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This book presents a theory of economic integration in developing regions, where the level of intraregional economic interdependence is low and the dependence on extra-regional economic relations is high. It argues that the success or failure of regional integration in the Global South is to a large degree dependent on the reaction of extra-regional actors in Europe, North America and Northeast Asia. In doing so, it demonstrates that longstanding European integration theories cannot be successfully applied to other world regions, where economic conditions are fundamentally different. By providing detailed empirical analyses that are systematic in their use of a common theoretical and methodological framework the authors fill a significant lacuna in our understanding of these issues. This edited volume will appeal to students and scholars of comparative regionalism, area studies and global governance.



Chapter 1. Introduction

Integration Theory and the New Regionalism
Regional integration is a surprisingly widespread phenomenon in the developing world despite the fact that the (intraregional) economic gains of market integration seem to be low. Political science lacks a theory to explain the ups and downs of economic integration in developing regions. European integration theories rely implicitly on the assumption of strong intraregional economic interdependence as a driving force of regional integration. However, intraregional economic interdependence is generally low in developing regions, which implies that European integration theories cannot really be applied. In contrast, the new regionalism literature stresses the outward orientation and the extra-regional effects of regional integration, but it has not yet established a coherent integration theory based on that insight. Our book establishes such a theory. It begins with the assumption that the extra-regional effects of regional integration are more important for developing regions than the intraregional ones. The hypotheses, derived from this theory, are then tested at different cases of regional cooperation and defection in the Association of Southeast Asian Nations (ASEAN), the Common Market of South America (MERCOSUR) and the Southern African Development Community (SADC).
Sebastian Krapohl

Theory and Methods


Chapter 2. Two Logics of Regional Integration and the Games Regional Actors Play

A Theoretical Framework for the Analysis of Regional Economic Cooperation and Defection
Our main argument is that there exists not only an intraregional, but also an extra-regional rationale for regional integration. The latter is more important for developing regions, where intraregional economic interdependence is usually low. Within the extra-regional logic of regional integration, the member states of developing regions cooperate in order to profit from size and stability effects in the global competition for investment and export shares. Regional markets are necessarily larger than national markets and integrated regions are deemed to be more stable in macroeconomic and political terms. These effects make the respective regions more attractive as sites of investments and as negotiation partners in interregional or global trade negotiations. Because of the dominance of the extra-regional logic, the demand for regional integration in developing regions is different to that in industrialised regions, but this has also effects for the supply of regional integration. Extra-regional interests motivate, but also constrain the motivation of regional powers to provide regional leadership. When important extra-regional economic privileges of regional powers are in conflict with regional integration, the respective countries are likely to defect in order to protect their interests. In this case, the regional powers do not provide leadership, but they become regional ‘Rambos’ with the dominant strategy of defection in order to protect their privileged position in the struggle for extra-regional investment and export shares.
Sebastian Krapohl

Chapter 3. Case Selection and Research Methods for a Comparative Analysis of Developing Regions

ASEAN, MERCOSUR, and SADC are arguably the most developed regional organisations on their continents. The member states of other regional organisations—like the South Asian Association for Regional Cooperation, the Andean Community, or the Common Market of East and Southern Africa—are economically less developed on average, and the respective regions are less integrated. This means that our cases are not only the most important ones in political terms, but that they are also relatively unlikely cases for our hypotheses: If the extra-regional logic explains the ups and downs of regional integration in relatively well-developed regions, we can be confident that it is even more important in less-developed regions where the gains from intraregional economic interdependence are even lower. Besides, our cases differ in respect to many other variables, which may compete with our hypotheses for the explanation of regional integration in the developing world. The 3 regions are very different in cultural terms (MERCOSUR is dominated by Catholicism only, whereas ASEAN is split between Buddhism, Catholicism and Islam), in political terms (MERCOSUR consists only of presidential democracies, whereas the other 2 regions also include authoritarian or failed states), and in the number of member states (only 5 in MERCOSUR, but 15 in SADC). If our hypotheses hold true in such a heterogeneous sample, we gain confidence in its ability to describe a general phenomenon. The comparison of the three world regions is accompanied by in-case comparisons of regional cooperation and defection. Here, only the variable of interest—the extra-regional privileges of the regional powers—differs between the observations.
Sebastian Krapohl

The Economic Structures of Different World Regions


Chapter 4. Trade Network Analyses

Economic Structures of the EC/EU, ASEAN, MERCOSUR, and SADC
The network analyses reveal that extra-regional trade is indeed much more important for ASEAN, MERCOSUR, and SADC than intraregional trade, whereas intraregional trade clearly dominates the European network. Extra-regional trade partners have central positions in the trade networks of developing regions, and extra-regional trade flows dominate the picture. Thus, one may expect that the extra-regional interests of the regional member states are more important than the intraregional ones, and that they motivate and constrain regional integration in the developing world. Besides, the trade networks also demonstrate that two of the three developing regions are distinguished by large asymmetries and are dominated by one regional power. Brazil is clearly the dominant member state of MERCOSUR, whereas South Africa dominates SADC. In contrast, the economic weights of ASEAN’s member states differ, but none of them is so powerful in economic terms that it dominates the whole region. Brazil and South Africa are both important trade partners for their smaller neighbours, but they themselves trade predominantly with extra-regional partners like the EU and the USA. This asymmetric structure bears the risk of Rambo constellations, wherein the regional powers defect from regional integration in order to protect privileges in their extra-regional economic relations.
Simon Fink, Daniel Rempe

Cases of Regional Cooperation and Defection in Developing Regions


Chapter 5. ASEAN

Extra-Regional Cooperation Triggers Regional Integration
This chapter contains two case studies of regional cooperation within Southeast Asia. The network analysis of ASEAN demonstrates that the region is dependent on extra-regional trade with the EU and the USA, but also with China and Japan. However, the region is not dominated by a single regional power, but by the four member states Indonesia, Malaysia, Singapore, and Thailand, each with comparable economic weight within the region. As a result, none of the ASEAN member states is ‘naturally’ privileged in its economic relations to extra-regional partners. Thus, regional defection in order to protect extra-regional economic privileges becomes less likely.
The first case study deals with regional cooperation within ASEAN in order to establish a free trade area in the early 1990s. The ASEAN Free Trade Area was clearly a project in the spirit of the New Regionalism. Its goal was to make ASEAN more attractive as an addressee of international investment flows. And indeed, the region was rather successful during the 1990s. It became a very popular destination of international investments, even if this was not only due to the free trade area, but also to other policies of economic liberalisation. The tides were turning when the Asian crisis hit the region during the end of the 1990s.
The second case study deals with the events after the Asian crisis. ASEAN was not able to provide a regional answer to that crisis, and many observers concluded from this fact that regional integration in Southeast Asia would stagnate in the following years. However, directly after the Asian crisis, the ASEAN+3 process started. The extra-regional countries China, Japan, and Korea suffered from the negative externalities of the Asian crisis and had an interest in stabilising their regional neighbourhood in economic terms. Thus, the Chiang Mai Initiative provides liquidity for the ASEAN member states in cases of crisis and three ASEAN+1 trade agreements grant access to China’s, Japan’s, and Korea’s markets. Due to this successful extra-regional cooperation, regional integration within ASEAN itself gained new momentum as well. The most important indicator of that is the adoption of the ASEAN Charter in 2007, which is a first step away from the ‘ASEAN way’ towards a more formalised regional organisation.
Sebastian Krapohl

Chapter 6. MERCOSUR

The Ups and Downs of Regional Integration in South America
Brazil is one of the global market’s rising powers and it increasingly engages in global governance. Next to its international visibility, Brazil is the regional power of South America and therefore its contribution to the Common Market of South America (MERCOSUR) is crucial for the success or failure of regional integration. Yet, Brazil is the country in MERCOSUR for which extra-regional economic relations with the EU and the USA are most important compared to its regional neighbours Argentina, Paraguay and Uruguay. As a result of these extra-regional interests, Brazil’s behaviour towards MERCOSUR is volatile. It swung from cooperation during the early 1990s to defection from regional integration at the turn of the millennium. After this defection, MERCOSUR’s regional integration stagnated, and Brazil started to cooperate outside of the regional organization by establishing UNASUR and by launching a Strategic Partnership with the EU. This chapter explains why Brazil initially pushed the establishment of MERCOSUR’s customs union, but then devalued its currency unilaterally and refused any kind of monetary coordination in the face of the Argentinean crisis in 1999. Brazil’s behaviour during that crisis provoked long-term problems for regional integration in MERCOSUR which could not regain the dynamic it had during the 1990s.
Katharina L. Meissner

Chapter 7. SADC

Extra-Regional Trade Relations Constrain Deeper Market Integration
The economic structure of SADC is even more extreme than that of MERCOSUR. SADC’s trade network shows low importance of intraregional trade, a very high dependence on extra-regional trade, and a huge economic asymmetry between the dominant regional power South Africa and the rest of the region. The market of the regional power is a significant addressee of the smaller member states’ exports, but the regional neighbourhood is not able to absorb the exports of South Africa, which mainly trades with the EU.
Firstly, the regional power South Africa had an interest in pushing the SADC free trade area (SADC-FTA). Even if intraregional trade is not of major importance for the South African economy in general, it is nevertheless important for the manufacturing sector, which is competitive within the region, but not globally. The establishment of a free trade area does not conflict with existing extra-regional trade agreements, because it does not require the harmonisation of the external trade regimes. Thus, South Africa provided regional leadership in the negotiations for the free trade area without endangering its extra-regional interests. But, secondly, South Africa’s regional leadership was missing in case of the customs union, which SADC planned to implement in 2010. Since the turn of the millennium, South Africa enjoys the Trade, Development and Cooperation Agreement with the EU, and this bilateral trade agreement stands in conflict with the harmonisation of SADC’s external tariffs. Besides, SADC’s member states participate in different negotiation groups for Economic Partnership Agreements and some enjoy the privileges of the EU’s everything-but-arms initiative. Thus, SADC’s external trade regime is highly fragmented. This prevented the setup of a customs union, as the member states, including South Africa, privileged their extra-regional trade relations.
Johannes Muntschick

Concluding Remarks


Chapter 8. Conclusion

Comparing Regional Cooperation and Defection in ASEAN, MERCOSUR and SADC
The extra-regional interests of the member states - especially of the regional powers - can indeed explain regional cooperation and defection in ASEAN, MERCOSUR in SADC.
This, in order to be applicable to developing regions, the classic integration theories need to include the extra-regional effects of regional integration into their reasoning. Neofunctionalists need to consider, whether and how spillover effects may result from the extra-regional logic of regional integration. Here, the question is how integration in one sector triggers integration in another one if the two sectors are not bound together by economic interdependence. Liberal intergovernmentalists need to shift their focus away from the intraregional towards the extra-regional interests of the regional member states. This is less of a problem, because it does not require to develop new elements of theory, but only a broadening of the scope of analysis. And institutionalists need to explore how the extra-regional logic of regional integration interacts with regional institution building. Possible questions are whether developing regions necessarily need the same institutional design like the EU or whether other forms of regional institutions are more adequate, and how these regional institutions gain strength if they do not govern about a highly interdependent regional market.
Sebastian Krapohl


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