Transcript The Political Economy of Regionalism

The Political Economy of
Regionalism
April 20, 2006
Regional Anatomy I
Ken JIMBO
Review 1)
Defining “Regionalism”

Cognitive definition
A complex of attitudes, loyalties and ideas which
concentrates the individual and collective minds of
people(s) upon what they perceive as ‘their’ region.

Functional Definition:
A functional relation that bundles multiple nations with
their political, economic and cultural inheritance, often
based on the geographical advantage
Review 2)
Why ‘Regionalism’ matters?

Deepening and widening process of
globalization made ‘region’ in the different
context

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How the current process of regionalism is
different from ones of decades ago?
Were there any historical trends or waves of
‘making of a region’?
Historical Background of
Regionalism

Rise and Fall of Regionalism

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The First Wave: 1960’s
The Second Wave: 1980-90’s
The Third Wave (?): 2000’s
Jagdish Baghwati
“Regionalism and Multilateralism: an Overview” (1993)
Stages of Regional Integration
Free Trade Area
Eliminating mutual trade barriers but maintaining
external tariffs
Customs Union
Free trade area plus common external tariff
Common Market
Customs Union plus free movement of Capital (ie Labour;
Technical harmonization)
Economic Union
Common Market plus Coordination of policies and
freedom of services, single currency
Political Union
Economic Union plus Common Policies
BELA-BALASSA, 1961
Schematic Presentation of
Regional Integration
Free
IntraScheme
Trade
O
Common
Commercial
Policy
Free
Factor
Mobility
One
Government
X
Common
Monetary
& Fiscal
Policy
X
X
Customs
Union
O
O
X
X
X
Common
Markets
O
O
O
X
X
Economic
Union
O
O
O
O
X
Political
Union
O
O
O
O
O
Scheme
Free Trade
Area
X
Sources of Regionalism

Welfare of Members

Preferential Trade Agreements (PTAs) can enhance
members’ welfare if these arrangements create
more trade among members than they divert from
efficient producers outside PTAs
$100 Product
100 %
0%
Free Trade plus
Customers Union
0% tariff : $100
100% tariff: $200
Trade Creation / Diversion Effect
The two red triangles represent the
positive welfare gains from the
trade creation effect
(p: price / t: tariff)
After joining the customs union, the tariff
inclusive price of imports from Australia
rises, but the price of imports from France
remains the same.
(F: France / Aus: Australia)
GATT/WTO Rules and PTA

GATT / WTO Rules


An essential characteristic of WTO is nondiscrimination between members.
Under the “most favored nation” (MFN)
clause, a WTO member must extend to all
other WTO signatories the trade
concessions made to any one member.
GATT/WTO Rules and PTA

Regional Trade Agreements

There are some exceptions to the MFN rule,
which allow countries to apply lower tariffs
to imports from particular countries.
GATT Article 24
…such union or agreement shall not on the whole be
higher or more restrictive than the general incidence of
the duties and regulations of commerce applicable in the
constituent territories prior to the formation of such union
(CU) and Free-trade Area...
GATT Rational of Regionalism

Characteristic of National Economy


Cultivation of National Industry
Consistent with GATT Ultimate Goals

Deeper integration would be achieved
simultaneously within those areas where
politics permitted faster movement to free
trade under a strategy of full and timebound commitment
The First Wave of Regionalism
Background



1950s/60s: considerations of the sustainability of
the nation-state
Post-Colonial nation building process
Regional Frameworks


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Western Africa Economic Community (1956)
Central-Latin America Free Trade Association
(1960)
Central America Common Market (1960)
Caribbean Free Trade Union (1965)
Rise and Fall (Collapse) of
First Wave Regionalism

Member States


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Diluted Regional Dynamism


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Small and Medium-sized Economy
Limited ‘Trade Creation’ Effect
“Trade Substitution”
Protection of Regional Industrial Sector
Failure in Economic Development


Limited-Scale of Industrial Transformation
Limited-Scale of Technological Innovation
“The Obsolescence of Regional
Integration Theory” Ernst Haas, 1975

The failure to replicate the European experience
elsewhere

National governments continued to be powerful actors
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

outside the region – eg: in international relations
inside the region – not transcending the national but instead
intergovernmental where national preferences and power
remained more important that the region as an actor
Towards concepts of (complex) interdependence
The Rise of the Second Wave of
Regionalism

Europe


North America
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ASEAN Free Trade Area (1992)
Latin America

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APEC (1989)
ARF (1994)
Southeast Asia


NAFTA (1989)
Asia-Pacific

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European Union (1993)
Mercosur (1995)
Persian Gulf

GCC (1981)
Background of the Second Wave
Regionalism

Weakened GATT Regime

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Declining of US Economic Hegemony (cf. Robert Keohane,
After Hegemony)
Increasing Complexity of Interest Coordination: “Transaction
Costs”
Increasing Sectors: Finance, Insurance, TeleCommunications, Services, IT…etc
Rise of “Developmentalism” Model


From “Trade Substitution” to “Developmentalism” (cf.
Yasusuke Murakami, Anti-Classical Theory of PoliticalEconomy)
“East Asian Miracle” (World Bank) and Rise of Asian Economy
Logic of Dynamic Growth Model
Source: Esko Antola
POLITICAL
UNION
COMMUNITY METHOD
TECHNICAL
HARMONISATION
SINGLE ACT
CUSTOMS UNION
INTERNAL MARKET
ECONOMIC AND
MONETARY UNION
1968
ENLARGEMENT
INSTITUTIONAL
REFORM
WHITE PAPER
MARKET
HARMONISATION
1958
DEFENCE?
1972
ECONOMIC AND
MONETARY UNION
1979
1985
1992
2000
Characters of Second Wave Regionalism

Mega-Regionalism


Participation of Large-scale Economy (US, EU, Japan,
China)
Nested-Box Model (Yamamoto, Kikuchi)

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Global Institution (GATT/IMF) – Mega-Regionalism－SubRegionalism
Open Regionalism



Harmonization with Global Institutions/Frameworks
Non-Discriminatory Trade Liberalization
“Soft-Regime” Building
Stagnation of Second Wave Regionalism?

Stagnation of WTO Process (Global)

Doha Round Process

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Stagnation of APEC Process (Regional)

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Seattle Meeting (1999)
Cancun Meeting (2003)
Hong Kong Meeting (2005)
Bogor Declaration (1995) and Follow-on Process
Rise of Bilateral FTAs (Bilateral)
Rise of Bilateralism?

Flawed Effectiveness of ‘Open Regionalism’

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Inclusiveness vs. non-criteria
Consensus vs. ineffectiveness
Rise of Bilateral Rational Choice of Government
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Bilateral FTAs
Ad-hoc Cooperation
Functional Cooperation
Rise of the Third Wave of Regionalism?
Level of
Cooperation/
Integration
Third Wave Regionalism ?
Second Wave Regionalism
Timelines
Globalism / Regionalism / Bilateralism
and the ‘Recursion’ of the Region
Economic Sphere
Security Sphere
Global Framework
GATT / IMF
UN / Multinational
Mega-Regionalism
APEC
ARF / OSCE
Regionalism
Coalition
Bilateralism
EU / ASEAN +3
Multilateral FTAs
Bilateral FTAs
EU / ASEAN
Anti-Terrorism
Bilateral Alliance