ECONOMIC COOPERATION

Given inherent constraints in any system, conditions for the best policy rarely exist. A policy maker must then turn to the second-best policy. This practice applies to international trade as well. Worldwide free trade is ideal, but cannot be attained. The theory of second best suggests that the optimum

policy is to have economic cooperation on a smaller scale.17 In an attempt to reduce trade barriers and improve trade, many countries within the same geo- graphic area often join together to establish various

forms of economic cooperation. Major regional groups are shown in Exhibit 2.1. As shown in Figure

2.6, some countries are members of multiple groups.

COMESA

Djibouti

Egypt

Levels of economic integration

Eritrea

Ethiopia

Sudan

Burundi

Rwanda

RIFF

Angola

Congo, Dem. Rep.

Malawi Zambia Zimbabwe Mauritius

SADC

Trade theorists have identified five levels of

economic cooperation. They are: free trade area, customs union, common market, economic and monetary union, and political union.Table 2.6 shows a concise comparison of these cooperation levels.

Comoros

Madagascar

Kenya

Uganda

Seychelles

Tanzania EAC Namibia

Swaziland

Mozambique

Free trade area

In a free trade area, the countries involved eliminate duties among themselves, while maintaining sepa- rately their own tariffs against outsiders. Free trade

SACU

Botswana Lesotho South Africa

areas include the NAFTA (North American Free Trade Agreement), the EFTA (European Free Trade Association), and the now defunct LAFTA (Latin- American Free Trade Association). The purpose of a free trade area is to facilitate trade among member nations. The problem with this kind of arrangement

> Figure 2.6 Regional trading arrangements in

Eastern and Southern Africa

Notes

COMESA: Common Market for Eastern and Southern Africa

EAC: East African Community

RIFF: Regional Integration Facilitation Forum SADC: Southern African Development Community SACU: Southern African Customs Union

Source: Robert Sharer, “An Agenda for Trade, Investment, and Regional Integration,” Finance & Development, December 2001, 16.

is the lack of coordination of tariffs against the non- members, enabling nonmembers to direct their exported products to enter the free trade area at the point of lowest external tariffs.

The first free trade agreement signed by the USA was with Israel in 1985, and the US–Israel Free Trade Area Agreement eliminates all customs duties and most nontariff barriers between the two coun- tries. More recently, the USA has entered into free

Table 2.6 Levels of regional cooperation

EXHIBIT 2.1 REGIONAL GROUPINGS AND THEIR NATIONS

African Financial Community: CAEMC and

WAEMU members.

AFTA (ASEAN Free Trade Area): ASEAN

members.

Andean Group (the Cartagena Agreement): Bolivia, Colombia, Ecuador, Peru, and Venezuela.

ANZCERTA (Australia–New Zealand Closer Economic Relations Trade Agreement): Australia and New Zealand.

APEC (Asia Pacific Economic Cooperation): Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, the Philippines, Singapore, Chinese Taipei (Taiwan), Thailand, and the USA.

Arab/Middle East Arab Common Market: Iraq, Jordan, Sudan, Syria, United Arab Republic, and Yemen.

ASEAN (Association of Southeast Asian Nations): Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

Benelux Customs Union: Belgium, the

Netherlands, and Luxembourg.

CAEMC (Central African Economic and Monetary Community): Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.

CARICOM (Caribbean Common Market): Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Christopher-Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Trinidad and Tobago.

Central American Community: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

CFA Franc Zone: the Comoros, members of the

WAEMU and the CAEMC.

CIS (Commonwealth of Independent States): Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kirgizstan, Moldova, Russia,Tajikistan,Turkmenistan, Ukraine, and Uzbekistan.

East Africa Customs Union: Ethiopia, Kenya, Zimbabwe, Sudan, Tanzania, and Uganda.

ECOWAS (Economic Community of West African States): Benin, Cape Verde, Dahomey, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta.

EEA (European Economic Area): Iceland, Norway, and EU members.

EFTA (European Free Trade Association): Austria, Finland, Iceland, Liechtenstein, Norway, Sweden, and Switzerland.

EU (European Union): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the UK (plus ten new members).

GCC (Cooperation Council of the Arab States of the Gulf): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Group of Three: Colombia, Mexico, and

Venezuela.

LAIA (Latin American Integration Association): Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

Mahgreb Economic Community: Algeria, Libya, Tunisia, and Morocco.

Mercosur (Southern Common Market): Argentina, Brazil, Paraguay, and Uruguay.

NAFTA (North American Free Trade Agreement): Canada, Mexico, and the USA.

OECD (Organization for Economic Cooperation and Development): Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, Turkey, the USA, and EU members.

RCD (Regional Cooperation for Development): Iran, Pakistan, and Turkey.

SICA: El Salvador, Guatemala, Honduras, and

Nicaragua.

WAEMU: (West African Economic and Monetary Union): Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

trade agreements with Singapore and Chile, while Mexico has done the same with the EU. Singapore has also concluded free trade deals with Australia and Japan. It should be apparent that countries forming a free trade area do not need to share joint boundaries.

Customs union

A customs union is an extension of the free trade area in the sense that member countries must also agree on a common schedule of identical tariff rates. In effect, the objective of the customs union is to harmonize trade regulations and to establish common barriers against outsiders. Uniform tariffs and a common commercial policy against non- members are necessary to prevent them from taking advantage of the situation by shipping goods initially to a member country that has the lowest joint boundaries. The world’s oldest customs union is the Benelux Customs Union. A more recent example is the one formed between Turkey and the European Union; this took effect in 1996.

Date: 2014-12-21; view: 951