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Paper series on transatlantic trade and development policy issues Analysis

July 26, 2011 Number 5

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Summary: This policy brief compares the founding conditions, processes, and structures of the economic agreements in Africa with those for the EU, and explores alternative paths for regional cooperation. Particularly in a time of tight budgets for development support, transatlantic partners should help African states honestly determine the costs and benefits of various forms of integration, with an eye toward the primary goal behind integration: economic development. The views expressed here are the views of the authors alone and do not necessarily reflect the stance of the German Marshall Fund of the United States.

Regional Integration in a Global Context: Implications for Sub-Saharan Africa


By Dr. Kathleen J. Hancock

The question of Africas regional integration has preoccupied many African leaders since the early years of independence. Many have viewed it as a tool for promoting economic growth and sustainable development and improving the living standards of the African people. Assessing Regional Integration in Africa, IV: Enhancing Intra-African Trade. United Nations Economic Commission for Africa, 2010. Introduction The European Union (EU) is often held up as the most advanced and successful regional economic arrangement, the one against which all others should be measured. Consciously or unconsciously, African states often automatically pursue a model based on the EU when working to integrate Africas economies. The EU model, as used here, refers to using supranational and intergovernmental structures to achieve deep levels of economic integration, including creating a customs union (removing tariffs between members and creating common tariffs for nonmembers), a common market (allowing workers to move freely between member states and enacting common economic

policies), and a monetary union (sharing a single currency and central bank). Africas small and fragmented economies must pursue some form of cooperation in order to attract investment and increase trade necessary for economic growth and development. However, the EU may be the result of a highly unusual agreement forged during a unique historical period, and therefore may be a poor model for sub-Saharan Africa. This policy brief compares the founding conditions, processes, and structures of the economic agreements in Africa with those for the EU, and explores alternative paths for regional cooperation. Particularly in a time of tight budgets for development support, transatlantic partners should help African states honestly determine the costs and benefits of various forms of integration, with an eye toward the primary goal behind integration: economic development. Types of Regional Economic Integration As of May 2011, the World Trade Organization reported that states have signed 371 regional trade agreements (RTAs), suggesting widespread

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economic regionalism.1 However, these figures can be highly misleading. Many of the agreements are not in force. Furthermore, most are shallow rather than deep forms of integration. (Figure 1 shows how agreements vary depending on depth.) Of the 193 in force, 90 percent are free trade agreements or partial trade agreements, many of which focus on a handful of sectors or industries. Most of these are not regional in the common use of the term; that is, the member states do not share borders. In addition, many of these accords involve only two states. Further, the vast majority of RTAs aspire to nothing more significant than a marginal increase in trade between partners. Members have no intention of deepening integration to levels nearly as significant as in the EU. Figure 1: Depth of Integration Political Union Economic Union Common Market Monetary Union (Dollarization) Customs Union Free Trade Area Currency Board Preferential Trade Area Pegged Currency High Trade Levels High Levels of Foreign Currency Trade Money Depth of Integration The remaining 10 percent of RTAs are customs unions, a much deeper form of integration. Under these accords, members create not only a free trade agreement eliminate all or nearly all tariffs among themselves but also set common tariffs for nonmembers. Of the 21 customs unions reported by the WTO, seven are either the European Community (EC) itself or EC enlargements and three others are EC agreements with other states (Andorra, San Marino, and Turkey). This leaves only 11 customs union agreements that do not involve the EC/EU. Interestingly, nearly half of these are in Africa: the East African Community (EAC); the Economic and Monetary Community of Central Africa (Communaut Economique et Montaire lAfrique Centrale CEMAC); the Economic Community of West African States (ECOWAS); the Southern African Customs Union (SACU); and the West African Economic and Monetary
1 To see the WTOs database on regional trade agreements, visit the Regional Trade Agreements Information System (RTA-IS): http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx.

Union (WAEMU). This list suggests that Africa is more institutionally economically integrated than many Africans and Westerners may have thought. Many aspects of these agreements have yet to be implemented; nevertheless, their numbers and content suggest significant aspirations for deep economic regionalism in Africa. This ambition is embodied in the African Unions stated mission of eventual continental integration. Regional Integration in Comparative Perspective Sub-Saharan Africas formal regional integration agreements are importantly rooted in its colonial history, which differs markedly from Europes history. This raises the fundamental question of whether deep regional integration using the EU model is the best way to achieve development goals for Africa. Africas History with Deep Regional Integration While some African nationalists (and pan-nationalists) may be loathe to raise the point, many trade and currency accords in Africa are based on a colonial past. After independence, many of the African states opted to remain members of these institutions. Two cases illustrate this point: CEMAC and SACU. CEMACs history begins with two organizations dating from French colonial rule: the Afrique Occidentale Franaise (AOF), created in 1989, and the Afrique Equiatoriale Franaise (AEF), created in 1910.2 In 1945, the French created the Colonies Franaise d Afrique (CFA) franc.3 When the African members became independent in 1962, they retained the CFA francs and the state groupings created during the colonial period. Until the economic crisis in the 1990s, the two CFA francs maintained a fixed exchange rate with the French franc, essentially delegating monetary policy to France. This was a voluntary action, meant to stabilize the CFA francs and thus encourage investment, a standard recommended practice for states vulnerable to crippling inflation. Eventually, however, the crisis became so severe that the states were forced to devalue in 1994. The present-day CEMAC aspires to a
2 Ali Zafar and Keiko Kubota, Regional Integration in Central Africa: Key Issues, in Africa Region Working Group Series (New York: World Bank, 2003). 3 France created the CFA to preserve the exchange rates for the two African groups with the dollar while it devalued the French franc. Although the African states have retained the acronym CFA, in the Central African states it stands for Coopration Financire Africaine, whereas in West Africa it stands for Communaut Financire Africaine.

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full economic community, though thus far not even the customs union is in place. Like the CEMAC, the SACU has colonial roots. Founded in 1910, which makes it the oldest customs union today, the SACU was created by the British in the same treaty that declared South Africa an independent country. The annex forming the SACU stated that South Africa would set the tariffs and other trade policies as well as collect tariffs for itself and Britains three African-ruled High Commission Territories. The tariffs collected by South Africa at its borders and those of the three territories, which later became known as BLS Botswana, Lesotho, and Swaziland (BLNS when Namibia joined) were redistributed to the member states, providing sufficient funding to run the Territories governments. When the territories became independent states, they were given the choice of creating their own currencies and trade policies, or remaining part of the SACU. All members opted to remain part of the customs union; only Botswana opted out of the Common Monetary Area, under which the South African rand is traded in all countries and the smaller states currencies trade at par with the rand.4 Governance Structures: Regional Plutocracy One feature often considered critical to the EUs success is its use of supranationalism combined with intergovernmental governance structures. Under supranationalism, states delegate policymaking to a third party and the members agree to abide by the supranational organizations decisions. The European Court of Justice and the European Parliament are primary examples of supranationalism. Under intergovernmental structures, states delegate administrative responsibilities to a bureaucracy while retaining independent policymaking authority. Bureaucracies influence policymaking through agenda setting, for example, but member states do not delegate policymaking itself. That is left to political leaders from the individual states who bargain with each other over policies. While supranational and intergovernmental accords are now well known, a third type of structure plutocratic has been largely ignored, despite the fact that it has played a critical role in several important integration efforts, including in Africa. Under plutocratic structures, states delegate policymaking to the wealthiest state among them
4 The other currencies are the Namibian dollar (NAD), the Basotho loti (LSL), Swazi lilangeni (SWL), and the Botswana pula (BWP).

the plutocrat in exchange for the plutocrat supplying immediate economic benefits to the other members. The most important integration agreement, as measured by its success in becoming a single political entity, was the Zollverein, formed in early 1800s Europe. The Zollverein was a customs union that started between Prussia and another German-speaking state and ended in the unification of all German-speaking states except Austria.5 The Zollverein initially used plutocratic accords, eventually switching to supranational and intergovernmental accords. Russia used similar structures in the customs union it created with Belarus and Kazakhstan in the 1990s, now known as the Eurasian Economic Community (EAEC). Like the Zollverein, the EAEC has since transitioned to intergovernmental structures.6 The CEMAC and SACU regional integration agreements share a common founding process under which a single wealthy state colonial powers in the case of these two agreements created the organizations, requiring members to adhere to policies set by either that wealthy state (France in the case of CEMAC), or by the regional wealthy state (South Africa in the case of the SACU). The plutocrats critical role is its ability to offer financial rewards to the other member(s). This may be through in-kind contributions, such as access to pipelines offered by Russia, or by distributing more of the tariff revenues to members than they would otherwise get on their own, as with South Africa and the SACU members. In the case of the SACU, the smaller states viewed this quid pro quo higher revenues in exchange for delegated authority as a smart choice, compared to going it alone or relying only on the global agreements of the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). Why would states agree to enter an accord in which they delegate policymaking to a wealthy state? This seems to go against nationalist interests and the desire to be autonomous, something Africans longed for during the colonial period. Yet the German-speaking states in the 1800s and the former Soviet states in the 1990s were equally nation5 Prussia intentionally excluded Austria because it too wanted to unite the Germans under its leadership. 6 For more on the three types of structures and for a detailed account of the Southern African Customs Union, the Zollverien, and EAEC, as well as the reasons why states tend to form different types of structures, see Kathleen J. Hancock, Regional Integration: Choosing Plutocracy (New York: Palgrave, 2009).

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alistic. They agreed to the plutocratic accords because the wealthy state gave them immediate economic benefits in exchange for the delegation. Delegation is not an abdication of rule or a surrendering of sovereignty. It can be revoked and is thus a choice by the state, made in exchange for other benefits. Regional plutocracy can be seen as a stepping stone to other, better-known structures. The SACU and CEMAC, like the Zollverein and the EAEC, now use intergovernmental and supranational accords. The Uniqueness of the European Union Unlike many deep regional integration accords, the EU did not begin with plutocratic structures. In addition to this variation, Europe and the EU differ fundamentally from Africas current political, economic, and geographic situation. First, EU members had advanced economies before they started deep economic integration. The states had highly developed industries, transportation structures, and educational systems, as well as high literacy, life expectancy, and standards of health. The states were actively trading with each other before integration. Regional trade in Africa, by contrast, is generally very low. Second, the European continent is physically quite small, whereas Africa is larger than Europe, China, and the United States combined. In addition, individual European states are mostly small whereas many African states are large. This means that transportation between African countries is a significant challenge, particularly when combined with low levels of economic and infrastructure development. This does not mean that improved transportation is not imperative rather that in Africa, physical connections are a much larger obstacle to integration in other senses than it ever was in Europe. Third, the EUs genesis is unusual in that there were two key powers France and Germany at its founding. Much more commonly, deep regional agreements such as customs unions include one state that is substantially wealthier than the others. This is often the case in the African integration agreements. Fourth, recall that it took two world wars before Germany and France agreed to create the founding institutions of the EU, in the European Coal and Steel Community. Despite
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many civil wars and the occasional international war, no such dramatic crisis with global ramifications exists in Africa. Finally, another important contrast with Africa is that the EU had significant support from businesses, whereas African businesses have generally been reluctant to support regional integration.7 Instead, supporters of integration in Africa have often found themselves trying to persuade African businesses that they would benefit from integration. These numerous differences raise questions about the process that sub-Saharan Africa has thus far followed. Too often, the language and governance structures of the ambitious African integration agreements replicate those found in the EU, yet the circumstances at the genesis are entirely different, raising critical questions about the wisdom of pursuing a parallel path. Conclusions and Recommendations African states and their partners should carefully evaluate whether deep regional economic integration, such as customs unions and monetary unions, is practical for regions within Africa and the continent as a whole. Those existing deep regional integration accords, such as the SACU, began as plutocratic structures and then evolved into intergovernmental and supranational structures, as opposed to the EU model, which uniquely began with intergovernmental and supranational structures. Furthermore, deep regional integration should not be seen as an end, but rather a means to the end of greater economic growth. While the EU model promises the growth that African states seek, there are a number of reasons to question whether this is the right model. In particular, Africans and their transatlantic partners should consider the following recommendations: The transatlantic partners should refocus their strategies for aiding Africa by concentrating on issues that are known to have deterred development: good governance and infrastructure. First, African states must commit to good governance practices, making foreign as well as domestic investments more appealing. There is substantial support for this argument and transatlantic partners have indeed paid attention to this foundation of economic develop7 Strong business support has also been a critical ingredient for the success of Mercosur, the customs union in South America.

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ment. However, it may well be wiser to de-emphasize deep regional integration, including dedicating substantial economic support for institutions that are not functioning well, in favor of continuing to support good governance. Second, Africa must improve its economic infrastructures, most notably transportation and communications between and within states. This is a particularly attractive area for the transatlantic partners to emphasize, both because they can more easily bring about change here than in good governance practices, for which there are many political obstacles, and because some African states have grown weary and wary of Chinese investments in transportation. Initially, African states were attracted to Chinese offers to develop African economic infrastructure, as there was no quid pro quo for political and economic transparency. However, many African states have now begun to question the benefits of Chinese investments. The Chinese-built roads have quickly deteriorated and African governments increasingly view the Chinese as imperialists of a new order. This is an opportunity for transatlantic partners to help fill an important gap and provide a necessary component for economic development. Transatlantic partners would well serve African states by sponsoring systematic cost-benefit analyses of deep regional integration and its alternatives, such as an emphasis on infrastructure development. Analysts should be aware that there are three major types of governance structures and that the plutocratic method was the genesis for creating deep economic integration in Africa and elsewhere. Policymakers in Africa and their transatlantic partners ought to consider the plutocratic structures as a starting point, bearing in mind that, historically, agreements that start this way often transition to intergovernmental and supranational structures. If deep integration is considered the best way to build the economies of a particular group of states, then those states should at least consider creating short-term plutocratic structures that include quid pro quos for the smaller members. This is not surrendering sovereignty. Rather, it is delegating policymaking for the gains of greater economic prosperity. To enhance strong comparative analysis, researchers should come from a number of world regions and disciplines (such as economics, political science, and history) with specializations in various forms of integration. Research may reveal that deep regional integration along the lines of the EU model is not the answer. The Asian states form of development, driven by domestic policies rather than deep regional integration, may be a better model. African states may find that they can best improve economic growth by coordinating their negotiating strategies toward the EU, China, and other major trading partners. For example, it has been noted that China has skillfully developed a policy for gaining natural resources from Africa, but that African states have failed to develop a China policy. Focusing energy on these types of cooperation may bear more fruit an important consideration for the African states themselves as well as their transatlantic partners, who could provide meaningful technical assistance.

About the Author


Dr. Kathleen J. Hancock is an associate professor of political science in the Liberal Arts and International Studies Division and director of the Masters of the International Political Economy of Resources (MIPER) program at the Colorado School of Mines. She earned her Ph.D. in political science at the University of California, San Diego. She specializes in regional economic integration, global governance, and Eurasia.

About GMF
The German Marshall Fund of the United States (GMF) is a nonpartisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, Bucharest, and Warsaw. GMF also has smaller representations in Bratislava, Turin, and Stockholm.

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