7. A Fourfold Justification of Common Industrial Policy

For one example, see the COMESA Regional Investment Agency at: http://​comesaria.​org.

In 1994, the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT) was founded. In this context, the city state evolved into the financial and technological core structure of a regional industrial cluster that reaches out wide into the Malay peninsula and to Indonesia. Since 2007, the whole archipelago of Riau has taken on the status of a free trade zone. Economically speaking, Singapore is hardly a city state anymore. A similar symbiosis worked between Hong Kong and China’s Shenzhen and economically transcended Hong Kong’s status as a city state, yet with the characteristic difference that a deliberate industrialization strategy mainly worked on the Chinese side of the border, as the Shenzhen free trade zone became the testing ground for China’s new industrial policy at the end of the 1970s.

Apart from the fact that it is often a terrible financial waste, as Europe’s CAP has taught taxpayers.

This limitation may explain why even in a regional community with a generous compensation mechanism and fairly good transport corridors and communication, such as SACU, the smaller member states show little gratefulness to the hegemon and regularly resort to the mentioned irregular internal barriers and to irregular industrial imports from globally efficient suppliers.

We introduce the term Common Industrial Policy (CIP) for its equivalence with CAP—and also because the acronym for Regional Industrial Policy—RIP—might create unintended associations.

Ethiopia, currently the most advanced country case of applied industrial policy in Africa, is not a member of a deeper-integrating REC and is one of the few non-members of WTO in Africa. Ethiopia is a member of COMESA and IGAD—however the former is just a light-integration REC, and the latter is a political and developmental community. It is significant that Ethiopia has still to sign the COMESA Free Trade Area protocol, although the trade-data-basis for tariff reductions has been completed. Negotiations to join the World Trade Organization and the Economic Partnership Agreement with the European Union have not been concluded either. By emulating an unrestricted Chinese trade policy style, Ethiopia can thus afford to both attract FDI and protect national firms by differential policy measures. As a CFTA signatory party, Ethiopia will have to accept shrinking policy space for this former unfettered unilateralism.

See the debate on the appropriate tariff structure in the AfCFTA, where UNECA has come forward with a similar plea, however for Africa-internal tariff liberalization, which is a priori less controversial.

Read G. Erasmus (in repeated TRALAC communications) on how the difference between the SADC- and the COMESA-style of setting rules of origin lingers on in the TFTA negotiations and actually holds them up.

The EAC recognized in an internal strategy paper at the end of the EPA negotiations that it would have been better to have an operational industrial strategy beforehand, and that future trade negotiations should be guided by such strategy.

What the EU is determined to do in EPA negotiations is, to a very large extent, nothing other than locking in far-reaching liberalization measures. Such a possible lock-in effect of RTAs between large/rich and small/poor countries was also described in Panagariya’s overview, see again (1999: 490). In the same context, World Bank analysts point to the example of the EU-Cameroon EPA and its numerous deep integration issues: ‘FTAs between large countries and smaller developing countries may serve as ‘policy anchors’ by acting as a mechanism for the smaller developing country to make credible commitments to policy reform in different areas which they might not otherwise make’ (Fiess, Aguera et al. 2018: 66). They also refer to the case of NAFTA and Mexico. This use of North–South trade agreements as a policy anchor is problematic, but anyone who regards it as a typical case of neo-colonial machinations is invited to consider progressive quests for human rights clauses in EU trade agreements—which are also policy anchors (see Part III).

Fine and Yeo in (Oyejide, Elbadawi et al. 1997) pondered the importance of African RECs as political lock-in mechanisms compared to their economic benefits, namely provision of a well-integrated regional market. Although the two dimensions are not exactly comparable, the authors were factually right: the REC ratchet works quite well when it comes to imposing respect for electoral outcomes and against military coups, namely in West Africa, but not so much yet in economic terms.

The obvious example to the contrary is the EU Common Agricultural Policy, which has jointly operated a lock-in of suboptimal and noxious incentives for decades, but the colossal financial resources required for such a joint government failure finally set substantial reforms into motion.