Regional Integration and Cooperation:
Realistic Avenues in the Next Millennium
This document was prepared by the ECA (Economic Commission for Africa) on the initiative of the ACP Secretariat (African, Caribbean and Pacific).
1. INTRODUCTION/CONTEXT OF PAPER
The European Union(EU) and the African, Caribean and the Pacific (ACP) group of countries are in the process of reexamining their cooperative instrument, the Lomé Convention framework, which has linked them over the past twenty years. There is a general consensus that not much progress was registered in the realization of regional programmes within the four Lomé Conventions since the inception of this arrangement in 1975. Among the causes of the inadequate progress are what are considered to be cumbersome procedures in accessing EDF resources for regional projects and difficulties in identifying, formulating and implementing regional programmes and projects. As a result, it has been estimated that much of the ECU 3.3 billion allocated to regional cooperation from Lomé I through the first financial protocol of Lomé IV could not be utilized.
Consequently, a process of fundamental reflection and open debate is currently underway, particularly in regard to a redefinition by the EU of its overall external policy. One has recently seen the emergence of an integrated policy on Europe's relations with its immediate neighbours i.e the countries of Central and Eastern Europe and the countries flanking the Mediterranean. The policy aims at establishing a partnership based on a free-trade zone and closer cooperation in the economic, social and political fields. With regard to the ACP countries, there is an on-going debate on what their future relationship with the EU should consist of. The EU's perspective of this debate has been reflected in its recently published Green Paper.
As part of the on-going dialogue and preparations for upcoming discussions on the future of ACP-EU relations, the ACP organized in June 1997 in Brussels, a seminar of ACP organizations in charge of regional cooperation. Among the key objective was the assessment of progress in regional cooperation in the context of the regional economic integration of the ACP countries on which the Economic Commission for Africa (ECA) contributed the lead paper entitled "The Issue of Regional Cooperation as a Factor of Economic integration of the ACP States".
It is in the same spirit that the first Summit of Heads of State and Government of ACP countries is planned in November 1997 in Libreville, Gabon, and to which ECA was requested by the ACP Secretariat to contribute this paper on: "Regional Integration and Cooperation: Realistic avenues in the next millennium". The title of the paper is broad and generic, but the subject has been treated in the light of ECA's work and experience, focusing on the African situation, but with comparisons to experiences in other regions.
Much has been written and said about regional cooperation and integration in developing as well as in developed countries, and indeed the seminar that was organised by ACP involving organizations in charge of regional cooperation dwelt a great deal on the subject, including the role expected of these organizations in advancing the process in their respective regions.
If there is so much attention being paid on this subject, it is because there is a growing realization that the promotion of regional cooperation and integration is a powerful development paradigm that can enable developing regions like those in Africa achieve robust and self-sustaining economic recovery and growth, and thereby become an important and effective player in the global economy. But above all, it is a means by which to uplift the quality of life of the millions of Africans and peoples in other developing regions for whom life appears to have no meaning, against a backdrop of much unimproved educational and health infrastructure, substantive levels of malnutrition and poverty, unemployment and underemployment.
This is not to suggest, however, that the pursuit of regional cooperation and integration, per se, is a panacea for bad and failed national development policy and management. In fact, countries that have benefitted greatly from regional cooperation and integration are those which have designed and implemented national policy that supports and stimulate production, investments and trade. The national environment must certainly be supportive of the integration process.
In this regard, Africa in particular, and ACP in general, need the support of perhaps their most important political and economic partner, the European Union, with which they have had centuries of historical links. It is also not daring to say that Europe needs Africa for political and economic reasons, e.g., the continent could be a solution to some contemporary problems like the current unemployment phenomenon facing Europe.
Against this background, the purpose of the paper is not to propose innovative concepts of economic cooperation and integration, but to reemphasize some of the key issues involved in this process as an important development option for Africa in particular, and the ACP in general.
The paper is divided into six main parts. After the introductory section, the next section reviews the understanding of economic cooperation and integration as a development concept. This is followed by a description of various cooperation and integration experiences both at the regional and inter-continental levels. The ensuing part juxtaposes these experiences against developments in the global economy such as liberalization of world trade. The penultimate section highlights some key actions needed to make the integration process more realistic and successful, emphasizing on the African situation. The sixth and last part draws brief conclusions.
2. THE CONCEPT OF REGIONAL COOPERATION AND INTEGRATION
Regional cooperation can be defined as the move to establish linkages between and among a group of countries within a given geographical space, motivated by common and shared interests to cooperate in the areas of trade and other economic sectors, with a view to achieve a Free Trade Area and subsequently to establish a Customs Union. In contemporary economic theory, economic cooperation is also used to mean "regional economic integration" and follows these main processes:
- Establishment of a Free Trade Area involving the removal of tariff and non-tariff barriers to trade;
- Establishment of a Customs Union whereby all restrictions to trade and factor movements within the area are completely eliminated, and of a common external tariff;
- Achievement of an Economic Union among the member States, which implies the harmonization, to some extent, of economic, monetary, fiscal, social and other sectoral policies;
- Attainment of a supra-national union where the respective governments completely subordinate their sovereignty over policies to a supra-national authority, and which may ultimately lead to the alignment of the countries involved into a single state.
The underlying motivations may also include the desire for the member countries to promote a common defense and security front or strengthen their economic independence and empowerment vis a vis the rest of the world.
For developing countries in general, economic considerations appear to loom high on the integration agenda. Through this process, the countries aim at establishing a wider economic and market space which allows them to: diversify production and reduce or minimize their dependence on the export of a few primary commodities which is overwhelming for countries; improve economic growth rates, and thereby raise employment and living standards; modernize the production sector; and fully exploit natural resource endowments.
Regional cooperation and integration arrangements generally set forth a series of binding obligations relating to the fulfilment of the different phases of the process such as the establishment of a free trade area. However, in reality, these "binding" obligations are never respected or adhered to by some of the member States. This has often led to the lack of credibility, limited application and instability of some regional integration arrangements and contributed to their complete paralysis.
Perceptions by some member States that they are not reaping equal benefits or balanced development from the integration arrangements is a causative factor. For instance, the groups of less developed countries involved in the integration process may feel that others are benefitting more from trade liberalization programmes by virtue of their relatively developed industrial capacities. Therefore, the need for a balanced development and a fair share of the benefits of integration among the member countries becomes an important consideration, especially if the integration process involves countries with significant disparities in their levels of development. In this context, appropriate mechanisms need to be put in place to ensure that, to a large extent, the lesser-developed members are given special considerations.
It has been argued that in principle, an ideal condition for regional cooperation and integration would be a situation where all the members have equal relative levels of development and a significant degree of differences in the nature and composition of their resource endowments, which would then provide a conducive setting for inter-country complementarity. Conversely, to the extent that the member States have virtually equal levels of development and a high degree of similarity in their resource endowments, there will be limited possibilities for inter-country complementarity.
It should be pointed out, however, that underscoring any regional economic and integration process, particularly among developing countries, is the realization that the small size of the domestic markets is of considerable limitation to economic growth and development.
3. SOME REGIONAL INTEGRATION AND COOPERATION EXPERIENCES
One of the major features of today's global economy is the growing tendency towards regional economic and trading blocs. The pioneering endeavour, the most successful one to date and virtually the role model for all subsequent integration projects is the European Union. Economic cooperation and integration efforts are being seriously pursued in North America, Latin America and the Pacific rim. This chapter briefly describes some of the efforts and their underlying objectives.
ASEAN
The Association of South East Asian Nations (ASEAN) was established in 1967 by five member nations namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei became the sixth member in 1984 and Vietnam some years afterwards. The objectives of ASEAN are to strengthen regional cohesion and promote regional peace and stability conducive to national development.
The ASEAN economic cooperation started with the introduction of the Preferential Trading Arrangements(PTA) in 1987, designed to offer tariff preferences for imports among ASEAN countries. The trade liberalization programme follows two methods of negotiations: one allows for product-by-product bilateral negotiations, followed by voluntary offers from one country to another considered a prospective partner, with the possibility of extending the arrangement to all members of ASEAN; the other is global, but restricted negotiation to establish a rate below the most-favoured-nation tariff for imports up to a certain value limit, with tariff reduction and the raising of import ceilings to continue thereafter. The programme also drives on two tracks in terms of the implementation of the tariff cuts; a fast lane covering about fifteen groups of products for which preferences are to be granted faster and not later than the year 2002 and a normal track consisting of products for the granting of preferences, extending to the year 2003. The two-track arrangements are helping the ASEAN countries to advance towards trade liberalization faster but at distinct speeds.
ASEAN has also evolved with a number of schemes. One is the ASEAN industrial complementarity scheme established in 1981 with the purpose of combining market sharing and resource pooling mechanisms in order to liberalize intra-ASEAN trade in intermediate products fabricated in the ASEAN region. The other is the ASEAN Industrial Joint Ventures programme set up in 1983 as a means of expanding regional production of goods.
Building on the experiences of these programmes, the ASEAN countries signed in 1992 a framework agreement to further economic cooperation among the member nations. This evolved in 1994 into the ASEAN Free Trade Area (AFTA). Two major incentives are offered by AFTA in terms of foreign direct investment. First is its attraction to Transnational Corporations (TNCs) seeking a production and marketing base using the mix of strategic location, cheap labour, natural resource endowments, availability of skilled professional manpower and adequate and efficient infrastructure such as transport and communication networks in and among the countries. Secondly, with a combined population of more than 400 million, AFTA offers attraction as large growing domestic markets.
ASEAN has contributed to the current significant economic growth rates of the economies of the member States. Among the factors for this success is the member States' reliance on market principles as well as free trade which enhanced intra-regional relationships. Political stability in ASEAN also provided a conducive environment to long-term economic partnerships with developed countries. The existence of a wide range of educational opportunities provided by ASEAN governments has also contributed to a labour force that is highly skilled and motivated. Macro-economic stability and commitment to economic liberalization including deregulation have also been part of the key features of ASEAN economies. It is also observed that cultural norms which favour savings have contributed to the significant growth in ASEAN countries. Compulsory savings through schemes such as social security also provided incentives for savings. It is also worth noting that one of ASEAN's hallmarks is the existence of a secretariat in each country that closely follows on ASEAN matters in the country.
Equally significant is the role that Japan has played in the economic development of the ASEAN which is her peripheral hinterland and an extension of her economic space. The bulk of Japanese development assistance plus private sector interest in the region have ensured sustained massive infusions of capital investment accompanied by industrial technology transfers. In recognition of economic opportunities in the region, in the last two decades, American and European enterprises have also made massive investments in the region where they have transferred some of their production at the cutting edge of modern technology. This has also contributed to industrial modernisation in ASEAN and rising productivity in the manufacturing and processing sectors and underpinned ASEAN competitiveness in the world economy.
CACM
CACM is a Common Market among the Central American nations of Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica. It was established in 1960 with the objective of liberalizing regional trade mostly in agricultural products. CACM started in the 1950s as the Economic Commission for Latin America (ECLA) which provided a framework for achieving a wider market to permit efficient industrialization within Central America. Under the ECLA, the integration process focused on the objective of establishing "integration industries" that would be allocated to member States. However, during the 1960s, the focus shifted to free trade objectives at the prompting of the more industrialized members (Guatemala and El Salvador). CACM contributed to a boom in intraregional trade. Despite this success, CACM faced periodic difficulties associated with the benefits of the integration process. This problem was the subject of protest by Honduras and to some extent Nicaragua and led to the realization that the free trade objective as the principal focus of the integration process had ignored any effective mechanism for an equitable distribution of benefits among the partners.
LAIA
The Latin American Integration Association (LAIA) is an off-shoot of the Latin American Free Trade Association (LAFTA). It was established in 1981 to liberalize, on a more flexible basis, trade among its member nations of Uruguay, Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. In 1960 when its predecessor LAFTA was established, the intention was to reduce trade restrictions over a 12-year period. However, an amalgam of factors including high transportation costs, economic nationalism and protectionist tendencies and feelings of unequal benefits among the member States greatly impeded progress. Consequently, in 1969, after nine years of its creation, the time frame for the removal of all trade barriers among the members had to be extended to 1980. During the same year, five of the member States namely Chile, Colombia, Ecuador, Peru and Bolivia established the Andean Pact. LAIA has since encouraged within it the establishment of other subregional arrangements. These include the Common Market of the Southern Cone (MERCOSUR) established in 1991 and grouping Argentina, Brazil, Paraguay and Uruguay, and the Group of Three nations of Colombia, Mexico and Venezuela created in 1993.
The basic philosophy of economic cooperation and integration within LAIA is the fact that members have the liberty to pursue bilateral and subregional initiatives. The underlying principle for this approach is that because of the different levels of development and economic problems, the LAIA members States cannot be expected to advance at the same speed of progress in the integration process. Unlike CACM, LAIA contains countries with a wider range of size and levels of development (from relatively less developed Bolivia and Paraguay to relatively industrialized Argentina, Brazil and Mexico). Thus, the strength of vested industrial interests is relatively high. The member countries are, therefore, given much room to manoeuvre in terms of their mutual cooperation arrangements such as in tariff concessions. Considerable progress appears to have been made by LAIA under this flexible arrangement: a free-trade zone has been established within the Andean Group and a common external tariff has been introduced with duties in the Group ranging from 5 to 20 percent depending on the product, the mean being 10 per cent; a free-trade zone was similarly created in 1994 by the Group of Three, and a year after, a common market was created among the MERCOSUR countries. Consequently, trade within IAIA has improved considerably. It rose from 2 billion dollars in the 1970s to over 20 billion dollars in the 1990s. A new kind of arrangement has also been introduced which allows for any of the member countries to promote close economic ties between themselves. Such arrangements exist between Chile and Venezuela, Chile and Mexico and Chile and Colombia.
EU
The European Union (EU) started in 1952 as the European Coal and Steel Community (ECSC) following a plan by its founders to create a united Europe after World War II that will establish conditions for economic growth and social cohesion among European peoples and for greater political integration and cooperation among governments. The ECSC became a framework for pooling resources and coordinating and harmonizing industrial policies and activities in coal, iron ore and the steel sectors of France, Germany, Italy, Belgium, the Netherlands and Luxembourg. It served as a single economic market--a customs union and a free trade area--for these limited economic sectors and, thus, operated free of national tariff or quota restrictions.
By the treaties of Rome in 1957, the six ECSC member nations established the European Atomic Energy Community (EURATOM) and the European Economic Community (EEC or Common Market). EURATOM provided a framework for greater cooperation and harmonization in the field of atomic energy and nuclear research. The ECSC extended the concept of the common market and free trade to most of the other sectors of the countries' economies.
In 1965, the Merger Treaty was introduced to create common institutions for the three communities (ECSC, EURATOM and the EEC). The Treaty led to the establishment of the Council of Ministers, the European Commission, the European Parliament, the Court of Justice and the European Council. About two decades after, the European Single ACT (ESA) came into being and set the stage for the EU's 1992 Programme, a plan conceived to dismantle all remaining barriers towards the attainment of a Community-wide unified market by the end of 1992. Just a year before the attainment of the Common Market, the Europeans signed another Treaty--the Maastricht Treaty--to create with effect from January 1993, a single currency, a European Central Bank and a Community-wide citizenship. The Treaty, however, met with some voter resistance in Denmark in June 1992. This coupled with the currency crisis that caused Britain and Italy to temporarily withdraw from the European Monetary System to derail the process a bit. The process, nevertheless, regained some confidence after it was approved by the French voters through a referendum in September of the same year.
The Common Market objective has been fully achieved whereby the national borders of the fifteen member States of the EU are no longer a barrier to trade and free movement of people among them. The goal of the economic and monetary union is also firmly on track as the member countries have established common policies in foreign trade, agriculture, fisheries, transportation and fiscal and monetary activities, as well as common rules and joint programmes in the energy and environmental sectors, education, research and development, and technology. The attainment of a full monetary union is envisaged by January 1999 at which time the formal EU-wide common currency (the Euro) is expected to have been instituted. Meanwhile, the European Currency (ECU)--a denominator for the weighted average of currencies linked in the European Monetary System (EMS)--has been successful as a primary unit of exchange for EU transactions.
It is significant to note that the EU is such a successful Union that it is able to represent its members as a bloc such as during the GATT negotiations, and has observer status at the United Nations. It is also significant to observe the sense of seriousness, candidness and commitment with which the member States and the EU's various organs are constructing the EU and the involvement of the people in the process such as through the activities of the European Parliament and the organization of referendums, for instance on the Maastricht Treaty.
CARICOM
The Caribbean Common Market (CARICOM) was established in 1973 to succeed the Caribbean Free Trade Association which was created in 1965. CARICOM provides for the establishment of a common external tariff and a common commercial policy towards third countries. The member countries include Antigua, Barbados, Belize, Dominican Republic, Grenada, Guyana, Jamaica, Montserrat, St. Kitts-Nevis-Anguila, St. Lucia, St. Vincent and Trinidad and Tobago.
CUSTA
In January 1989 , the Canada and the US established a Free Trade Agreement between them (CUSTA) by which all tariffs are to be eliminated by January 1998. The Agreement has a dispute settlement mechanism covering a range of fields, namely investment, energy, agriculture, government procurement, autos, wine and spirits.
NAFTA
The North American Free Trade Agreement (NAFTA) aims to establish a free trade area between US, Canada and Mexico. Negotiated in 1991, the agreement covers areas including elimination of tariffs and non-tariff barriers, and cooperation in a number of fields including the environment, immigration and drug trafficking.
The African Economic Community (AEC)
Earlier experiences
Economic cooperation and integration among countries in Africa has been part of the region's development aspirations over more than three decades. Examples of these experiences are: the South African Customs Union (SACU) whose origin dates as far back as 1910; the Southern Rhodesia Customs Union established in 1949 between South Africa and present day Zimbabwe; the Ghana-Upper Volta Trade Agreement between Ghana and Upper Volta(now Burkina Faso) in 1962; the African Common Market linking Algeria, United Arab Republic (Egypt), Ghana, Guinea, Mali and Morocco in 1962; the Equatorial Customs Union and Cameroon composed of Central African Republic, Chad, Congo and Gabon in 1962 and which formed the origins of the present Customs Union of Central African States; and the East African Community (EAC) comprising Kenya, Tanzania and Uganda in 1967, and which until its demise, was perhaps the most developed of all the integration experiences in Africa. It was not only a customs union in which intraregional trade of manufactured goods was free of duties and restrictions, but also the Community had a single currency (the East African shilling) and was responsible for the operation of major community ventures including regional transport and communications services(railways, ports and airways) and a Development Bank.
The collapse of the East African Community, which had been a highly exemplary and far-reaching experience in Africa, epitomizes the disappointment with Africa's integration process till now. Some of the reasons for the failure of the EAC are attributed to: inadequate mechanisms for dealing with the unequal effects of the common market(intraregional trade balance largely tilted in favour of Kenya and this was perceived as unfair by the other countries); perceived discrimination in the operations of state trading corporations; constraints of political nature including political divergence among the three countries (i.e capitalist ideology in Kenya, socialism in Tanzania and a military dictatorship in Uganda); and a break-down in transportation services as Tanzania imposed restrictions on trucks carrying Kenyan goods to Zambia and as the Railways Corporation discontinued passenger service between Kenya and Uganda because of disputes over the transfer of revenues among countries.
With the exception of SACU, none of these earlier experiences of integration in the continent exist at present, at least in their original form. New groupings have since been established reflecting the continued belief by African countries in the virtue and importance of economic cooperation and integration, notwithstanding the failures of the past. In West Africa, three economic communities emerged in a succession within a span of three years: Communauté des Etats de l'Afrique de l'Ouest/Community of West African States (CEAO), now called Union Economique et Monétaire des Etats de l'Afrique de l'Ouest/Economic and Monetary Union of West African States (UEMOA) in 1973; the Mano River Union(MRU) in 1974; and the Economic Community of West African States(ECOWAS) in 1975. Union Douanière et Economique des Etats de l'Afrique Centrale/Economic and Monetary Union of Central African States(UDEAC) was given a new treaty in 1974; and Communauté Economique des Pays des Grands Lacs/Economic Community of the Great Lakes(CEPGL) came into being in 1976.
The early 1980s marked the adoption of the Lagos Plan of Action/Final Act of Lagos which also reemphasized the promotion of economic integration as a prime mover of Africa's individual and collective socio-economic transformation and gave further impetus to the formation of integration groupings in various forms (economic communities, preferential trade areas) during the 1980s. These include the Economic Community of Central African States (ECCAS) established in 1983; the Preferential Trade Area for East and Southern Africa (PTA) in 1983 (changed in 1994 to the Common Market for Eastern and Southern Africa-COMESA); the Indian Ocean Commission(IOC) created in 1985; the South African Development Cooperation Conference(SADCC), which has now been changed into the Southern Africa Development Community (SADC); and the Arab Maghreb Union (UMA) established in 1989 by the North Affrican countries.
Within the various integration groupings, the development of trade has been a major objective pursued through programmes aimed at achieving a free trade area, a customs union or a common market. However, after decades of existence of these groupings, these objectives still remain an utopia for most if not all the African integration groupings. Many of them are still struggling to implement trade liberalization schemes. Intra-community trade remains impeded by inadequate production of goods and deficient capacities in transport and communications and energy.
The Treaty establishing the African Economic Community
The entry into force of the Treaty Establishing the African Economic Community (Abuja Treaty) in May 1994, is seen as a reaffirmation of Africa's determination, at least as far as the content of the Treaty is concerned, not to relent on economic cooperation aiming at the ultimate integration of the continent into an African Economic Community.
This is because in a continent of over fifty different nations, where national markets are small and where human and material resources are underemployed, economic cooperation and integration will help:
- create markets large enough to make it possible to establish viable production and consumption capacities in industry and in the primary sector, especially through the exploitation of complementarities: one of the underlying principles for establishing the Abuja treaty is the stark realization that the small size of the fifty-three individual African economies and markets has inhibited and continues to inhibit the growth and development of the African countries and the Africa region as a whole. To achieve a socio-economic turnaround of the crisis-ridden economies of Africa, it is imperative that African Governments and peoples work with one another in order to create viable regional economies and markets, initially through the existing sub-regional economic communities such as ECOWAS, COMESA, SADC, ECCAS and UMA. Utilizing the strategy of sub-regional and regional integration should provide the needed impulse in restructuring the fragmented and balkanized continent into a more coherent and stronger economic and trade block.
- increase absorptive capacities for technology, capital, goods and services: integration could be mutually beneficial by facilitating the flows of capital, labour skills, raw materials and technology from richer or surplus countries to deficient or poorer states;
- create viable transport networks: improving land and air transportation links could, for instance, reduce costs of production and marketing which are generally high in Africa and impede investments; similar benefits could be derived from developing energy resources on a regional or subregional basis rather in individual countries;
- pool manpower, financial and other resources: for instance, in the exploitation of natural resources such as water the benefits and costs of which transcend national boundaries; and
- boost investments by harmonizing investment, tax and tariff codes and other procedures, which will consequently help reduce the cost of doing business in multiple countries.
The Abuja Treaty is an all-engaging, a comprehensive and a phased approach for establishing the African Economic Community over a 34-year time frame. It is yet the most comprehensive expression of Africa's desire to build a viable, continent-wide economic community, placing great emphasis on the role of integration in promoting economic self-reliance and self-sustained development. The following is a summary of the various stages and time-table of the commitments that have been entered into:
First Phase(1994-1999): This is the phase during which member States undertake to strengthen their Subregional/Regional Economic Communities(RECs) as effective building blocks for the AEC.
Second Phase(1999-2007): During this period, the member States have committed themselves to stabilize tariff barriers and non-tariff barriers, customs duties and internal taxes existing as of 12 May 1994, and to pursue a gradual harmonization and integration of national policies and the implementation of multinational programmes in all economic fields, in particular in agriculture, industry, transport and communications and energy.
Third Phase(2007-2017): During this time frame, the member States have resolved to consolidate themselves into free trade zones and customs unions through the observance of time-tables for the progressive elimination of all tariffs, barriers and restrictions to their trade. This is also the stage where they have undertaken to adopt common external tariffs vis a vis goods and services of countries outside their RECs.
Fourth Phase(2017-2019): This phase is a precursor to the full realization of the continental African Common Market and the African Economic Community during which all the RECs would have coordinated and harmonized all policies and programmes in trade and the other sectors mentioned above. During this stage, there should be total free movement of persons and the right of residence and establishment between and among the RECs.
Fifth Phase(2019-2023): At this level, the continental African Common Market resulting from the results of the preceding phase should be visible.
Sixth Phase(2023-2028): Finally, the dream and vision of the African Economic Community should be realized with a total integration of all sectors of human endeavour in the economic, political, social and cultural fields and with common structures, facilities and functions including: a single African Central Bank; a single African Currency; a Pan-African Parliament and; a Pan-African Economic and Monetary Union.
Weaknesses of Africa's integration experience
(i) Uncoordinated fragmentation of the subregional and regional market space
The development of trade constitutes an important dimension of the economic integration schemes defined in the treaties of the subregional economic groupings (RECs). Different and separate trade liberalization schemes and implementation schedules are evident in the same subregional space. For instance in West Africa, ECOWAS and UEMOA coexist with different schemes in spite of their common membership (all members of UEMOA are members of ECOWAS). SADC has recently also adopted a trade liberalization protocol of its own although, all but two of its member States belong to COMESA and are implementing the COMESA trade liberalization programme.
The creation or existence of smaller groupings within a larger integration bloc is also a characteristic of the African integration process as in LAIA. In form, this situation is similar to what some experts have described as "the variable geometry" concept. In LAIA, it is a deliberate policy to encourage member States to move towards the establishment of the free trade zone at faster, but distinct speeds because of the different levels of development of the member States, but within LAIA's overall objective. The situation is different in the African context where smaller groups exist side-by-side with the larger bloc and operate as completely independent and autonomous bodies and virtually as if the larger bloc did not exist, and vice versa.
Secondly, in spite of considerable efforts made, progress in the trade liberalization processes have, in general, been slow and uneven with some schemes making relatively more progress than others in particular aspects. ECOWAS is not making much headway with its trade liberalization scheme. The plan initiated in 1981 has been subject to several revisions, the most recent one being put in place in 1992. COMESA's trade liberalization scheme has had to be changed a couple of times as a result of problems in implementing it including overly restrictive rules of origin in the initial stage and a lack of compensation mechanism. Overall, however, COMESA has made relative progress in its trade liberalization process and intra-COMESA trade as a share of total exports has, after a marked decline in the early 1980s, been rising at a annual rate of about 8 percent. The authorities of COMESA are convinced that this increase in trade is a result of its trade liberalization programme, although in reality, only a few countries such as Kenya, Zimbabwe and Mauritius that have had extensive export-development programmes(market surveys, trade missions etc.) targeted to the region, appear to be profiting from the preferential arrangements. ECCAS is paralysed as the Community is currently not operational. In UMA, the existing subregional trade liberalization protocol is yet to become fully operational. Bilateral trade arrangements among the members of the group constitute in large part the basis of trade in the subregion.
In a nutshell, several economic cooperation and integration institutions are concurrently operating within the same subregional spaces. In most cases, they have common member States and overlapping programmes or mutually-exclusive or non-compatible trade liberalization schemes. This, to some extent, is a reflection of uncertainty and ambiguity in the choice of integration spaces or plans. Other problems engendered by the multiplicity of the IGOs in the African context include:
- dispersal of manpower and financial resources;
- conflict of interests arising from multiple and overlapping memberships;
- inward-looking tendencies of the various existing integration groupings which militate against the wider regional cooperation;
(ii) Problems with some of the trade instruments being applied
Overly restrictive rules of origin especially in terms of limiting preferential treatment to products by companies predominantly owned by nationals can be counter-productive to the liberalization process by ruling out a significant gamut of goods traded within the region and thereby rendering the scheme pointless. Such a restriction would also seem at variance with the growing trend towards domestic policies that promote increased foreign investments to support national development efforts. Existing compensation mechanisms face funding problems in the absence of sustainable self-financing mechanisms for the RECs, while their absence as in the case of COMESA can forestall the progress of the trade liberalization regime, especially where there is a significant imbalance in the terms of trade of the participating countries arising from the regional preferences.
(iii) Impact of structural adjustment and reform programmes and liberalization of foreign trade and investments
Growth in the external indebtedness of member States and debt service obligations coupled with a severe lack of foreign exchange and macro-economic disequilibrium are some of the key underpinnings of structural adjustment and reform programmes in Africa. In this context, the need for member States to reduce or restrict imports irrespective of their sources of supply--in order to save foreign exchange and to promote exports in world markets to earn hard currency--has affected the degree to which member States adhere to rules of the trade liberalization scheme that they have established. This is particularly compounded by the absence of coordination of structural adjustment programmes at the community level.
It is also important to point out that with the Uruguay Round Agreements, the future trend of global trade relationships is one of freer trade which will make it more difficult to apply protective tariffs against non-African countries as freely as has been in the past.
(iv) Structural constraints
Lack of adequate intra-regional infrastructures and strong and diversified production systems have limited the impact of trade liberalization programmes in particular, and the integration process in general. Overwhelming dependence on unprocessed and semi-processed primary commodities and a few export products by the member countries has limited the potential of free trade efforts to significantly enhance trade among the member countries. There is lack of capacity to produce export products with higher-value added and better demand prospects.
The establishment of free trade zones has been difficult to accomplish partially because, in reality, they are being implemented against a backdrop of structural imbalances, inadequate production and productivity and a generally unfavourable macro-economic environment. The challenge of accelerating the construction, rehabilitation and improvements of subregional and regional infrastructure, in particular transport and communications with a view to facilitating expansion in trade, remains daunting. Equally challenging and fundamental is the implementation of policies for enhancing productive capacities particularly with regard to the development of agriculture and its influence on and linkages with the industrial sector.
(v) Lack of Resources
The operations of the RECs suffer from a lack of adequate and sustainable funding. Contributions from member States have either been irregular or inadequate to sustain their secretariats and activities including the financing of agreed community programmes.
Inter-Continental Groupings
In addition to the foregoing experiences, it is worth mentioning the following examples reflecting inter-continental groupings:
APEC
The introduction of the Asia-Pacific Economic Cooperation Forum (APEC) opens an opportunity for ASEAN to benefit from a wider market. In November 1994, USA and the Pacific Rim countries and territories of Australia, Brunei, Canada, Chile, Hong-Kong, South Korea, Malaysia, Indonesia, Japan, Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, Taiwan and Thailand met in Bogor, Indonesia and declared to promote a free trade and investment in the pacific by the year 2020. If realized, APEC (with a combined consumer population of over 2 billion accounting for about 41 percent of global commerce) will be the largest free trade zone. Soon after the 1994 Bogor Summit Declaration, tariff reduction schedules were produced for the participating countries.
APEC's Action Plan adopted by the ministerial meeting in Osaka, Japan, is anchored on the principles of liberalization and facilitation of trade and investment, development cooperation and partnership for progress. In this regard, APEC will aim at narrowing economic disparities between its members, while supporting free trade and open investment.
The Trans-Atlantic Agenda
The US and the European Union are seeking to create a new Trans-Atlantic Market-place which would expand trade and investment opportunities by progressively reducing or eliminating barriers that hinder the flow of goods and services and capital between them, increase jobs on both sides of the Atlantic and contribute to a dynamic global economy. The two regions are also collaborating on a Multilateral Agreement on Investment to liberalize and protect investments. They have also declared to strengthen the multilateral trading system, consolidate the World Trade Organization (WTO) and secure the full implementation of the Uruguay Round Agreements by all WTO members.
4. LIBERALIZATION OF WORLD TRADE, GLOBALIZATION AND REGIONAL COOPERATION AND INTEGRATION
As already indicated, regional economic integration today takes place within the context of the global economy and the liberalization of world trade. Globalization is a multifaceted phenomenon, the salient characteristics of which include rapid growth of international trade and capital flows, the increasing importance of services in both trade and foreign direct investment, the global integration of production processes and institutional harmonization among countries with regard to trade, tax and investment policies and other regulations.
The most pervasive policy thrust during the past ten years among developing countries has been the liberalization of their economies through the adoption of market oriented economies. This has entailed the sale of state owned enterprises and the reduction of government intervention. Globalization entails the removal of institutional barriers to trade and capital flows as a result of multilateral or regional agreements to enhance market access. This has led to the integration of many countries into the world economy. But the impact of global integration and liberalization on the growth of the developing countries is subject to varied interpretations.
Opposing views have been advanced as to the impact of globalization on world income distribution. There is a school that contends that globalization will diminish income inequalities and thereby lead to convergence as the incomes of the poor countries rise faster than those of the developed countries. The other opposing view contends that globalization benefits developed countries along with a few developing countries thereby widening the income inequalities and exacerbating the marginalization of developing countries in the world economy. Except for Asia which has registered significant relative progress by achieving considerable convergence towards industrial country living standards, for Africa, the gap has widened since 1965 and especially the mid 1970s. The average per capita income level of African countries fell in relative terms from 14 per cent of industrial country level in 1965 to just 7 per cent in 1995. The negative aspects of globalization and liberalization of world trade include:
- the declining importance of primary commodities in world trade along with developing countries' loss of market share in the world market;
- the concentration of capital flows, technology and skilled labour in more advanced regions of the world;
- the increase in the shares of services and high-technology goods in the liberalized world economy while the exports of many developing countries remain primary; and
- tariff reductions for certain manufactures from developing countries such as textiles and leather products are said to be below average.
On the other hand developing countries have the opportunity to complement policy measures which would maximize the benefits of globalization and liberalization. Since globalization has intensified competition on the world market, developing countries need to increase the competitiveness of their production structures. These countries also need to address lack of entrepreneurial and managerial skills, poor technological capacities and inadequate physical infrastructure. The maintenance of macro-economic stability and good governance are also key elements that would enable these countries benefit from the liberalized economy.
In addressing the challenge, most developing countries, have chosen to form integration schemes with the objective of participating more fully in the world economy. The strength for integration among developing countries rests on economic considerations. The more important of these will be the weight attached to industrialization in economic development and the possibilities of exporting manufactures to regional as well as world markets.
It should also be pointed out that although regional blocs in the EU and NAFTA are associated with a few developing countries such as Mexico and some emerging countries of Eastern Europe, by and large these groupings are confined to developed countries which are the major markets for developing countries in trade, investment and technology. And since the establishment of regional groupings implies that members are accorded preferential treatment and access to each other's markets vis a vis non members, by implication, non members would therefore suffer reduced market access in the preferential trading schemes. Indeed, if regionalism were to expand and deepen with protectionist policies towards non members, the poorer countries would bear the brunt of further marginalization. The weak countries therefore have an interest in ensuring that regionalism does not entrench protectionist policies but instead maintain an outward oriented approach to trade policy as stipulated in the Uruguay Round with trade being complimentary to multilateralism.
Developed regional economic blocs could also mitigate the adverse effects of trade diversion by developing countries by guaranteeing the developing countries the same terms of market access as that enjoyed by their members. Such access could include textiles and agricultural products particularly for the LDCs. It has also been proposed that developed regional trading schemes could ensure that LDCs and DCs do not suffer erosion of market access to industrialized markets by establishing association accords such as the one that existed between the EU and the European Free Trade Association (EFTA).
5. REGIONAL COOPERATION AND INTEGRATION: REALISTIC AVENUES IN THE NEXT MILLENNIUM, WITH FOCUS ON THE AFRICAN INTEGRATION PROCESS
Most of the regional cooperation and integration experiences, in particular among the industrialized countries including the "tiger" economies of Asia, appear to follow the market integration approach which has as its overriding objective the expansion of trade in goods and services and facilitation of cross-border investments through free and open trade, and greater market access and investment in manufactures. The market integration approach is greatly facilitated by high levels of development in the member countries; in technology, communications and other industrial infrastructure, thus facilitating the production of manufactured goods and high-value added activities.
In the African context, the pathway to economic cooperation and integration has generally followed the development approach. It is a major strategy not only for promoting intra-regional trade but also for accelerating development and structural transformation. The strategy remains a key instrument for the continent in overcoming the problems of economic fragmentation and promoting economic diversification and inter-linkages among production units in various countries. It is a means by African countries to avoid further marginalization in the global economy. This is the reason why the Abuja Treaty assigns top priority to the development of regional production structures with appropriate supportive infrastructure, and the coordination and harmonization of economic and social policies within and between the subregional communities.
Nevertheless, the development approach has produced very limited results for the Africa region. In addition to the problems which the trade liberalization schemes are experiencing, partly due to the multiplicity of overlapping institutional arrangements within the subregions and some concerns by countries about unequal benefits from the integration process, there has been scanty progress on the production, infrastructural and other elements that buttress the development of trade.
Furthermore, the new multilateral system of world trade within the framework of the WTO opens an era of increasing global free trade during the next millennium. The implications of this phenomenon for the multilateral trading system are currently one of the issues of great interest to the WTO. In this regard, within WTO, there is a Committee on Regional Trade Agreements amongst whose functions is to consider the systemic implications of regional initiatives for the multilateral trading system and the relationship that should exist between the two. In this context, one may expect current WTO rights and obligations relating to regional trade agreements to be further examined and/or clarified. Nonetheless, it is clear that under Article XXIV of the General Agreement on Tariffs and Trade 1994 (GATT 94), the existence of preferential arrangements within the framework of regional trade agreements, is for a transient period which, according to the Interpretation of the Article, should not exceed 10 years. This poses for the African regional arrangements an enormous challenge because of the tremendous difficulties that they are experiencing including the area of trade liberalization.
To the extent that the operation and management of the multilateral trade system during the next millennium, will be solidified and consolidated within the WTO framework, it is reasonable to assume that trade liberalization agendas of regional integration schemes, for instance, will be out of tune and therefore likely to be irrelevant. In that regard, a realistic strategy of any regional integration arrangement will be one that takes account of this inevitable global development and shifts its main focus on measures that can help improve the competitiveness of the economies of the regional participants in the global market place, and which will also enhance intra-regional and inter-regional trade.
To meet the above challenge in the context of a development-oriented integration strategy, which indeed still represents an important policy option for the Africa region during the next millennium as well as for the developing countries of the ACP in general, a number of practical measures are called for. These include the following:
(i) Harmonization of discordant trade liberalization schemes among integration groups within the same subregion with overlapping membership
While recognizing the coexistence of different groupings in the same subregional space because of historical, economic or geo-political reasons and because of the fact that African countries do not appear willing and ready to abolish one institutional framework in favour of another or merge it with another, it is observed that the different trade liberalization mechanisms they have established are not effectively coordinated and harmonized, and as a result, their effective implementation is significantly constrained. There is, therefore, an urgent necessity to eliminate contradictions and incompatibilities among these programmes in order to bring about some measure of cohesiveness in the subregional/regional market space and an acceleration of the free trade areas consistent with Article XXIV of GATT 94.
(ii) Reduction of excessive initiatives or programmes
The second issue is to reduce excessive initiatives by doing away with the tendency to want to promote a shop-list of wishful objectives or programmes that have remained unrealized over a considerable number of years or have no potential of being accomplished because of funding problems, tacit political disinterest, or because of the fact that the basic prerequisites are simply not in place to enable the undertaking to be successful. This implies the need to prune down priorities to a realistic and manageable package in light of external financing possibilities and the political and financial will and commitments of member States to implement them. This may seem paradoxical to the very comprehensive development approach strategy of integration in Africa, however it does make sense to start on the basis of a modest set of critical priorities and graduate into multiple and ambitious programmes as both domestic and external resource potentials and other enabling conditions permit. The identification of the critical priorities, will need to take into account the nexus between infrastructural development, investments and wider and free markets: good and adequate infrastructure attracts investments and investments are enhanced by wider unrestricted markets.
(iii) Rationalization of the institutional frameworks for integration
The rationalization of the institutional frameworks for integration can be greatly enhanced by the measures stipulated above. But more importantly, there should be a political effort to distribute roles among the subsets and the larger umbrella grouping in the same subregion. Within this division of labour, emphasis should be given to the promotion of closer common interests among countries based on three key principles:
- complementarity of resources, particularly to facilitate the establishment of multinational industrial concerns;
- nature and scope of existing bilateral agreements between and amongst the countries; and
- some analysis (even if preliminary) of the distribution of advantages, costs and benefits among the countries.
Within this distributional scenario, the larger or umbrella grouping should, in the context of the larger subregional/regional interests, concentrate its efforts on promoting and implementing regional programmes from which all the regional members stand to benefit, irrespective of their levels of development. Such programmes will include the following: the acceleration of free movement of people and capital(and to some extent, the right of residence and establishment) between and across all the frontiers; measures to facilitate trade in the region as a whole(economic and trade information services); promotion of security and conflict prevention and mediation in settling existing conflicts; and a catalytic role in the mobilization of domestic and external resources.
(iv) Promotion of regional entrepreneurial capacities as a crucial aspect of investment and human resource development strategy for integration
Central to the building of viable sub-regional economies and markets is the necessity to stimulate accelerated growth in the goods-producing sectors such as agriculture and industry based on integrated production systems through multinational and joint investment programmes, as well as in trade, transport and communications, and other commercial services such as banking and insurance.
To this end, the establishment of an African regional entrepreneurship capacity as a crucial ingredient to promoting and financing multinational projects and businesses in all these areas will be a key strategy.
At the moment, promoting and undertaking multinational programmes in the context of regional economic integration has been perceived as requiring massive external resources from the international donor community, although the flow of foreign investments is becoming increasingly uncertain and limited, whereas the mobilization of indigenous entrepreneurial talents for such programmes has been given very little or no attention. Africa does not lack entrepreneurial talents, however, what is needed is to develop a programme to harness these talents and unleash their potential to promote and invest in inter-country manufacturing and other potentially viable regional economic activities.
In the ECOWAS sub-region for instance, a number of regional studies have been carried which if implemented can go a long way in enhancing the sub-region's economic integration. These include:
- Study of the Agricultural machinery industry: diagnostic and action plan;
- Strategy to promote industrial integration in the ECOWAS sub-region;
- Promotion of food industries;
- Industrial integration among the ECOWAS member States in building construction materials; and
- Promotion of chemical and petro-chemical industries.
Inevitably, the success of Africa's economic integration and socio-economic transformation will depend on the mobilization of human and capital resources within the continent. Foreign investments could contribute to such regional integration as a supplement not as a substitute to Africa's own resources and efforts.
The challenges in this regard will include:
- national policy measures for creating an enabling environment for fostering multinational entrepreneurship in the Community. These will include policies aimed at providing incentives and support to multinational programmes and business opportunities and promoting joint ventures between African and foreign investors to support multinational enterprises in the Community;
- increased access to credit by entrepreneurs desirous of promoting and implementing multinational programmes and enterprises;
- management assistance and training to multinational business entrepreneurs through the strengthening or creation of sub-regional or regional training institutions; and
- promotion of cooperation among African entrepreneurs and foreign investors in the establishment of multinational enterprises, in the context of south-south and north-south cooperation.
(v) The institution of a community levy or tax to finance integration activities
In conjunction with the programme on regional entrepreneurial development, the institution of a community levy on products originating from third countries could constitute a significant basis for ensuring a sustainable financing of Africa's integration activities.
6. CONCLUSIONS
Some of the key issues involved in economic cooperation and integration with emphasis on the African experience have been reviewed in this paper. A number of global initiatives in this field, particularly among the developing countries, appear to emphasize on free and open trade and investment objectives, the attainment of which is made easier and enhanced by the advanced level of development of the member countries involved. However, in the African context, the process is an all-engaging development strategy. It is a venture that requires not only market integration, but also addresses the production and infrastructural dimensions without which market integration cannot succeed. Ultimately, the quality and level of development are envisaged to be significantly improved and completely transformed.
However, a pragmatic approach needs to be pursued as opposed to an all-out affront which has proven to be unworkable. In this regard, institutional or political problems inhibiting the free movement of people, capital, investments, goods and services among countries need to be quickly addressed through measures to accelerate the opening up of boundaries between the States. Other important and related priorities are: the accelerated construction and rehabilitation of transport and communications networks to help facilitate physical movement of production factors, unleash the full potential of intra-regional community production and trade, and attract foreign investors; a serious commitment to develop the vast energy, water and human resources potential Africa possesses, and to provide the enabling environment to promote and harness regional entrepreneurial capacities and initiatives within the private sector.
The rationalization of the fragmented and uncoordinated programmes of the subregional economic communities, which are designed to serve as the building blocks of the African Economic Community also deserves immediate attention. This will include harmonizing the different and incompatible trade liberalization schemes and ensuring a rational distribution of responsibilities among the various groups.
Furthermore, integration has a cost and can only succeed if member States are ready to pay the price. African countries need, therefore, to confront this reality with a new vision and seriousness. The issue of mobilizing resources for community programmes needs to be addressed in a sustainable manner as the present system based on financial subscriptions from the over-burdened and weak national coffers has proven to be inadequate and unreliable. In this regard, it is pertinent to point out that even though the European Union comprises developed and wealthy countries, it derives its funding from self-financing instruments such as the agricultural levies and additional tax on VAT.
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