The folly of regionalism

Governments continue to embrace regional trade groupings as their preferred method for facilitating trade despite the fact that, when it comes to boosting growth and trade, regional integration is a poor substitute for unilateral liberalisation. By focussing on consensus and common denominators, regional groupings fail to address the real obstacles to trading- those imposed by governments which stifle everyday businesses. Where regional integration has been most successful is when groups work as loose forums for discussing ways to remove these barriers to trade.

Regional Trade Agreements (RTAs) are increasingly popular- the WTO reports that over 400 are scheduled to be implemented by the end of 2010. This has led to a tangled web of interlocking agreements often with conflicting aims. Of the 53 countries in Africa, 27 are members of two, 18 belong to three, and one country (Swaziland) is a member of four. Despite this plethora of acronyms, inter-regional trade accounts for less than 10 per cent of total trade. Many are highly ineffectual: The Economic and Monetary Community of Central Africa (CEMAC) boasts 6 members who are supposed to enjoy tariff free access to each other markets, but trade within CEMAC amounts to little more than 4 per cent of total imports and 2 per cent of total exports.  In reality the hidden costs of moving goods within the sub region far outweigh the gains.

Asia has experienced a similar phenomenon. Overlapping groupings and a seemingly insatiable desire to peruse further groupings detract attention away from market stifling regulation at the sub-national level. As Razeen Sally, Director at ECIPE, reminds us:

“Rather than pushing top-down, government-to-government integration methods, it would be better to focus on what works: market-led and bottom-up integration. Economies across East Asia—Hong Kong and Singapore obviously, but also Japan, South Korea, Taiwan, the Southeast Asian countries, and indeed China—have inserted themselves into global supply chains through unilateral opening to everyone, rather than negotiating trade deals with selected partners.”

The real obstacles to trading- administrative and logistical hurdles- are not going to be solved by diplomats meeting at lavish boondoggles. Rather, they best removed by unilateral reform aimed at allowing free enterprise to provide services that people want and can afford. APEC style forums offer the opportunity to learn from reform attempts in other economies without being lumbered with the bureaucratic and legislative baggage of a full blow RTA. Less talk of integration and more talk of positive reform to allow businesses the freedom to trade is needed.