Regionalism, Globalization, and World Economic Order

Introduction

There have been two apparently contradictory understanding of the trajectories of contemporary world economies:

1) World economy as increasingly defined by three macro-regions (Europe, North America and Eastern Asia) struggling for geopolitical predominance

2) Globalization of world economy, in which the rational economics “triumphs” over irrational international politics of struggle for power.

Economic regionalism

It refers to a conscious policyconscious policy of state or sub-state regions to coordinate activities and arrangements in a greater region

Economic regionalisation

It refers to the outcomeoutcome of such policies or of 'natural' economic forces

Economic regionalism

Normally the focus is on the formation of preferential trading arrangements between groups of countries within a geographic region

They are commonly referred to as trading blocstrading blocs

Economic regionalism: working definition

The design and implementation of a set of

preferential policiespreferential policies within a regional grouping of countries aimed at the encouragement of the encouragement of the exchange of goods and/or factors exchange of goods and/or factors between members of the group

Economic regionalism It is by definition discriminatory with regard to the

rest of the world and thus opposed to the principle of non-discrimination which characterises multilateralism

However, within this scheme it is possible to distinguish malignmalign and benignbenign form of regionalism BenignBenign: regional arrangements which in the swapping of

mutual preferences between group's members do not increase barriers to economic exchanges with the outer world

MalignMalign: regional policies which consciously or unconsciously reduce the welfare of outsiders

Economic regionalism: In the post WWII international economic order there

was support to benign regionalism The General Agreement on Tariffs and Trade (GATT,

1947-1994) though formally hostile to regionalism, de facto accommodated and tolerated it (Art. XXIV)

Economic regionalism: XXIV- 4. “The contracting parties recognize the

desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.”

Economic regionalism:

Crucial to the success of economic regionalism has been also the support of the USA which considered regional policies instrumental to their anti USSR strategies in Europe

Economic regionalism: This has been the case of the European Payments Union (EPU) and

European Coal and Steel Comunity (ECSC):

European Payments Union (EPU, 1950-1958)

The EPU was established to solve the impasse in which trade was in post WW2 Europe. Accounted for trades but did not transfer money until the end of the month. It changed the landscape from bilateral trades of necessity (trading with partners because of outstanding debts) to multilateral trades. The EPU also forced liberalization by mandating that members eliminate discriminatory trade measures

Economic regionalism: European Coal and Steel Comunity (ECSC, 1951-57)“

The ECSC Treaty was signed in Paris in 1951 and brought France, Germany, Italy and the Benelux countries together in a Community with the aim of:

organising free movement of coal and steel and

free access to sources of production.

In addition to this, a common High Authority supervised the market,

respect for competition rules and price transparency.”

Economic regionalism:

European Coal and Steel Comunity (ECSC, 1951-57)“

“The aim of the Treaty, as stated in Article 2, was to contribute, through the common market for coal and steel, to economic expansion, growth of employment and a rising standard of living. Thus, the institutions had to ensure an orderly supply to the common market by ensuring equal access to the sources of production, the establishment of the lowest prices and improved working conditions. All of this had to be accompanied by growth in international trade and modernisation of production.”

Economic regionalism: Economic regionalism seems to have been appreciated

more by politicians then by economists

From the point of view of economic theory it is much more difficult to define if economic regionalism is benign or malign

To this regard Jacob Viners has argued that: “the desirability of customs unions or FTAs depended on the circumstances”circumstances”

Economic regionalism: Economists tend to be more cautiouscautious in their assessment

as they introduce important distinctions between trade creationtrade creation: the result of exchanges between 'natural'

trading partners which increases efficiency and growth. It leads to a shift from less efficient domestic productionless efficient domestic production to more efficient partner country productionmore efficient partner country production

trade diversiontrade diversion: the increase in relative protection from the outer world shifts demand away from import from efficient third countriesefficient third countries to imports from less efficient less efficient partner countriespartner countries

Economic regionalism:monetary and policy integration

There is also a lot of debate among economists on the assessment of regional monetary and policy integration

Richard Cooper says that economic theory has not provided enough arguments to define properly the size of the 'optimal optimal geographic areageographic area' of policy jurisdictionpolicy jurisdiction

For instance, the optimal jurisdiction for policing of environmental policy may be very different from that for monetary policy

Economic regionalism:political economy reasons

The interaction of history and geography may favour the emergence of regional commonalities

Security is another factor which might underpin regional cooperation

However, the presence of severe security dilemmas might transform regional economic relations into very uncooperative

Economic regionalisation:Regionalisation of markets

It might result from regional policies but it can also be not directly connected to government policies

For instance within the USA there are clearly identifiable regional patterns

• Mid-West: agriculture;

• California: High tech;

• North-East: manufacturing and finance

However, it is difficult to assess the extent of the influence of state policies and that of 'accidents'

New regionalism: North America

USA and Canada’s shift toward regionalism represented a major development as they were among the staunchest supporters of multilateralism

It was related to the debt crisis of the early 1980s when Mexican economy went close to the default

New regionalism: North America To protect the USA economy Reagan was forced to rethink its

attitude toward regional arrangements.

The results were:

Canada–United States Free Trade Agreement (CUSFTA, 1988-94)

North-America Free Trade Agreement (NAFTA, 1992) it is the largest world FTA with a combined GNP of $ 6.3 trillion and a population of 363 million

NAFTA was also conceived by the USA as a tool to put pressure on Europe and East Asia and force them into trade concessions

New regionalism: Latin America From 1990 the USA offered to proceed by negotiating framework

agreements to serve as basis for improved trading and investments relations

The USA move met the interests of countries that hoped to gain benefices from this opening

There was also fear that by not joining this agreements their economies could have suffered considerably

This development added also impetus to regional activities already underway such as Mercosur

New regionalism: Europe Europe has been considered as the most successful case of

economic regionalism since the 1950's

However during the whole early period it was confined to trade in goods

Significant non-tariff barriers to trade remained until the 1980's

New regionalism: Europe The major change happened in 1985 whith the release of the

Delors Commission's White Paper on Completing the Internal Market

this document set out a timetable for the measures required for the

completion of the single market by 31 December 1992)

This step was influenced by

The oil crisis of 1973-1975 The US decision to stop the convertibility of the US dollar into

gold the declining competitiveness of European industry vis à vis the

USA and Japanese rivals

New regionalism: Asia – Pacific

Initially focused on exporting to rich Western markets perceived revived regionalism in Europe and the Americas as a threat to their economies

This, in turns, ignited processes of regionalisation in that area which were initially ineffective and confused

Main explanation for this lays in the fact that the rise of Japan, the NICs and, later on, China made multilateralism a more attractive strategy to penetrate Western markets

New regionalisms: Africa The dominant approach toward regionalism in Africa is

negative because formal sector regional trade has failed to grow faster than at the global level

However, this approach risks to be superficial as it fails to appreciate the role of the informal sector

In fact informal sector exchange continues to boom, in part in response to formal level constraints deriving from non-tariff barriers, (such as inefficiency and/or corruption)

Moreover, official statistics only record official trade within established intergovernmental groupings

New regionalisms: AfricaA more effective approach should investigate the relevance for regionalisation processes of:

‘developmental economies and ecologies; ’

civil societies and media; new security threats; ‘war economy ’ peace-building responses corridors and triangles

New regionalisms: Africa

New regionalisms: AfricaNGOs

New regionalisms: Africa

New regionalism: common factors behind its development

The end of the Bipolar systemThe end of the Bipolar system Eroded the common security linkagescommon security linkages which helped to

underpin post-war economic cooperation between the USA, Western Europe and Japan

Increased the salience and visibility of conflicts between conflicts between different forms of capitalismdifferent forms of capitalism

Pushed traditional and non-traditional security threatstraditional and non-traditional security threats arising from political and economic instability within regions up in the agenda

In the European space introduced the debate on the “boundariesboundaries” of the EU

New regionalism: common factors behind its development

The shifting balance of world economic powerThe shifting balance of world economic power Heralded USA retreat from globalism linked to its

economic decline has been a major factor for the rise of new regionalism

This has been met by the

Rise of the NICs (Newly Industrialised Countries)

Rise of the BRICSs

New regionalism: common factors behind its development

The shift toward outward orientationThe shift toward outward orientation Failure of debt-financed import-substitution policiesdebt-financed import-substitution policies in

Africa, South Asia and Latin America together with the success of outward oriented policies of East Asia have favoured a generalised shift toward favouring favouring rather than discriminating against exportexport

In this context regional arrangements helped in: Accessing foreign markets Attracting export-oriented foreign direct investment Offering signals of committment to economic reforms

New regionalism: common factors behind its development

The growing importance of non-tariff barriers to trade (NTBs) The growing importance of non-tariff barriers to trade (NTBs) The success of GATT and WTO in reducing tariff barriers to

manufacturing trade has shifted the attention to persisting NTBs

This question the role of the State in modern economy Procurement practices, subsidies, Sanitary and Phyto-sanitary

conditions, Employment laws, Occupational safety, Import quotas, local content requirements, public procurement practices, domestic safety, anti-dumping laws

Regionalism has been perceived as the best strategy to reduce NTBs