Regionalism among Developing Countries

Regionalism among Developing Countries

Also by Sheila Page HOW DEVELOPING COUNTRIES TRADE TRADE, FINANCE AND DEVELOPING COUNTRIES: Strategies and Constraints in the 1990s MONETARY POLICY IN DEVELOPING COUNTRIES (editor) REGIONS AND DEVELOPMENT: Politics, Security and Economics (editor) EAST ASIAN DEVELOPMENT EXPERIENCE: Economic System Approach and its Applicability, Part III (with Geert L. De Wet, Chris Harmse, James Blignaut, Peter Robinson and Douglas Zormelo) EUROPE 1992 AND THE DEVELOPING WORLD (with Michael Davenport) THE GATT URUGUAY ROUND: Effects on Developing Countries (with Michael Davenport and Adrian Hewitt) TRADING WITH SOUTH AFRICA: The Policy Options for the EC (with Christopher Stevens) WORLD TRADE REFORM: Do Developing Countries Gain or Lose? (with Michael Davenport)

Regionalism among Developing Countries Sheila Page Research Fellow Overseas Development Institnte London pal grave macmillan in association with OVERSEAS DEVELOPMENT INSTITUTE

* Overseas Development Institute 2000 Softcover reprint of the hardcover 1st edition 2000 978-0-333-77486-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Totten ham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. Published by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, NewYork, N.Y.10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin's Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-41662-2 DOI10.1057/9780333982686 ISBN 978-0-333-98268-6 (ebook) This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Transferred to digital printing 2002

Contents List of Tables Preface and Acknowledgements X xii Part I Defining Regions 1 What is the New Regionalism? 3 What is new 3 The regional response 5 Beyond trade 8 Structure of the book 11 2 Why Should Countries Form Regions? 14 Analysing groups 14 Why regions rather than global? 17 Geography 20 Economics 22 Trade 22 Investment 28 Policy arguments 29 Whose interests? 29 Is regulation seen as a benefit or a cost? 31 Traditional public services 33 Fiscal and monetary policy; taxation; redistribution; other macroeconomic action 33 How policy decisions can be divided 33 Social and other conditions 34 Security 38 Bargaining power 38 TheAcquis 40 Trade creation and trade diversion 41 Implications of the arguments 44 3 A Brief History of the Regions 47 Previous regions 49 TheEU 51 North and South America 52 Central American Common Market 53

vi Contents Andean Group 53 The Group of Three 54 CARICOM 54 MERCOSUR 55 NAFTA 56 FTAA 57 SACU 58 SADC 59 AEC 59 A SEAN 59 SAARC 60 ANZCERTA 61 APEC 61 A note on security 62 Conclusions 63 4 What do Members of Regions have in Common? 66 Geography 66 Size of population 69 Economic size 70 Economic sophistication 71 Political congruence 72 Common background or sense of community 74 Summary 76 5 Regulation and Obligations of Regions 81 WTO regulation of regions 81 Restrictions from other international organizations 90 Restrictions from other regions 91 Summary 92 Part II Trade and Investment 6 Formal Arrangements on Trade in Regional Groups 97 TheEU 97 AEC, APEC and FTAA 100 SADC 101 SAARC 101 A SEAN 102 ANZCERTA 102 The Group of Three 102 NAFTA 103 CACM 103

Contents vii ANDEAN Group 104 CARl COM 104 MERCOSUR 104 SACU 106 Summary 107 Rules of origin 107 Safeguards, antidumping, balance of payment tariffs, etc. 111 Allocation of customs revenues 111 7 Trade in Regions 113 Measuring trade in regions 113 TheEU 122 MERCOSUR 122 CARl COM 129 ANDEAN Group 130 Central American Common Market 131 NAFTA 131 Group of Three 136 ANZCERTA 136 ASEAN 137 SAARC 140 SADC 141 Latin America and Caribbean 142 FTAA 143 APEC 148 AEC 148 Summary 149 8 Regulation and Liberalization of Investment in Regions 163 TheEU 168 SACU 168 MERCOSUR 168 CARl COM 169 ANDEAN Group 170 CACM 170 NAFTA 171 Group of Three 171 ANZCERTA 171 ASEAN 172 SAARC 172 SADC 172 Summary 173

viii Contents 9 Investment in Regions SACU MERCOSUR CARICOM ANDEAN Group CACM NAFTA Group of Three ANZCERTA A SEAN SAARC SADC APEC Latin America and FTAA Summary 174 176 177 182 182 183 184 191 191 192 194 194 196 197 198 Part III Other Regional Linkages 10 Regionalism beyond Trade and Investment Services Labour mobility Harmonization of business conditions Labour standards Competition policy Environment Intellectual property Standards Trade facilitation Economic policy Public procurement Sectoral policy Border coordination Exchange rates Fiscal coordination Macroeconomic coordination Intra-regional transfers The institutional structure of regions Administration and initiatives Dispute settlement Military and other security linkages Other political and social linkages Summary of links 209 212 216 217 218 219 220 221 222 224 226 226 226 228 230 231 232 234 236 236 241 242 244 246

Contents ix 11 The External Relations of Regions 250 Open regionalism and other models 250 Negotiations in Latin America 255 FTAA 255 Other negotiations in Latin America 257 Asian negotiations 259 African negotiations 260 Relations of the regions to the multilateral institutions 261 WTO 262 Other international institutions 265 Relations of the EU with other regions 265 Latin America 266 Asia 270 North Africa and the Middle East 270 ACP 270 Eastern Europe 272 Conclusion on EU 272 US relations with regions 272 Regional relations 273 Summary 274 Part IV Conclusion 12 Regionalism: the Stages between Countries and the World 281 What are the conditions for success of a region? 281 Judgements on each region 285 The interaction between regions and development 288 Regions and the multilateral system 289 Do regions matter? Are there policy conclusions? 293 References and Bibliography Index 298 313

List of Tables 3.1 Membership of regional groups included 48 3.2 Summary of history of regions so 4.1 Geographical and other non-quantifiable indicators 67 4.A1 Economic indicators 77 S.1 External legal constraints on regions 89 6.1 Proposed and actual trade liberalization 98 7.1 Summary, Intensities (%) 118 7.2 MERCOSUR: Regional trade as a share of world trade by broad economic categories, 199S (%) 126 7.3 NAFTA: Regional trade by major SITC sector and by country, as a share of world trade (%) 133 7.4 Commodity structure of ASEAN trade, 1990, 1993 (%) 138 7.S FTAA: Regional trade as a share of world trade by broad economic categories, 199S (%) 144 7.6 MERCOSUR and Andean countries trade with FTAA countries by region (%) 147 7.7 Changes in regional trade, summary 1SO 7.A1 EU 1S, Intensities(%) 1S1 7.A2 MERCOSUR 4/6, Intensities(%) 1S2 7.A3 CARICOM, Intensities(%) 1S3 7.A4 ANDEAN, Intensities(%) 1S4?.AS CACM, Intensities(%) 1S4 7.A6 NAFTA, Intensitites (%) 1SS 7.A7 Group of Three, Intensities(%) 1SS 7.A8 ANZCERT A, Intensities (%) 1S6 7.A9 ASEAN, Intensities(%) 1S6 7.A10 SAARC, Intensities(%) 1S7?.All SADC, Intensities(%) 1S8 7.A12 Latin America and Caribbean, and FTAA, Intensities 1996 (%) 1S8 7.A13 APEC, Intensities, 1996 (%) 161 8.1 Investment regulations 167 9.1 MERCOSUR: Intra-regional capital stocks (% of total) 178 9.2 MERCOSUR: Intra-regional investment (% of total) 179 9.3 Andean Group: Intra-regional investment (% of total) 183 9.4 Andean Group: Intra-regional capital stocks (% of total) 184 X

List of Tables xi 9.5 US Foreign direct investment (o/o) 185 9.6 US Foreign investment stocks (o/o) 187 9.7 NAFTA-US investment by sector (o/o) 189 9.8 Investment in Mexico (o/o) 191 9.9 ANZCERTA: Share of inward and outward FDI stock, 1992 (o/o) 192 9.10 ASEAN: Share of inward and outward FDI stock, 1992 (o/o) 193 9.11 ASEAN: Composition of stock of foreign direct investment in 1992, by origin (o/o) 193 9.12 South African investment in SADC, stocks (US$ m., o/o) 195 9.13 APEC: Share of inward and outward FDI stock, 1992 (o/o) 195 9.14 FDI intensities for APEC members, 1992 196 9.15 Latin America: origin of capital stocks, 1995 (o/o) 198 9.16 Changes in regional investment, summary 199 9.A1 SACU FDI inflows and outflows (US$ m.) 200 9.A2 MERCOSUR FDI inflows and outflows (US$ m.) 201 9.A3 Andean FDI inflows and outflows (US$ m.) 202 9.A4 NAFTA FDI (US$m.) 203 9.A5 ASEAN FDI inflows and outflows (US$ m.) 203 9.A6 SADC FDI inflows and outflows (US$ m.) 204 10.1 Other linkages within regions 247 11.1 External relations of regions 275 12.1 Summary of linkages 282 12.2 Share of intra-regional trade in world trade(%) 295

Preface and Acknowledgements My interest in developing country regional groups goes back to my earliest research and first job in development economics, so it is more than usually impossible to identify all those who have contributed to what I know and think about them. The research for this book formally began in 1994, with the support of a grant from the Economic and Social Research Council (L 120 25 1015), under its Global Economic Institutions Programme. The formal and informal discussions and differences I had with David Vines, the Director of the Programme, and the other participants made a major contribution to clarifying my understanding of the topic. During the period of the research, I also received financial support for related research from UNCTAD, the European Commission, the Department for International Development, and the Trade and Industrial Policy Secretariat of South Africa. I am grateful to all of these for comments on my preliminary work on the subject, and also to participants in conferences organised by the European Association of Development Research and Training Institutes and the Project LINK forecasting group. I am particularly grateful to all the government officials, researchers, and people in private industry who allowed me to question them about how regions actually worked and what they were trying to do. Margaret Cornell edited the final text and compiled the index, clarifying the content as well as the style. I am very grateful for her help. None of these is responsible for any of the views expressed here. SHEILA PAGE xii