrangements in
the continent rely essentially on the assessed contributions from the Member
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States for operational and program activities. But the contributions of many
Member States are irregular and in arrears. This implies that the operational
and program activities of these bodies have been compromised. The
tendency as a result has been the questionable increased reliance on the
support of development partners. It is doubtful if this is the route to proceed in
the RECs. The paucity of funds should be resolved through innovative sources,
including part investment of available resources in high-interest yielding
portfolios. Integration and development would stagnate with irregular
contributions and or unpredictable financial support from development
partners.
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