Regional Integration and Economic Development

The three chapters in this part of the book have the aim of contributing to the evaluation of the regional integration processes underway in various parts of the world. Within this broad mandate, they differ substantially along three main dimensions: (1) the integration schemes they cover, (2) the methodology used for evaluation, and (3) the substantive conclusions at which they arrive. Given this heterogeneity, this introductory section will be organized according to the three elements just mentioned in order to compare and contrast the chapters and provide the reader with an idea of their contributions. The three chapters include Ippei Yamazawa’s “How Can APEC Help Asia to Get Over the Economic Crisis?,” Fernando González-Vigil’s “Andean Community Trade Flows and Policies in the Nineties,” and Francisco Zapata’s “Nation-State, Free Trade, and Economic Integration in Latin America.”

Trade realities and trade policies obviously influence each other, but sometimes this happens in ways that are far from obvious. Andean Community (AC) countries have seen their real economies become more interdependent during the 1990s, as trade regimes have been rapidly opened up through preferential agreements. Nevertheless, the AC has found it harder than expected to complete its sub-regional Free Trade Area (FTA), and the goal of becoming a customs union remains only partly accomplished.

APEC has launched an important deepening process for the past few years. In 1994 the Bogor Declaration set the ambitious target of ‘achieving free and open trade in the region by 2010 and 2020’. In 1995 Osaka Action Agenda (OAA) provided a guideline for implementing policy measures to achieve this target. It set two major tracks, Trade and Investment Liberalization and Facilitation (TILF) and Economic and Technical Cooperation (Ecotec). It adopted a unique modality for TILF, Concerted Unilateral Liberalization (CUL) in which individual members announce their liberalization plans (Individual Action Plans, IAPs) unilaterally and other members will watch their implementation so as to encourage all members to achieve the Bogor target in the set deadline. In 1996 APEC leaders adopted Manila Action Plans for APEC (MAPA) in which all APEC members submitted their IAPs and implemented from 1997. As regards broadening, APEC admitted three new members, Vietnam, Peru, and Russia, to join as full members from November 1998.

Evidence of tension between the economic policies of nation-states and trade liberalization processes in a number of countries around the world requires us to look beyond a strictly commercial interpretation of economic integration. Economic integration and its likely political outcomes transcend trade liberalization, the implications of which can even compromise integration processes. The potential for free trade to threaten regional integration is clear to see: it mainly arises from the upheaval that free trade causes in national economic systems and the tensions it generates in the political fabric of nation-states.

The five chapters in Part II emphasize the national perspective that countries necessarily adopt when approaching integration issues. Economics is of course an important element in shaping this perspective, but strategic, political and even cultural considerations are also relevant. Depending on its particular situation and characteristics, each country will tend to stress some elements over others, thus leading to a national perspective that is unique to it. Four of the five chapters in this section deal with individual countries or groups of countries. These are by Manuel Agosíh, “The Role of Free Trade Agreements in Chile’s Development Strategy”; Maria Luiza Falcão Silva, Joaquim Pinto de Andradc and Thomas S. Torrance, “Macro-economic Coordination and Policy Problems of Regional Blocs: Reflections on the Mercosur Experiment,” Mahani Zainal Abidin, “Combining Integration and Development Strategies: The Malaysian Perspective,” and Zhou Jianming, “Economic Globalization, Regional Economic Integration and China’s Economic Development Strategy.” These four chapters discuss the national perspectives of Chile, Argentina and Brazil, Malaysia, and China respectively. The chapter by Neantro Saavedra-Rivano, “Developmental Affinities in Regional Integration,” attempts instead to develop a general conceptual framework for understanding the factors that lead countries to seek integration with others.

Ever since the military coup of September 1973, trade liberalization, and within that context, export-oriented growth, have been cornerstones of Chilean development policy. One of the first measures of the military government after the September 1973 coup was to announce a trade policy reform. Indeed, at that time trade policy can best be described as chaotic: the (unweighted) average tariff was 94 per cent; there were 57 different tariff rates, ranging from zero to 220 per cent (plus surcharges on a number of items); there were many non-tariff measures (prior import deposits, prohibitions, quotas, etc) and a multiple exchange rate system with eight rates, where the highest price for the dollar was 10 times the lowest. This ad hoc system of protection served no development purpose at all. The disorganization of the Allende period had led to stagnation in manufacturing, the disappearance of economic growth, and a strong contraction of a fledgling non-traditional export sector (which included several manufactures). The trade liberalization announced in late 1973 involved the elimination of all non-tariff barriers, the gradual reduction of tariff rates and their consolidation into three tariff levels (with a maximum rate of 60 per cent), and the unification of the exchange rate. In June 1979, a flat tariff of 10 per cent was established. Although the level did experience an increase in 1982 through 1985, as a response to the effects of the debt crisis, it soon resumed its downward course and now stands at 11 per cent (for details, see Ffrench-Davis, Leiva, and Madrid, 1991).

The international economy has undergone in the last few years a deep transformation. It is important to recall briefly that the international economy has shifted from being a bipolar model, led by the United States and the former Soviet Union, to being a multipolar model with three great economic powers- the European Union (EU), Japan, and the United States — plus Russia and China competing for the leadership of international trade. The formation of global markets is a matter of immense concern for the economic and political survival of many developing countries. “Stimuli from global markets causes the formation of regional markets, and the eventual success or failure of these markets” (Thorstensen and Lozardo, 1995, p.3). As a result several countries are converging to consolidate regional economic blocs, trading agreements and preferences, and monetary unification.

Regional integration has become one of the dominant contemporary trends in the international system, as agreements spring up and flourish the world over. The European Union (EU) is the most advanced and successful case and has served as the inspiration for other schemes in the Americas (NAFTA, Mercosur, CARICOM among others), Africa, Asia and Oceania. The fact that the EU today is a magnet for most of the countries of East and Central Europe is testimony to its strength and durability. Regional integration agreements range in scope from modest treaties granting preferential trade access to highly ambitious plans for economic and political integration. Usually, however, the motivation for two or more nations to embark on this sort of experiment includes non-economic factors.

The integration of economies or countries is an important issue because there is a causal relationship between integration and growth. Countries that are willing to integrate, by opening up their economies, will grow faster than if they had not integrated. Frequently quoted examples are the East Asian economies, which have achieved and sustained high growth rates and whose success has been attributed to their export-orientation and the close economic relationships that exist between many of them. Economic expansion within a regional grouping, such as the European Union, is another example of the relationship between integration and growth.

China is the world’s largest developing country, with a population of 1.2 billion and an economic system undergoing a profound transformation. Since 1979, it has been implementing measures to reform its economic system, pursuing a policy of opening up to the outside world and stimulating economic growth by expanding external economic relations. China’s economic relations with the rest of the world have grown closer over the years, and it is now an important player in the global economy. Today, the country is on a high-speed growth path with a development strategy that is increasingly shaped and influenced by major external factors, particularly economic globalization and regional economic integration.

Part III contains three closely interrelated chapters, which as a whole analyze the most relevant aspects of regional processes and economic relations in East Asia and the Americas. They also consider the possibilities for trans-Pacific cooperation and expansion and the diversification of trans-Pacific interaction.

It is sometimes argued that globalism and regionalism are two sides of the same coin, in that the latter can reinforce the former. This argument is somewhat simplistic, however, as it assumes that regionalism is perfectly compatible and consistent with globalism. Unfortunately, there is not much empirical support for this position, although it may be possible to cite a few “positive” cases which are at best no more than exceptions to the rule.

The aim of this chapter is to compare the two most dynamic regions of the world — East Asia and the Americas — from two different angles:

This chapter provides an overview of trade relations between Asia-Pacific and Latin America and explores the possibilities for expanding economic relations between the two regions. The analysis covers twelve countries in Asia and Oceania¹ and eleven members of the Latin American Integration Association (LAIA).²