Regional economic cooperation is not a new phenomenon. Since the end of the 2nd World War, the phenomenon has manifested itself in all the major continents of the world. One important facet of such cooperation is the signing of regional trading agreements.

Richard Pomfret in his book The Economics of Regional Trading Arrangements has identified 3 waves of such regionalism. 1

The first of these began in the early 50s in Europe and culminated towards the end of the decade with the signing of the Treaty of Rome in 1957 (which established the European Economic Community or EEC) and the 1959 Stockholm Convention (which created the European Free Trade Association or EFTA comprised mainly of the seven non-EEC countries). After a short period of rivalry between these two blocs, there was a process of rapprochement in the 60s and 70s, with the two blocs forming a free trade area in manufactured goods in 1972. The process of regional integration revived in the 80s with a 1985 White Paper which launched the programme for creating a single market by 1992. This programme, together with the unexpected collapse of the Soviet bloc in Eastern Europe in 1989, ushered in a new expansion of the EU - a process which has recently witnessed the accession of 10 new members to the bloc.

A second wave of regionalism took place in the 80s and this was primarily a US initiative. It began with the negotiations for the Canada-United States Free Trade Agreement (CUSTA) initiated in 1986 and which were concluded in 1988 with the signing of the agreement between the two countries. Two years later, moves began to expand the treaty to include Mexico and this culminated in the emergence of the North American Free Trade Agreement (NAFTA) in August 1992. Since NAFTA came into force in 1994, there has been a drive to further enlarge the free trade agreement to embrace the whole of the continent (Free Trade Area of the Americas or FTAA). The process, which began with the Miami Summit of the Americas in December 1994, is scheduled to be completed by the year 2005.

According to Pomfret, the third wave of regionalism, which is gathering force at the beginning of the 21st century, is one led by Asian countries. Although the Association of South-East Asian Nations (ASEAN) was established in 1967 and the South Asian Association for Regional Cooperation (SAARC) in 1985, he is of the opinion that the real emergence of Asian regionalism should be dated from the aftermath of the 1997 Asian financial crisis.

While it is certainly open to question whether developments in Asian regionalism have been sufficiently pronounced and significant to warrant the description of them as a "wave", what is missing in the above analysis is the development and revival of regionalism in both Latin America and Africa in the 90s.

In this respect, the most important of the Latin American initiatives was the Southern Common Market (MERCOSUR), which originated in March 1991 with the conclusion of an agreement by Argentina, Brazil, Paraguay and Uruguay to set up a common market by the end of 1994. Chile and Bolivia became associate members in 1996, and Peru in 2003. The 90s also witnessed a revival of the Andean Pact and the Central American Common Market (CACM) (see pg. 4).

In the same decade there was also some revitalisation of regionalism in Africa. The most significant was the transformation in 1992 of the Southern African Development Co-ordination Conference (SADCC, founded in 1979) into the Southern African Development Community (SADC). In 1996, the 12 members committed themselves to the establishment of a free trade area within 8 years.

While it is evident that the trend towards regionalism has been a fact of international life throughout the post-war period, it is nevertheless true to say that the whole process has gained in impetus and momentum in the last few decades. The question arises as to the factors that have propelled this movement since the 90s. It would appear there are four important factors that have been crucial in this regard.

1 The end of the cold war

This has perhaps been the most important determinant in shaping the drive towards regionalism. The cold war congealed and froze all international economic relations along ideological/strategic lines. In such an environment, the scope for regionalism was limited and more often than not, such blocs as emerged were unable or unwilling to transcend the defining ideological/strategic limits. It was the end of the cold war and the thaw that followed that made possible the realisation of the full potentialities of regionalism.

Perhaps the best illustration of the decisive impact of the end of the cold war is the expansion of ASEAN, to include Vietnam and the other countries of Indo-China. ASEAN was founded as an anti-Communist bloc at the height of the cold war to contain "Vietnamese expansionism". Yet by 1995, the world situation had so changed that it seemed almost a natural process for Vietnam to join its erstwhile enemies as a member of this regional body. Such a development would have been inconceivable if the cold war had not ended. The expansion of ASEAN to include the Indo-China countries, as well as the body's new relationship with China, were the fruits of the end of the cold war.

It is also worth noting that it was the end of the cold war that was instrumental in reviving SAARC. Although founded in 1985, it is significant that it was only in 1993 that a framework of preferential treatment was signed.

Finally, it is in Europe that we have witnessed the most dramatic impact of the end of the cold war on regionalism. The accession of the countries of Eastern Europe which were formerly part of the Soviet bloc to the European Union is a development made possible by the end of the cold war.

2 Globalisation

An even more important factor in facilitating regionalism has been the phenomenon of globalisation. (The term is used here in its widest sense, both as a process and as a set of policies facilitating the process.)

a) Globalisation as an expansion of capitalist relations of production has been instrumental in the enlargement of the space for regionalism. While the end of the cold war created the conditions for such enlargement, the scope for the participation of countries such as Vietnam and China would have been restricted had they pursued a developmental model other than capitalism. However, by undertaking 'capitalist' economic reforms and by integrating their economies into the world capitalist system, the erstwhile Socialist regimes have jettisoned the obstacles to a wider and deeper regional economic co-operation and integration with their capitalist neighbours.

Apart from breaking down the barriers between countries which formerly pursued different economic models of development, the world-wide ideological hegemony of neo-liberalism has resulted in the liberalisation of trade, investment and even finance by governments everywhere. By so facilitating the unhindered movement of capital, goods and services across frontiers, the foundation has been laid for regional integration and cooperation, whenever the conditions are appropriate.

Ironically enough, it is not only the triumph of globalisation that has resulted in the expansion of regionalism. The crisis engendered by it has also served to promote regionalism. Two examples are instructive.

In September 1985, more than a decade after the breakdown of the Bretton Woods system of fixed exchange rates and the liberalisation of financial markets, the Reagan administration became concerned about the soaring exchange rate of the dollar in relation with the yen. As a result of what became known as the Plaza Agreement (because it was sealed at the Plaza Hotel in New York), the US and Japan agreed to intervene in the markets to lower the value of the dollar in relation to the yen. 2 Faced with the problem of a rising yen which made Japanese goods less competitive, Japan began a process of shifting its production offshore, with South East Asia as the principal beneficiary.

The move by Japanese corporations to relocate their production to South East Asia was a turning point in the relations between South East Asia and Japan. With South East Asia becoming tightly integrated into a common Japanese production and trade network, Japan acquired a vested interest in the economic fate of the region. When some 12 years later, the Asian financial crisis broke out, Japan moved to bail out the region from the crisis by launching an Asian Monetary Fund. Although US opposition caused the plan to be aborted, Japan had established her regional role in South East Asia and laid the basis for cooperation with South East Asian countries. Later in 2001, that role was crystallised with Japan's participation in the Chiang Mai Initiative.

3 "Challenge and response"

A major move towards regionalism in one part of the world is quite often viewed by other regional actors as a challenge which calls for a regional response. Thus the emergence of the EU and NAFTA provoked responses in other regions of the world. In Latin America, the birth of MERCOSUR in 1991 can be viewed as a response to these developments. The emergence of the EU and NAFTA also provoked a revival of other seemingly moribund regional bodies. The Andean Pact, founded in December 1970 but effectively dead by the late 80s, was revived in the 90s with a free trade area which came into existence in 1995. Likewise, CACM was reactivated in the 90s, with a "free trade zone" which came into effect by the end of 1992.

In Asia, the ASEAN Free Trade Area (AFTA) came into existence as a response to the emergence of the EU and NAFTA. And former Malaysian Prime Minister Dr. Mahathir Mohamad's rationale for pushing for the development of an East Asia Economic Caucus was the emergence of the EU and NAFTA.

It is important to note that to many regional players, a threat may be perceived as arising not only from an external trading bloc, but also from within the regional body of which they are members. In this respect, the US is clearly viewed as a threat by many Latin American members of the FTAA and there has indeed been a strong response to the US attempts to dominate and shape the FTAA project to serve its interests.

Members of MERCOSUR (other than Uruguay) have in recent years taken positive steps to strengthen their own regional body in anticipation of the development of the FTAA. At the FTAA negotiations in Miami in November last year, they made it clear that they would be negotiating as a bloc with the US. What they seek is a "balanced" free trade area marked by "a spirit of reciprocity". Their blueprint is for a "flexible" agreement under which countries can opt out of certain parts of the accord and continue to negotiate others.

In December last year, these members of MERCOSUR took an important step in strengthening their position by signing an "economic complementarity accord" with the Andean Community in order to strengthen and improve political and trade relations. Brazilian President Luiz Inacio Lula da Silva made no secret of the fact that "the stronger the MERCOSUR and Andean Community are, the stronger they will be in the negotiations of the Free Trade Area of the Americas (FTAA)..." 3

4 Crisis or impasse in multilateral trade system

A key factor that has propelled nations to turn to regionalism has been the failure of the multilateral trading system or a serious deadlock in such negotiations. Thus the Latin American nations that came together at Asuncion in March 1991 to establish MERCOSUR did so because "they were frustrated at the slow pace of multilateral trade negotiations". 4

It is often said that the US experienced a similar frustration with the slow pace of the Uruguay Round of multilateral trade negotiations and it was this that prompted it to resort to unilateralism and regionalism i.e. CUSTA and NAFTA. Here a note of caution is necessary and it is important to distinguish the conduct of the US from that of the Third World nations. Third World countries generally resort to regionalism as a defensive measure, or when multilateralism fails or appears to fail. In contrast, the US has always pursued, in an aggressive fashion, a two-track strategy, i.e. both multilateralism and regionalism, to secure its interests. Those who argue that when the US initiated the CUSTA and later the NAFTA negotiations, the Uruguay Round negotiations were facing an uncertain future, ignore the fact that even after NAFTA had come into force in 1994, there was no let-up in the momentum to further expand NAFTA into the FTAA. The FTAA negotiations commenced in December 1994, when the Uruguay Round negotiations were being successfully concluded.

Clearly, for the US, regionalism has not been an imposition, but a matter of choice. In this respect, at present, the US seems to be more interested in pushing forward with the FTAA than in breaking the current impasse at the World Trade Organisation (WTO). This is because it perceives the FTAA to be more advantageous to it. For a start, the FTAA will offer US corporations preferential treatment which will be denied to the EU and other major competitors outside the Americas. In addition to a virtually 'closed' market, the FTAA is tailor-made to meet the demands of US corporations in that, in respect of matters such as intellectual property and legal remedies to pursue claims, it would confer greater rights to corporations than those granted by the WTO agreements i.e. it is "WTO-plus." An additional consideration may be that there is probably less resistance to genetically modified organisms (GMOs) in Latin America than in Europe or other parts of the world.

Regionalism and the problem of South-South cooperation

Finally, for those of us concerned with the problem of development and human rights, the question of the relationship between regionalism and South-South cooperation has to be considered.

South-South trade is an important component of South-South cooperation and one useful mechanism for such trade is the Global System of Trade Preferences (GSTP). The GSTP is an agreement by developing countries for mutual reduction of tariffs which is administered by a secretariat located in the UN Conference on Trade and Development (UNCTAD). The GSTP is permitted under the General Agreement on Tariffs and Trade (GATT) and hence it does not require any special waiver by the WTO. Unlike the WTO, where because of the MFN (most favoured nation) principle any reduction of tariffs has to be extended to all member states (regardless of whether they are developed or developing), the benefit of a reduction of tariffs within the GSTP is limited only to the developing countries which are members of the GSTP. A first round of negotiations was launched in 1989 when the GSTP was established, but the second round became bogged down in dispute over the right of non-participating developing countries to receive the benefits of the GSTP.

It is obviously in the interests of developing countries to fully exploit this GSTP programme (mutual trade of GSTP members was estimated to be close to $2 trillion in 2000) so that they share the benefit of tariff reduction among themselves, rather than confer it on the rich countries. The same result can be obtained by entering into agreements for regional economic cooperation, PROVIDED all the member states are developing countries.

However, problems arise when regional groupings are not confined to developing countries. Gamani Corea, the former Secretary-General of UNCTAD, highlighted this problem several years ago:

"Recent years have witnessed the emergence of cooperation groupings that link up the major industrialised countries of the world with some, but not all, developing countries. Such 'mega blocs' as the European Union, NAFTA and APEC include developing countries either as members or as partners enjoying special relationships. They aim at preferential or free trade arrangements among the participants that overlap or cut across the arrangement of South-South groupings. This development, whatever its merits, runs counter to the concept of 'generalised' preferences for all developing countries that won acceptance as far back as 1964 at UNCTAD I and that came, since then, to be incorporated, as the Generalized System of Preferences - the GSP - into the tariff regimes of the developed countries. It raises the problem of the exclusion or discriminatory treatment of non-members of these groupings by their members, be they developed or developing countries, as well as of 'patron-client' relationships among the members themselves. Issues such as these are made even more complex by the membership of individual countries in multiple cooperation groupings and arrangements." 5

Clearly, this is a worrying trend. It results in the fragmentation of the South and slowly undermines the whole concept of South-South cooperation. In this respect, it is distressing to note that countries that formerly criticised this trend have now decided to participate in such arrangements, presumably because they fear losing out altogether if they do not join the bandwagon. While moves such as those taken by the MERCOSUR countries to improve their bargaining position within the FTAA are welcome, they are purely defensive moves which do not address the heart of the problem.

In this context, the call made by Brazilian President Luiz Inacio Lula da Silva to member states of the Group of 20 (G20) last December for a free trade agreement among themselves is to be welcomed. Whatsoever the difficulties of realising such a proposal, the merit of it is that it does bring back to the fore the whole question of South-South cooperation. In any case, as President Lula stressed, his proposal was put forward so that ministerial delegations could "carefully reflect" on it with the aim of discussing it during the 11th Meeting of UNCTAD, which is slated to be held on 13-18 June in Sao Paulo. At the time of writing, news has just emerged of a decision to launch a third round of trade negotiations among developing countries under the GSTP on the occasion of the UNCTAD meeting. An interesting aspect of this decision is that besides GSTP members, interested members of the Group of 77 and China have been invited to participate in the third round. It is to be hoped that the UNCTAD conference will come out with constructive proposals to enhance South-South cooperation.

Endnotes

1. Richard Pomfret (1997), The Economics of Regional Trading Arrangements, Oxford: Oxford University Press.

2. Paul Volcker and Toyoo Gyohten (1992), Changing Fortunes: The World's Money and the Threat to American Leadership, New York: Times Books, p. 229.

3. Raul Pierri (2003), "Huge stride towards South American integration", South-North Development Monitor (SUNS), No. 5486, 19 December.

4. Stephen Browne (1998), "Expanding Lateral Partnerships", Cooperation South, No. 2, p. 87.

5. Gamani Corea (1996), " The Importance of South-South Cooperation in the Contemporary World of Globalisation and Liberalisation", Cooperation South, Winter 1996.

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