Regionalism for Development 
Author : Supachai Panitchpakdi
Date : October 19th, 2007
Comments : 7
For many years now, academics have debated whether regional trade agreements are ‘building blocks’ or ’stumbling blocks’ for development and free trade. Regionalism has recently returned to the forefront of attention, as the slow progress in the Doha Round of negotiations has led many countries to increasingly pursue regional agendas. Frequent currency and banking crises in the last decades in emerging markets have also fuelled distrust in the multilateral financial institutions and their ability to prevent and manage such crises, and have led to growing interest in financial and monetary cooperation at the regional level.
Recent research carried out by the UNCTAD Secretariat on the benefits and drawbacks of regional arrangements for developing countries has generated some interesting results in this context, which may make an important contribution to the debate.
In an in-depth study of regional trade agreements and their implications for developing countries, UNCTAD has found that there tends to be an important difference between North-South Regional Agreements, i.e. bilateral Free Trade Agreements (FTAs) between developed and developing countries, and regional agreements between developing countries, so-called South-South agreements. In particular, our research found that developing countries should strengthen regional cooperation with other developing countries, and proceed carefully with regard to North-South bilateral agreements.
The main reason for this is easy to understand: Many of these North-South agreements are missing the developmental perspective, for at least three reasons:
1. Bilateral FTAs often transform formerly non-reciprocal trade preferences between developed and developing countries into symmetric market access regulations; thus, the cornerstone of the post-war international trade system, the special and different treatment of developing countries, is continuously being eliminated.
2. WTO-plus standards and Singapore issues, e.g. labour and environmental standards, government procurement, investment and competition policy, are increasingly being incorporated into North-South FTAs, while the sector in which developing countries are highly competitive - agriculture - is left out. Moreover, these FTAs usually make no provisions at all for monetary cooperation, even though the overall competitiveness of developing countries is highly vulnerable to external shocks. Thus, developing countries often have to accept far-reaching commitments regarding formerly classical domestic policy without being adequately compensated in terms of warranted market access and market success.
3. Simultaneous participation in many FTAs with different rules and implementation horizons makes policy coordination in developing countries increasingly difficult, in particular with regard to the reconciliation between national development objectives, regional commitments and multilateral rules and regulations.
By contrast, UNCTAD’s research has also found that South-South agreements offer developing countries many advantages, which for the time being are not provided on the multilateral level, nor incorporated in North-South agreements.
One of the key motives for developing countries to enter into agreements with partners at a similar level of development in the same area is that of market access. Of course, the benefits of market access, such as scale economies and the diversification of production, are arguments that apply to trade integration generally, be it with developed or developing countries. Nevertheless, for many developing countries that are at an early stage of industrial development, a regional orientation involving countries with similar economic structures and technological capabilities may be considered a more viable option. The initial foreign competition within the region may be less difficult to handle, the technological gap vis-à-vis competitors from more advanced countries outside the region may be easier to close, and the probability of finding a level playing field is greater. In other words, the regional market often sets less exclusive benchmarks than competition with mature suppliers, so that even production at the infant industry stage can be successfully broadened. South-South cooperation can also be advantageous when it comes to competition to attract FDI and to avoid races to the bottom.
This finding is also supported by empirical evidence of an increase in the relative share of manufactures and medium- and high-skilled products in the intraregional trade, which suggests that regional cooperation between developing countries can be an important means to accelerate industrialization.
Furthermore, regional cooperation in the monetary and financial area can provide important tools for the stabilization of intraregional exchange rates, and thereby reduce their potential to serve as a source of instability or as a transmission mechanism for global shocks. Similarly, cooperation on major investment projects can reduce common bottlenecks in public infrastructure like energy and water supply.
I think that these findings offer some interesting new perspective in the debate on regionalism.
The full report on regional cooperation for development is available here.
Dick Kamuganga
Date : January 27th, 2008 10:45:03
Developing Countries are in a “catch 22” call it a chicken and egg situation if you will! Whether to cooperate amongst themselves (south-south cooperation) or with the north (North-South cooperation) is not a choice they will make. There are basic facts here; i) regionalism seems to be a permanent phenomenon, ii) regionalism whether North-South or South-South confers different advantages as well different challenges in the increasingly globalized world today, iii) whether regional cooperation based on regional preferential trade agreements which forms part of the general debate on the relationship between trade liberalisation-economic growth-poverty reduction, delivers more regional development will continue to be contested for sometime, iv) whether developing countries want it or not, the trade policy space/leverage conferred by Special And Differential Treatment under multilateral trading system is rapidly waning under FTAs i.e. developing countries will continue to lose preferential margins under special and differential treatment as trade is continuously getting liberalised world wide (via MFN liberalisation, unilateral liberalisation-as is largely the case amongst the ASEAN group, or through numerous FTAs between North-North or South-North Or South-South FTAs), so southern countries pursuing special and differential objectives within any trading arrangement may not necessarily be a panacea for them and for long.
UNCTAD`s Trade and Development 2007 (Regional Cooperation For Development) presents very fascinating scenarios as summarized above by Dr. Supachai Panitchpakdi’s contribution on this blog. First, the overriding recommendation of the report that “developing countries should strengthen regional cooperation with other developing countries, but proceed carefully with regard to North-South bilateral or regional preferential trade agreements” can have far reaching implications as far as continuous marginalisation of these countries in the global trading system is concerned! While it’s obvious that developing countries need to strengthen cooperation amongst themselves, they need to be more pragmatic and proactive rather than being retrogressive when it comes to their northern neighbours. Caution and suspicion will not help them prepare to rip the enormous benefits that come with the unstoppable globalisation forces. This implies that;
(i) Developing countries need to prepare for a parallel approach toward “external” and “internal” integration processes not sequencing them, as the pace of global integration forces will not present them with that luxury of sequencing development strategies,
(ii) The global community including the northern rich countries should have a moral responsibility to make efforts toward reducing global poverty, this implies in the bilateral or regional FTAs they sign with their southern counterparts, should ensure that preconditions identified by the report i.e. a certain level of local production capacity, skill and technological sophistication, an array of supporting market institutions and good infrastructure are established in the process of integrating these poor countries,
(iii) It’s upon the developing countries to front their development objectives as part of their negotiations agenda package. Otherwise if their development objectives are not fulfilled they would not sign up to the bilateral FTAs. Northern countries have been able to bring on trade negotiations agenda many “trade related” (to some people-trade unrelated) agendas, why not developing countries adopting similar strategy and make developing a capacity to trade a trade related and front it on both multilateral, regional and bilateral cooperation initiatives?
(iv) However, I consider that it will be more difficult for developing countries to technologically catch up under overemphasised South-South cooperation, because it will largely be between technological adopters and not innovators. And its innovators and not adopters that extend the frontiers of technology and hence development forward. Take for instance Sub Saharan Africa, its difficult to envisage the technological spillovers that will emerge from cooperation between Rwanda, Uganda and Ethiopia when all of them deal in exporting one single primary commodity-coffee as opposed to cooperation between Ethiopian coffee firm managers dealing with Starbucks executives when exporting their coffee beans (here am referring to management skills being part of technological learning and not disadvantaged export of coffee beans anyway!!). The point here, is that emphasising technological learning/spillovers from South-South cooperation may delay the technological catch up process, by not only prolonging the lag of adoption and learning but also these countries missing out on making a strong case for achieving technological learning and innovation through international linkages of international trade (largely through the import of capital goods), FDI (through ensuring joint ventures) and licensing (UNCTAD, 2007).
In summary I would argue that rather than overemphasising South-South Cooperation as a the most viable option for fast integrating the poor countries into the global economy, emphasis should be placed on how the two processes of “internal and external integration” can be parallelly achieved, how southern countries can pragmatically and proactively engage their Northern neighbours to deliver conducive environment for technological learning, innovation and catch up opportunities, through the established international linkages of international trade, FDI and licensing and development aid.
International community (including international organisations) need to respond to the immediate needs of developing countries in building national and regional trading capacities, national and regional institutions (that are essential to reducing entry costs of forming regional trading and development cooperation blocks). .
It’s up to the South governments now to identify the key strategic areas that will help them integrate with the rest of the world-“it takes two to tango”. Its easy and conventional wisdom to keep blaming the north for all marginalisation of the south. But after 60 years of efforts toward global integration, what has the south learned?
Overemphasising south-south cooperation at the expense of strategically engaging the north may further marginalise the south on trade, technology and innovation frontiers as well as financial and capital integration with the rest of the world. Otherwise there is a need to unpackage the “policy space agenda”, what new lessons will be used when this policy space is achieved that has not been able to work in the last more than half a century ago?
Che Thuy Nhu
Date : November 5th, 2007 11:59:10
Now in Vietnam the flood after flood in the Central region and in North mountain’s areas. The life of grassroots is very hard. The reason may be the destruction of forests in Vietnam, Lao, Campuchia ,Thailand and South China for long time ?
I think the collaboration in Forest’s protection between countries in Region is neccesary .
Thank you for your attention .
Alagi B. Gaye
Date : October 24th, 2007 06:26:58
The article is indeed concise and factual. James Teered raised interesting questions, which I have thought about in the past. Looking at the genesis of trading arrangments between the South and the North would shed some light on some of the factors responsible for the status quo, where an insignificant proportion of the South’s international trade is amongst countries in the South compared to North-South trade.
Most of the countries in the South, particularly in Africa were colonies of countries, which constitute countries in the North. We are therefore still left with colonial legacies, whereby the economies of colonised countries have been deliberately designed to be appendages or peripheries of the colonisers. Thus colonised economies were structured in terms of infrastructure and superstructure for the production of raw materials to serve the colonial governments. An example in the service industry is telecommunications, where calls from an African country destined to another African country are routed through countries in the North. In Air transport, sometimes travelling from one African country to another one can take over 24 hours because of the lack of direct routes within African countries. Having said that, some countries, particularly in Asia that have been colonised have overcome some of these legacies by adopting practical and relevant development programmes supported by the right political will.
I strongly believe that regional bodies hold great potential to practically and gradually integrate our economies and lead to more South-South trade. However, for that to happen, countries in the South, particularly in sub-Saharan Africa, which is the only region in the World that has not prospered over the last 25 years, have to do a thorough self-assessment of their performance with a view to changing course in terms of our trading arrangements. There has to be the political will to ensure that regional bodies have the required resources and mandates to ensure more South-South trade, which research by UNCTAD have shown to hold great potential.
folounshor
Date : October 24th, 2007 06:13:32
Regionalization is a concept designed to distract the increasingly impatient african masses from their ultimate goal, i.e. African union. These are a few of the flaws of regionalization:
-It will not resolve trans-African access via road or rail as each region will attempt to develop in isolation,
-regionalization is simply an expansion of the status quo 53 enclaves that Africa is today,
-these regional entities could be played against each other just as it is done today by supreme extra-African powers.
I could go on, but this is just a taste of what I am putting together in a book form these days.
Regionalization is just another delaying tactic, just like the good old OAU was to the generation of my grandfather and father.
Olumide Abimbola
Date : October 23rd, 2007 10:09:02
I just read an overview of the UNCTAD report, and I really appreciate the recommendations of the report.
My reaction to the report is inspired by my relative familiarity with regionalization in West Africa. New regionalist scholars have praised different regionalising forces - NGOs, informal transboder traders and other organisations that extend beyond the borders of particular countries - as true integrating forces, but studies close to the ground have shown that they have not been much of that. Informal transborder traders in the region, for instance, play on the differences in the fiscal and monetary policies of the countries to make gains. And even the amount of trade in goods that originates in the region is meager when compared with the volume of non-west African goods which the informal transborder traders trade. It all sounds very impressive in a report, but the actual practice in the regions is way different from what one would expect.
Prof.vidya
Date : October 22nd, 2007 07:49:30
The archaic concepts of territoriality and sovereignity have acquired a new meaning in this era of free trade. Using the principle of comparative advantage, every state is learning the intricate methods of strategic management to gain benefit through regional and international cooperation. Regional agreements form an important component of an effective political strategy to accelerate the economic growth of every state.
James Teered
Date : October 22nd, 2007 03:39:13
Very interesting material. I am sure we would all like to hear Pascal Lamy comment on your piece. As for me, I simply wonder why South-South FTAs are so few if they really are to bring so many benefits. Are there any entry costs that prevent them from emerging ? Or is there any internal political economy reason for that ?