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CHAPTER 1. INTRODUCTION

The resurgence of regionalism

Waves of regionalism

Regional integration has been a recognizable feature of international trade relations in the post-war
period, though its salience has waxed and waned. Two waves of regionalism can be identified and a
third may be underway. The first started with the establishment in 1957 of the forerunner of the
European Union and, in the developing world, the adoption in Latin America and Africa of import-
substituting regional integration as the means to effect inward-looking growth. Most of the developing
country schemes initiated at this time eventually became moribund or collapsed, while the growing
momentum of multilateral liberalization in the 1970s and 1980s contributed to the decline in the
importance attached to regionalism.

A second wave of regional integration started during roughly the second half of the 1980s. The origin
of the ‘new regionalism’ has been attributed to the drawn out nature and slow progress of the GATT
Uruguay Round negotiations, to the apparent success and fears aroused by the EU’s initiative aimed
at establishing a Single European Market, and to the conversion of the United States to regionalism
with its negotiation of the North American Free Trade Agreement (NAFTA) and its Enterprise for the
Americas initiative which has led to proposals for a Free Trade Area of the Americas (FTAA). In Latin
America, new life was breathed into some old integration arrangements, sometimes in the wake of
political change (the Central American Common Market and the Andean Pact) and new
arrangements, such as MERCOSUR, were created. In Asia, ASEAN embarked on plans for an
ASEAN Free Trade Area (AFTA), the South Asian Association for Regional Cooperation agreed in
1997 to transform itself into the South Asian Free Trade Area while the Asia Pacific Economic
Cooperation (APEC) also committed to trade liberalization objectives on a non-preferential basis. In
Africa, home to the world’s oldest customs union in Southern Africa, initiatives have included the
revitalization of existing regional groupings, the formation of new groupings and the announcement of
ambitious targets at the 36th OAU Summit in Lomé, Togo in July 2000 to accelerate the formation of
an African economic and political union.

The third wave

Some observers believe that a third wave of integration is currently underway (Lloyd, 2002). While
there were 125 RTAs notified during the GATT years, a further 125 new RTAs have been notified
since the establishment of the WTO on 1 January 1995 up to April 2002 (WTO, 2002). This
represents an average of 15 notifications every year to the WTO, compared with an annual average of
less than three during the four and a half decades of the GATT (see Figure 1) [1]. On average, each
WTO Member is involved in five RTAs, though some are parties to ten or more. According to a recent
WTO study, most developing countries now participate in RTAs. Of the 243 RTAs estimated to be in
force in April 2002, between 30-40 per cent are agreements concluded between developing countries
(WTO, 2002).

Figure 1 - RTAs notified to the GATT/WTO (1948-2002), cumulative

Source: WTO, 2002

Growing complexity of RTAs

Another WTO study noted that “the configuration of RTAs is diverse and becoming increasingly more
complex with overlapping RTAs and networks of RTAs spanning within and across continents at the
regional and sub-regional levels” (WTO, 2000a). The simplest configuration is a bilateral agreement
formed between two parties. These account for more than half of all RTAs in force and almost 60 per
cent of those under negotiation. More complex are plurilateral agreements involving a number of
countries and those agreements in which one of the partners is an RTA itself. Agreements in which
each party is a distinct RTA are expected to emerge in the next five years, reflecting the growing
consolidation of established regional arrangements. A mapping of RTAs is provided by WTO (2000a).

In terms of geographic coverage, new bilateral developments have fundamentally changed the pattern
of RTAs. First, up to the early 1990s, RTAs were a set of non-intersecting areas with only a few
exceptions. This is no longer true. Many countries are now members of more than one RTA, what
Bhagwati (1995) called the ‘spaghetti bowl’. Second, the new regionalism is characterized by
integration across the North-South divide with a number of schemes involving both developing and
industrialized countries. Third, several of the new agreements are ‘cross regional’ in that the members
span more than one of the world’s geographic regions. Fourth, another feature is the emergence of
large continental RTAs. The EU is in its fourth enlargement. The FTAA would create an area of 34
nations if negotiations are successfully concluded. An East Asia RTA is a possibility. The OAU is
promoting the idea of an African Common Market. Thus, the current scene is characterized by many
new bilaterals coexisting with very large continental RTAs, a pattern which Lloyd (2002) characterizes
as bilateralism combined with continentalism.

Hubs and spokes

The existence of overlapping RTAs creates what is referred to as ‘hub and spoke’ configurations. A
hub arises when one country is a member of two or more distinct RTAs. Spokes may be either
bilateral (where a hub country forms a bilateral RTA with another country) or plurilateral (where a hub
country enters into a relationship with another RTA). Hubs and spokes can be a negative feature of
the proliferation of RTAs as they create multi-layered preference schemes. In particular, spokes have
less market access than the hub as the hub enjoys preferential access to all spokes but a spoke has
preferential access to the hub only. A spoke country can avoid this effect by becoming a hub in its
own right by entering into its own set of bilateral or plurilateral RTAs. No doubt this partly explains the
acceleration in bilateral agreements which is occurring at the present time.
Expanding coverage

Another characteristic of ‘new generation’ agreements is their expanding instrument and commodity
coverage. Newer agreements increasingly cover agriculture, services, investment, intellectual
property, government procurement, trade facilitation, dispute settlement, as well as limits on the use
of quantitative restrictions and safeguards. A number of agreements make provision for the use of
competition policy instruments in place of anti-dumping procedures on trade among the parties
(Crawford and Laird, 2000). There is also a growing emphasis on policy integration, where countries
agree to reduce the market-segmenting effects of differences in national regulatory regimes. As an
example, consider the 1995 Osaka Action Agenda agreed by APEC leaders. The 15 action areas
include tariffs; non-tariff measures; services, investment; standards and conformance; customs
procedures; competition policy; government procurement; deregulation; intellectual property; rules of
origin; dispute mediation; mobility of business persons; Uruguay Round implementation; and
information gathering and analysis (Scollay, 2001).

Characteristics of integration schemes

Typology of integration schemes

The classic schema of economic integration ranks integration arrangements according to the depth of
integration achieved along a continuum starting with a preferential trade area, and evolving through a
free trade area, customs union, common market, economic union, economic and monetary union to
ultimately achieve a state of total economic integration. Regional trade arrangements (RTAs) are a
subset of possible regional integration arrangements (RIAs).

In preferential trade areas countries lower tariffs on trade with each other while retaining autonomy
in setting tariffs on trade with third countries. In free trade areas, countries eliminate tariffs on trade
with each other while retaining autonomy in trade policy with third countries. A problem with
preferential and free trade areas is the danger of trade deflection. This can arise where goods are
imported through the country with the lowest external tariff for free circulation throughout the region.
Trade deflection can be controlled by the use of rules of origin (rules which determine if a product is
deemed to have originated in a particular country and is thus eligible for preferential tariff treatment) or
through forming a customs union.

Customs unions remove tariffs on trade with other members and apply a common trade policy
towards third countries. A common market in addition aims at removing restrictions on factor mobility
(capital, labor) between members as well as freeing trade in goods and services. In an economic
union, members pursue some degree of harmonization of national economic policies in order to
remove discrimination due to disparities in these policies. Monetary union adds the adoption of a
common currency and a common monetary policy, while the stage of total economic integration
involves the unification of monetary, fiscal and social policies under the auspices of a supranational
authority. Examples of RTAs which fall into these categories are shown in Table 1.

In the past, there was a tendency to see this typology as a ‘ladder’ along which participating countries
would move to successively deeper stages of integration. While there is some support for this in the
EU experience, the ‘ladder’ theory does not take account of the specific problems which arise when
integrating mixed economies. A mixed economy is one where the economic order is based on market
principles but where there is considerable public intervention either to control market forces (e.g.
competition, consumer protection and environmental policies) or to correct or compensate for market
outcomes (e.g. social and regional policies). Differences in these public interventions give rise to
unintended trade barriers which can only be overcome either by eliminating the intervention
(deregulation) or by ‘supranationalizing’ it (by transferring the intervention to the union level through a
form of positive integration).

Thus, in the EU’s experience, we see examples of positive integration accompanying market
integration from the very outset. For example, governments have long intervened in agricultural
markets in order to protect farm incomes, ensure food security and stabilize prices. The integration of
agricultural markets in the EU required from the outset that these functions were transferred to the EU
level and the Common Agricultural Policy was born. Similarly, the introduction of monetary union,
which required the negative integration steps of eliminating controls on capital movements and
national governments’ ability to issue money, also required a good deal of positive integration in
setting up common monetary rules and institutions at the EU level.

In short, policy harmonization may well be needed to make trade integration work, particularly if
extended to services trade (the lesson of the single market program in the EU) and may indeed
precede trade integration (as in the case of monetary unions in Africa). Conversely, policy integration
agreements can stand alone. They do not have to be accompanied by preferential trade liberalization.
For example, countries may conclude mutual recognition agreements for health, safety or prudential
standard regimes without any intention of forming an RTA.

Table 1 - Selected examples of different types of regional integration arrangements

Type Level of Integration Examples of

Regional Trade
Areas
Free Trade Members eliminate tariffs among themselves but EU-CEE Association
Area keep their own tariffs against the rest of the world Agreements
NAFTA
CEFTA
ANZCER
Customs Members eliminate tariffs among themselves and MERCOSUR
Union adopt a common tariff against the rest of the world Andean Pact
Central America
Common
Market
SACU
Common Members eliminate tariffs among themselves, European Economic
Market adopt a common external tariff, and remove Community
impediments to movements of factors of production
between member countries
Economic Members move beyond a common market to co- European Union
Union ordinate and harmonize economic policies WAEMU
Monetary Members share a common currency and monetary Euro-zone countries
Union policy of the European
Union
CFA zone[2]

Monetary unions

There are also examples of monetary unions in which countries agree to pool their monetary
sovereignty without necessarily integrating other aspects of trade and economic policy. Customs
union theory is concerned only with the markets for goods. Optimal currency area theory has a slightly
different focus. It seeks to understand the conditions under which is economically efficient to create a
currency union. Interest in regional financial arrangements was rekindled in Asia following the Asian
financial crisis in 1997-98 which existing regional institutions could do little to alleviate. Such
arrangements can take various forms. The most limited form would be a regional liquidity fund, where
national central banks enter swap arrangements with each other to pool liquidity. A more advanced
form would be characterized by preparation for monetary union, including fixed exchange rate bands
and rules to achieve nominal convergence. The most integrated form is creation of a monetary union,
including a single currency and monetary policy. Although food and agricultural trade would
undoubtedly be influenced by the exchange rate implications of forming a monetary union, we do not
consider this type of RTA further and concentrate on RTAs in the discussion in the rest of this paper.

Political commitment and regional integration

Importance of political commitment

While regional integration arrangements are often evaluated in purely economic terms, integration
may be pursued for explicitly political motives. Although it is now almost taken for granted that trade
integration is one of the main benefits sought by countries entering regional integration arrangements,
Page (2000) points out that it is hard to explain the growth of interest in regional integration based on
trade motives alone given that tariff levels in most regions have been falling and are now at relatively
low levels. She concludes that all successful regions have objectives other than freeing trade, and
that this may be essential for the will to evolve.

“Trade may well be secondary to political or security objectives or a tool rather than an objective: it is
difficult to find any groups which have only a strictly trade agenda”. (ibid, p. 6)

Even if political motives are not uppermost, political will is a crucial ingredient in the integration
process and, in its absence, little progress will be made. At the same time, economic integration can
have political consequences, as when it contributes to stabilizing a political regime or enhancing
regional peace and security. On the other hand, the experience of unsuccessful integration may
cause discord and even provoke the breakdown of relations between participants.

Donor attitudes to regionalism

EU a strong supporter

The attitudes of major donors are important elements in the environment in which many developing
countries are turning to regional integration strategies. Perhaps not surprisingly, the EU has
demonstrated the most positive attitude to regional integration. This was underlined in the 1997 EU
Green Paper on Development Cooperation (European Commission, 1997) and the subsequent
decision to support Regional Economic Partnership Agreements (REPA) as the post Lomé
arrangements for the ACP countries.[3]

“Regional integration among developing countries is part of a wider strategy to promote equitable
growth and is not an end in itself. Effective regional integration will increase competition, reduce
private transaction costs, enable firms to exploit economies of scale, encourage inward foreign
investment and facilitate macroeconomic policy coordination. Regional groupings should be open
towards the world market in the sense of keeping tariffs at a level that does not encourage trade
diversion. They should not attempt a form of regional autarky that has led to past failures. Open
regionalism complements unilateral liberalisation. Without regional coherence, unilateral liberalisation
may imply negative spill-over effects. A regionally coherent liberalisation strategy will reduce and
smoothen the cost of adjustment to an economy in the face of globalisation, both for the private and
public sector. The high adjustment cost of unilateral liberalisation has been a cause of policy reversal
in a number of developing economies.” (EU Council Statement on Development Co-operation, 1997).

The EU’s support for, indeed insistence on, regionalism under the Cotonou Agreement with the ACP
countries and in its Euro-Mediterranean agreements will be a powerful impetus for further regional
economic integration among its partners in the coming decade.

World Bank more sceptical

In the early 1990s, the concept of open regionalism was a subject of intense debate in the World
Bank. The Bank’s report on regional integration (World Bank, 2000) gives cautious support to the
idea, and its stance is further spelled out in the companion volume by Schiff and Winters (2003). It
believes that reducing barriers to trade and investment with all trade partners evenhandedly through
nonpreferential trade liberalization, undertaken where necessary on a unilateral basis, remains the
best development strategy. But it recognizes that political pressures may push some countries to
prefer regional integration arrangements, and it has pursued a major research program with the aim of
identifying best practice in the design of regional arrangements involving developing countries.
Nevertheless, the Bank remains at best lukewarm about the idea. Its approach to regional integration
remains at odds in significant ways with other donors.
Aims and structure of the paper

Given that differences exist on the desirability and on the efficient design of regional integration,
especially involving developing countries, the first objective of this paper is to summarize the different
arguments for those involved in the preparation of food security strategies as part of regional
integration programs among developing countries. It aims to provide a better understanding of the
motivations, processes and constraints to regional integration and cooperation. Table 2 presents a list
of the common arguments in favor of regional integration. This paper concentrates primarily on the
economic arguments while acknowledging that political motivations may often be the primary driving
force.

Table 2 - Motives for regional integration

Economic motives

 To reap the trade benefits of improved resource allocation and greater

competition
 To provide a training ground or launching pad for outward-looking policies
 To gain improved market access to other countries and to provide insurance
against the breakdown of multilateralism
 To lock-in and provide credibility to politically difficult domestic policies
 To increase multilateral bargaining power in international forums and vis à vis
third countries
 To raise visibility in attracting external assistance and investment To facilitate
‘deep’ integration, i.e. policy coordination

Political motives

 To further national security goals

 As a stepping-stone towards political unification

The second objective of the paper is to identify the potential role which regional trade arrangements
might make to promoting food security among their members. In many developing countries food
security remains an overriding objective because of low absolute levels of food availability per capita,
low income levels and vulnerability to internal and external shocks. Poverty levels in many countries
have increased over the last ten years because of low or non-existent economic growth, and poverty
is heavily concentrated in the rural population. Chronic undernourishment remains high. Given the
growing propensity of developing countries to enter into regional trade arrangements both with each
other and with industrialized countries, it is pertinent to ask what impact this might have on their food
security, and how these regional groupings might be able to contribute to promoting food security.
Can poverty and hunger (as cause and consequence of food insecurity) be alleviated by regional
integration? What are the the possible opportunities for regional integration to promote food security?
Special attention is paid in the paper to the potential and constraints to regional co-operation in sub-
Saharan Africa given the severity of food insecurity in that region and its ambitious objectives for
regional integration.

Structure of the paper

The paper is divided into seven chapters. Following this introduction, Chapter 2 reviews the economic
implications of regional integration to identify the potential gains from regional trade integration,
particularly among developing countries. Chapter 3 discusses some institutional aspects of regional
integration, emphasizing those factors which contribute to the sustainability of regional arrangements.
Chapter 4 discusses the way in which regionalism is addressed by WTO multilateral rules as well as
the issues it raises for the multilateral negotiations on agriculture. Chapter 5 examines how
regionalism impacts on food security and the potential role of regional trade arrangements in
promoting food security. Section 6 discusses the experience of regional economic initiatives in sub-
Saharan Africa. It highlights the poor track record of regionalism and identifies the issues which must
be addressed if regionalism on that continent is to be more successful in the future. Section 7
concludes with a check list of initiatives which might be pursued by those interested in developing the
food security dimension of regional integration programs. In many cases such initiatives might be put
forward for donor support as part of their assistance to regional economic groupings.

[1]
The WTO figures only include notified agreements, and there are many other non-
notified, or not yet notified, agreements in existence. Also, non-reciprocal preferential
agreements covered by waivers are not included in these numbers.
[2]
CFA stands for franc des colonies françaises d’Afrique. It was created on December
25th, 1945 as the currency of a zone of francophone countries in West and Central
Africa, pegged to the French franc and supported by the activities and resources of
the Bank of France.
[3]
We refer to the European Union countries as the EU throughout this paper.
Formally, however, it is the European Community which has responsibility for the
conduct of EU trade policy.