Is Regionalism compatible with Globalization?

Globalization is defined as a process by which the economies of the world become increasingly integrated leading to a global economy with global economic policy making, through such international agencies as the World Trade Organization (WTO). (Todaro, M. P. and Smith, W. C.:2003) Globalization can also be seen as an emerging “global culture” in which the world population consumes similar goods and services across countries and use a common business language, English. These changes facilitate economic interaction and in turn, they are further promoted by it. This leads to increased openness of economies to international trade, financial flows and direct foreign investment. Globalization actually leads to an increase in the mobility of factors of production mainly capital and labor, which ought to reduce income disparities between different countries and equalize development levels. This is sound in theory. However, in reality though the reverse appears to be true.

Economic integration occurs whenever a group of nations in the same region join together to form an economic union or regional trading bloc by raising a common tariff wall against the products of non-member countries while freeing internal trade among members. Integration provides the opportunity for industries to take advantage of economies of large scale production made possible by the expanded markets. A regional economic bloc should therefore be conceptualized as an entity encompassing and transcending nation-states. The economic aspect of these may be described as, in the first instance, the efforts to form free-trade zones through the creation of common markets, and secondly, the co-ordination of economic policies and the implementation of joint economic policies to form even larger economic zones with the aim of increasing inter-regional trade.

One of the regional integration groupings in Africa is the Common Market for East and Southern Africa (COMESA) which was previously known as the Preferential Trade Area for East and Southern Africa (PTA). It was initially established as PTA in 1981, within the framework of the organization of Africa Unity’s (OAU) Lagos Plan of Action and the Final Act of Lagos and was eventually transformed into COMESA in 1994. It brings together a group of nineteen African states in East and South Africa which have agreed to promote regional integration through trade and development and to develop their natural and human resources for the mutual benefit of all their peoples. Some of the members are Burundi, Comoros, Zambia, Egypt , Libya, Zimbabwe, Kenya and Uganda. Like many other regional trading blocs, COMESA, is meant to increase intra-regional trade by rewarding member states and ‘punishing’ non-member states by imposing tariffs and non-tariff barriers. As a common market, the member states ought to charge common external tariffs while freeing internal trade as well as the free movement of capital and labor among the partner states.

In this paper, the author will examine the inconsistencies between regional integration and globalization, with a focus on COMESA/PTA and thereby expose the extent to which the two are incompatible. The author will also examine the consistencies between regional integration and globalization.

Kudo Akira argues that since from history it can be hypothesized that regionalization progresses when hegemony is on the wane, it can be inferred that the two, hegemony and regionalization, have progressed in a tense relationship. Regionalization may therefore be seen as a significant alignment in opposition to globalization. This indeed is the bedrock of the contention that regionalism and globalization are incompatible. This is because globalization is promoted by the hegemony. Indeed, globalization can be seen as the universalization of hegemonic values. This explains why globalization in the present day is easily equated with Americanization.

Regionalism has had enormous impact on the environment of nation-states. It has, for instance, had a regulating impact on MNCs through measures such as corporate laws, competition policies, and labor policies. In COMESA, for example, the intention to promote local enterprise has resulted in rules of origin which classify companies as either local or foreign. The consequence is that the companies that are not locally owned and controlled do not enjoy the benefits of intra-regional arrangements. The fact that those that are local enjoy these advantages encourages domestic enterprise which is congruent with the raison d’être of the regional bloc: to promote intra-regional trade and promote regional investments. The very essence for the creation of the regional economic organization is to give them greater ability to protect regional and national interest in relation to other countries, transnational companies and international economic organizations. This contradicts globalization.

The idea of formulating policies that encourage intra-regional trade and offer barriers to external trade contradicts the view of the proponents of globalization which are geared towards free movement of the factors of production on a global scale not limited to regions. The argument advanced is that by putting tariff and non-tariff barriers on non-members, regional organizations reduce global trade and obviously reduce efficiency in the market. Proponents of globalization would therefore see the rules of origin that favor local enterprise as unfairly disadvantaging the MNCs while giving undue advantage to local enterprises. This, in their view, reduces competitiveness and renders market forces almost irrelevant which eventually leads to gross market inefficiencies.

Regionalism, however, emphasizes the employment of local factors of production and use of locally available raw materials. This is what, in the view of regional blocs, will spur economic development devoid of the exploitation by the capitalist oriented MNCs. The counter argument by MNCs and globalization proponents is that they should be allowed to increase the efficiency of the market at a global scale by sourcing their raw materials and factors of production from places where they are cheapest in the world. If this were to be the case, it is quite possible that the resources within certain regions may never be exploited. This would put the countries in a continuing poverty trap. Regionalists will therefore disagree with the promotion of global level efficiency at the expense of regional efficiency and regional economic development.

Viewed in this sense, membership in WTO (an element of globalization) ought to bring about increase in production efficiency and competitiveness, enhance integration to the world economy, and provide more benefits from globalization in the long-run. However, it has restrictions in the short-run that can create problems on member states. This includes reduced government support for local producers, reductions in subsidies and restricted application of state instruments for regulation. These very things, especially support of local producers, are what regional blocs like COMESA seek to achieve.

African countries can only produce primary commodities which have low income elasticity of demand compared with manufactured products which are mainly the preserve of the developed nations. African countries, COMESA members included, therefore are in an inferior position in the global economic arrangement. World trade is skewed in favor of the developed countries. These countries experience continued balance of payment deficits and are embroiled in foreign debt. As such they are dependent on the developed world to purchase their commodities so that they can earn foreign exchange to enable them buy the manufactured products they need from these developed countries. Furthermore, the conditions that are attached to the foreign aid they receive mean that these countries are not only dependent, they are also externally directed. For instance, these countries jointly owed $114.8 billion in external debt in 2003; countries such as Burundi and Malawi owed more in 2003 than their total gross national income. In the same year,

COMESA countries paid out $5.9 billion in debt payments (www.harvard.edu: 2008).

In the first instance is that the donor countries would much rather lend a nation-state and buy its loyalty that to a regional bloc. They therefore insist on bilateral arrangements with the specific state that is requesting aid. Secondly, even the decisions that these states consequently make with regard to acceptance and domestications of the resolutions of the regional bloc are significantly influenced by the donor countries and the bilateral arrangements in place. Proponents of globalization will therefore use the control they have on these LDCs to frustrate any efforts to integrate regionally that are not beneficial to the metropolis or in discord with the world economic order.

There are also consistencies that exist between globalization and regional economic integration. Indeed, in the process of foreign trade liberalization and accelerated integration in the world economy, regional integration is of special importance. This is mainly because regional integration restricts sovereignty of member states in economic policy formulation. This, in turn, makes it easier for the integration of the states into the global economic system. Regionalization has a number of advantages which include increased specialization and realization of economies of scale through the pooling of resources and markets, increased choice through access to wider range of markets and increased competitiveness of good s and services in global markets following the development of intra-regional competition. Further, regionalization leads to better opportunities for scientific and engineering exchange and joining efforts to develop science and technology as well as the creation of better infrastructure in transport, finance and communications.

It is these benefits that are derived from regional integration that form the bedrock upon which globalization is founded. This is because the enhancement of the mobility of factors of production needs efficient infrastructure to promote it. Regional trading blocs are these infrastructures and COMESA is on of them. COMESA has been keen on disseminating information on WTO and the world trading system, and to develop capacity in the region to allow countries to more actively participate in the global economy. In fact, in 2002 sixteen member states agreed to jointly negotiate an Economic Partnership Agreement with the European Union (EU) as one group.

From the foregoing arguments, it is evident that there are inconsistencies and yet some consistencies between globalization and regionalization. One cannot, for that reason, safely conclude that that the two are completely incompatible; only to a certain extent. This is because as argued above, COMESA like other regional trading blocs has in fact provided platform on which the spread of globalization in the region is anchored. Nonetheless, the image of global future is at best blurred and at worst bleak. This is because the incompatibility of regionalism and globalization withstanding, it is impossible to see a globally integrated system with the ever increasing and stronger regional trading blocs, many with conflicting objectives, approaches and even mechanisms. For globalization to be a success all regional blocs must be geared towards the same objective; otherwise it will be a massive failure.

REFERENCES:

1. Akira, Kudo (2000). A note on globalization and regional integration. http://project.iss.u-tokyo.ac.jp/kikkawa/iss-1.pdf

2. COMESA (1994). COMESA treaty. COMESA Secretariat, Lusaka, Zambia.

3. COMESA (2007) COMESA in Brief, 3rd ed. COMESA secretariat, Lusaka, Zambia.

4. Todaro, M. P. and Smith, S. C. (2003). Economic Development, 8th ed. Dorling Kindersley (India) Prvt. Ltd., New Delhi, India.

5. www.cid.harvard.edu/cidtrade/topics/comesa.pdf . 4th August 2008 1740hrs.

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climberjames 6 years ago from Steel City

Interesting Hub!! I have a similar one focusing upon the possibility of Globalisation being a myth? http://hubpages.com/education/Globalisation-a-qual... - climberjames :D

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