Opinion on the Regional Structure of World Trade (94/C 393/30)

On 27 January 1994 the Economic and Social Committee, acting under Rule 23, paragraph 3 of its Rules of Procedure, decided to draw up an Opinion on the Regional Structure of World Trade.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 1 September 1994. The Rapporteur was Mrs Cassina.

At its 318th Plenary Session (meeting of 15 September 1994), the Economic and Social Committee adopted the following Opinion by a majority with three abstentions.

1. Introduction

1.1. With the dismantling of colonialism, the need to preserve or seek out new markets has prompted the major producer countries to consider the future framework to govern world trade.

1.2. The defeat of the Nazi and Fascist regimes and the Allied victory at the end of the Second World War saw the collapse of the principles of autarky and bilaterally based relations which had constituted the main obstacles to trade, and the affirmation of the principle that world trade should be regulated in a pluralistic fashion and as broadly as possible. The first plan, within the UN, was to create a World Trade Organization (WTO). However, this plan has remained in suspension up to the end of the Uruguay Round; the setting-up of GATT (1947) and its development were a pragmatic substitute for the WTO until such time as the requisite conditions for its creation were in place.

1.3. It must be remembered that the background has been one in which the politicalideological blocs which grew up in the post-war period corresponded to economic and trading approaches anchored in conflicting ideologies (free market and free trade versus centrally planned economies and state-trading).

1.4. The process of securing markets under a free trade approach has suffered from at least two constraints: the first constraint is the exclusion of agriculture and services from the GATT package and the problem of the 'grey areas', namely a large number of voluntary export restraints (VERs); the second constraint results from the policies pursued by certain states which, unable to contend with competition from the major producers, consider that inward-looking protectionism offers them their best prospect for economic development. GATT originally had only 23 members, whereas now it has 121. This shows that, with the passage of time, most countries have become supporters of free trade - particularly in manufactured goods and commodities.

1.5. The process of liberalizing world trade has, however, been slow, contradictory and 'characterized by improvisation' as Mr P.D. Sutherland, the Director-General of GATT, put it (). It is possible to show that the emergence of certain regional groupings, in this context, has been brought about more by the need to generate and unblock trade flows, at any rate in a specific area, than by regional protectionism.

1.5.1. Needless to say, a number of policies pursued by regional groupings have been protectionist to a greater or lesser degree. But any analysis should be carried out in terms of individual sector policy, and it would be mistaken to argue that regionalist projects as such, particularly those in the EU, have an overall protectionist aim.

1.5.2. Furthermore, GATT provides for the legitimacy of regional integration structures in certain circumstances (Art. XXIV), and establishes a framework for ensuring compatibility between the multilateral and regional aspects of trade.

1.6. It is important to emphasize that the economic and trade aims of countries which opt for regionalization often overlap with other political and social objectives.

1.6.1. The present Opinion should therefore avoid focusing exclusively on trade aims and dynamics when analysing the factors which have influenced the growing trend towards regional integration.

1.7. A distinction can be drawn between two types of regional integration process.

1.7.1. In the first category, countries with basically similar (or comparable) levels of development, production and technology group together, thereby boosting competition within the area and fostering competitiveness and growth. In this case there is little likelihood of major trade flow diversion in the global market context.

1.7.2. The second category, primarily based on complementarity and differing levels of development, can build on differences in output, income and technology but is far less dynamic (the incentive for internal competitiveness is missing), more inward-looking and potentially a source of greater trade flow diversion.

1.7.3. The second type of integration does not necessarily have a negative effect on local prosperity. In the early stages at least it can open up markets for products from the countries concerned, thus boosting output and specialization. It can, however, be a drawback if it does not subsequently lead to greater competition between the various sectors of individual national economies.

1.7.3.1. Here, the area of specialization of the national economies is all-important. Within individual countries, different productive sectors have different long-term growth potential. If a country tends to specialize in low-growth sectors, then its growth rate will inevitably be less dynamic than that of its partners.

1.7.4. In order to assess the effects on general prosperity, we must first determine whether a trading area constitutes a 'block'.

1.7.4.1. A block tends to be inward-looking, and it exploits internal complementarities in order to keep out external competition. According to traditional integration theory, this leads to a net diversion of trade flows and has negative effects on internal and global welfare.

1.7.4.2. More recent theories focus on imperfect markets and economies of scale, and look upon integration as praiseworthy per se, since it boosts the scale of production. The trouble is that the individual countries will specialize in specific economic sectors; each sector has its own dynamics which raises the problem of redistributing the overall benefits produced by the establishment of the trading area.

1.7.5. The aim of this brief survey of current theory is merely to provide a framework for analysing the track record and potential of the main integration systems in existence today.

1.8. In addition, world trade - more or less structured along the lines of regional groupings of very different kinds - cannot be considered merely as the product of free, or less free, flows of goods, capital, services and factors of production in general (including labour, which is often forgotten). As such it benefits global economic and social progress to a greater or lesser degree.

1.8.1. In other words, trade is affected by various factors, and hence cannot be treated as an independent process which, if unhindered by barriers and restrictions, automatically leads to a gradual improvement in living standards. The most important factor today is the range of possible policies (or non-policies) for running the world economy: the exceptional expansion of financial markets and the resulting capital flows - which exercise a strong influence over national economic and monetary policies, the real economy and hence the nature and patterns of trade flows - are greatly encouraged by the lack of effective policies for their management. The absence of such management policies has a powerful and unpredictable impact on the dynamics of the real economy.

1.8.2. Hence the vital need for global and economic framework strategies, so that current world developments are constrained by parameters ensuring proper balance and putting the emphasis on a concept of 'welfare' in which social and environmental aims loom large.

1.9. In this Opinion, our examination of the 'regional structures of world trade' will, less ambitiously, attempt to ascertain whether, quite apart from promoting the diversification and expansion of trade, the main regional groupings have been able to improve living standards within and outside their respective areas. And how they have helped or can help to narrow disparities in world development and foster socially and environmentally sustainable growth.

2. Some key principles

2.1. Present-day economic growth in the industrialized world has gone hand in hand with the emergence of the producer triad of Europe, the United States and Japan. Relations between these three trading units have - at any rate at certain junctures - been fraught with keen competition, protectionist tactics and a definite lack of cooperation. Tensions have consequently built up, though it has to be stated that protectionist attitudes are primarily the symptom of a common disease: the incapacity of the large economic and trade powers to optimize the results of their expanding real economies and concurrently achieve orderly and equitable world economic growth. In the final phase of the Uruguay Round negotiations, these tensions led to disputes between the three trading units (especially between the EC and the US).

2.2. During the period of sharp confrontation between the main economic and trading partners (especially the 70's and 80's) production conditions in the industrialized world underwent far-reaching changes which simultaneously affected economic and trade relations.

2.3. Undoubtedly the most relevant factor has been the emergence and dissemination of information technologies which have revolutionized production processes and communications. According to a Commission study, the annual average growth of 'data communication' products has been 40 % in the past decade, while prices have come down steadily. This trend is linked with the great expansion in services, particularly financial services.

2.4. Foreign direct investment (FDI) has also expanded considerably. The role of FDI, more as an adjunct than a substitute for trade, is widely recognized. Over the past ten years FDI has risen at a rate of 30 % per annum (three times faster than world trade and four times faster than world production) ().

2.5. The role of multinationals in world trade has gathered strength and has reached the point where it is as great, or even greater, than that of individual countries, or even the triad. The multinationals are involved in regional integration. There is no doubt, for example, that American and Canadian multinationals backed the NAFTA project because they saw it as a further opportunity to strengthen their foothold in Central and South America.

2.5.1. The importance of multinationals is largely responsible for the complexity of international economic relations. It has been calculated that between 40 % and 60 % of the world trade takes place between multinationals. In 1989, sales by their foreign subsidiaries amounted to $4.4 billion, whilst the total for trade in goods and services was $3.5 billion during the same period.

2.6. The problem which seemed to represent the greatest protectionist threat, namely product standards, has become less acute as a result of the increasing relocation of production and the scale of trade in semi-processed goods which now, according to the Commission study mentioned above, account for between 50 % and 70 % of French, German, UK and US imports.

2.6.1. It must always be remembered that the trade process is influenced by factors that are only ostensibly of secondary importance (e.g. familiarity with a partner's traditions and the ability to adjust to local requirement. Significant changes in recent years include the increase in 'trading companies' which now play a key role in boosting and improving trade. These companies start by opening up new markets and then lead to an influx of investment which often improves the economy of the countries concerned, thereby creating an even more favourable climate for trade.

2.6.2. A separate study is also needed of relocation strategies whose far-reaching economic and social implications are currently the subject of keen interest and concern. Here it should be pointed out that relocation is not merely something which goes on outside the integrated areas, but often within them, too.

2.7. The economic development of certain countries and areas regarded as the 'satellites' of particular regional powers is of relevance in this revolution. For instance, certain sub-regional groupings (the South-East Asian NIEs, some Latin American countries) have succeeded in harnessing the current changes to their economic growth and are now searching for trade outlets on their own account.

2.8. In Europe, quite apart from the momentum generated by the Community-wide internal market in the second half of the 80s, the most significant change is the self-destruction of COMECON and the 'empire' of which it was an offshoot. The concept of political-ideological blocs is no longer tenable, and this has expanded Europe's reference area, triggering new opportunities and weaknesses for the process of Community integration.

2.9. The establishment of NAFTA has opened up new, though not entirely easy, prospects for both Central America and the West Indies, with their long-standing development problems, and Latin America, which has embarked on a series of regional integration projects.

2.10. A number of countries and areas which formerly came more or less within the triad's area of influence have suffered marginalization. Today they form a huge high-risk zone whose situation and difficulties call for more systematic attention (in particular, Africa and India, and, with different potential and effects, China too). As Mr Sutherland says: 'We cannot continue to exclude half the human race from the workings of the world economy'.

2.11. The conclusion of the Uruguay Round and the setting-up of the World Trade Organization (WTO) provide scope for a simultaneous and mutually advantageous twin process of trade internationalization and regional integration.

2.12. However, this mutual advantage will not be generated spontaneously by free interaction between the two processes but will ultimately depend on the basic decisions (see Additional Opinion on the Impact of the Uruguay Round Agreements) made at world and regional levels.

2.13. 'Mastering' the world-level relationship between trade, development and resource use and redistribution will make it easier to create a new world economic order. The heaviest responsibility for this project's success will be borne by the three key actors: EU, United States and Japan.

2.14. This outline of EU, US, Japanese and Asian experience, will enable us to put forward some recommendations for the role of the EU on the new world scene.

3. The Community experience and future prospects

3.1. The Treaty of Rome embodies the EEC's wide-ranging political and social blueprint for development of intra-Community trade (customs union and common market). This study of the EU experience, despite its brevity, cannot overlook the substantial political impact of the original Community blueprint, devised in the immediate aftermath of the Second World War as a pact to ensure peace and stability in Europe. However, the economic and trade aspects of Community integration will primarily command our attention.

3.2. Many academics have argued that the EEC has helped to boost trade between the industrialized countries and that its experience should be fully exploited in the overall framework of free trade.

3.2.1. Between 1958 and 1972 the volume of trade between the Community Member States rose by 16.2 % per annum as against 9.8 % for trade among non-EEC industrialized countries (P. Bairoch, 1978) (). During the planning and implementation of the internal market, intra-Community imports as a share of the Member States' global imports rose significantly ().

3.2.2. Interestingly, with each enlargement of the EU, internal imports from the existing group of Member States decline, while imports from the new Members show a sharp increase (). On the other hand, the more sensitive sectors which were formerly protected in applicant countries are increasing their strength regionally. There is, however, always a risk that old, national protectionist habits will filter through to the newly-integrated regions (e.g. the Portuguese textile industry).

3.2.3. Overall, after several decades' experience, it can confidently be said that Community integration has helped to generate an increase in trade which has been substantial in absolute terms and has easily exceeded diversion.

3.3. The common customs tariff has also provided a degree of transparency which is useful not just within the area to which it relates but also for external partners, as was acknowledged during the GATT negotiations.

3.4. Obviously this surge in trade does not follow a linear pattern; non-trade and even non-economic factors often cause fluctuations. The very free trade emphasis of the Community integration process has not been linear and, most important, has often been viewed as inconsistent and biased towards certain sectors of production (agri-food, textiles, cars, HDTV, public tenders, etc.).

3.4.1. The CAP is repeatedly accused of creating major protectionist effects. Leaving aside internal social and structural objectives, the CAP has certainly caused substantial variation in Community trade with non-member exporters of agricultural produce, at least as far as produce coming under the levy system is concerned.

3.4.2. However, it should be noted that agricultural production, because of its specific nature and its sensitivity, has always been subject to strong protection in all the productive areas of the world. Furthermore, the agricultural sector was largely excluded from the GATT until the conclusion of the Uruguay Round. Finally it should not be forgotten that for the last twenty years the Community has followed an open trade policy in 'Mediterranean' products (fruit and vegetables, citrus fruit, olive oil, tobacco, flowers, etc.) to meet the needs of the Mediterranean countries (preferential trade and association agreements), ACP States (Lomé) and developing countries (GSP).

3.5. However, the Community itself has not been completely untouched by internal protectionism: Within the Community, de facto protectionist barriers have slowed down the integration process in some areas, especially in the period prior to the '1992 project' (Albert-Ball report, 1980, and Cecchini-Emerson, 1987).

3.5.1. Interestingly, the abolition of internal non-tariff-barriers has boosted trade with non-EC countries more than internal trade (Jacquemin and Sapir, 1988).

3.6. Some current uncertainties, especially as regards policies vis-à-vis the Central and Eastern European countries (CEEC) and the Mediterranean region, are exploited by EC opponents to show that the integration process is basically protectionist.

3.7. It is sometimes claimed that the EU is a 'fortress'. Such claims can safely be dismissed, given, for instance, the whole set of international commitments which it has shouldered. Today the EU is an attractive market for many producers, and a key economic and trade partner for the CEEC and Mediterranean countries.

3.7.1. Nonetheless, the EU partnership with the CEEC has its problems, partly because of differences in development and income but also because of the CEEC view that the association agreements concluded or being negotiated should amount to a first step towards complete membership of the EU, and their insistence on commitment in this direction.

3.7.2. The EU stance, at this juncture, is unclear: the problem is not just one of an institutional 'architecture' facilitating the construction, on the basis of what already exists, of a 'large European home' stretching from the Atlantic to the Urals. First and foremost, a comprehensive political blueprint is needed which capitalizes on the integration experience and, as regards the issues with which this Opinion is concerned, prevents the diversion of Europe towards a quest for complementarity which would keep the potential new Member States in a position of subordination, with the risk that their already difficult process of economic and social development would be held back (in other words, a 'star system' would be set up, with the EU at the centre, and the CEEC at the outer edges).

3.7.3. From the EU viewpoint, the CEEC area still has huge potential as a market and as an economic partner. The association agreements with these countries must therefore be used for purposes of a joint appraisal of the overall shape which a more wide-ranging European integration venture is to take.

3.7.4. The creation of the European Economic Area (EEA), on the basis of closer relations with the countries of the European Free Trade Area (EFTA), is a fruitful experience which has paved the way for the current procedures for the accession of Austria, Finland, Norway and Sweden. But it cannot automatically be transposed to other countries or areas. In the case of the CEEC in particular, and further to the objectives in 3.7.3, total commitment will have to be shown to promoting effective convergence between these countries' economies and those of the current Member States, and, at the same time, all synergies within the CEEC should be encouraged.

3.7.5. As regards the Mediterranean area, reference should be made to earlier ESC Opinions on the subject. However, the deterioration in terms of trade cannot be ignored nor can the urgent need to revitalize EU policy vis-à-vis this area.

3.8. The special feature of the Community is still first and foremost its ability to use the economic growth generated by integration to foster general prosperity (European social model). The EU is seen as a wealthy, egalitarian, advanced and pluralistic zone and hence as a model which can be copied, wholly or partly, by other parts of the world.

3.9. Conversely, when a recession hits the Community, the impact is greater because it is the largest world market. A weakening of this market creates a risk factor for our partners. The intertwining of our economic fates is steadily increasing with growing Community integration and makes the EU's responsibility in world relations particularly important. One example of the exercise of this responsibility is the decisive role the EU played, at some cost to itself, in bringing about the conclusion of the Uruguay Round.

4. The setting-up of NAFTA

4.1. Much has been said about the negotiation, and ultimately the achievement, despite fierce domestic opposition, by the largest economic and trade power of the 20th century of as hybrid a regional integration project as the North American Free Trade Area (NAFTA) with Canada and Mexico.

4.2. NAFTA is the second largest free trade area in the world after the EEA, encompassing three partners of very different size, levels of development and income and competitiveness. The USA has a population of 225 million (compared with 27 million in Canada and 84 million in Mexico) and a per capita GNP of US$ 23,000, compared with US$ 3,500 (Mexico). Canada's overall GNP is one-fifth, and Mexico's one-twentieth, of the US figure. The bond between the three disparate countries is strengthened, somewhat paradoxically, by their enormously differing motives for setting up the association - in other words, by complementarity.

4.2.1. NAFTA's basic aim is to dismantle customs tariffs over a 10-year period (15 years solely for the more sensitive sectors). Following the definition of this objective, the three countries concluded and ratified two additional agreements: on labour and on the environment.

4.2.2. It must be remembered that Canada and the US had already concluded a Free Trade Agreement (FTA) in 1988, mainly in response to Canada's wish for safeguards against US protectionist pressures and to boost its exports to the US market, which have risen steadily since 1970.

4.3. Without claiming to explain in detail all the motivations that culminated in NAFTA, it seems clear that the three countries are pursuing very different goals.

4.3.1. In the case of Canada, which had already achieved a significant degree of integration into the US economy - and whose exports to the USA account for 70 % of its total exports - the main consideration is the need to secure a broad market; to remain a potential beneficiary of FDI, and to hinder any further development of a 'hub and spoke' system, with the USA at the centre, and Canada relegated to the outer edges.

4.3.2. Mexico had every interest in pressing its claims as a priority FDI beneficiary because of its low-cost labour and dynamic growth, which has not been without social costs. To this end it needed clear-cut alliances: to some extent Mexico was the catalyst of the NAFTA venture.

4.3.2.1. Before the NAFTA agreement was concluded, Mexico had already embarked upon a policy of trade liberalization, as part of the process of modernization and restructuring of its economy (inflation, which had been endemically high for decades, was down to 12 % in 1992).

4.3.2.2. Under the agreement, Mexico should be able to compensate for its difficulties in raising capital, due to its persistently high levels of foreign debt and lack of success in mobilizing domestic capital. Fixed access to US markets is also of prime importance for Mexican goods. (The USA accounts for two-thirds of all Mexican exports).

4.3.2.3. The interests of both the USA and the entire American continent can be furthered by keeping Mexico within a free trade area, thus aiding the modernization process and improving domestic stability.

4.3.3. For the USA, besides the aim of maintaining stable democracy in the area, and the consequent determination to support Mexico's efforts to modernize, the most convincing reason seems to have been the need to rationalize the status quo and facilitate efficient, secure relocation of US concerns throughout Mexico and not just in the border free zone (theoretically putting an end to the 'maquiladoras' phenomenon), thereby stemming the wave of Mexican labour and curbing clandestine migration which can no longer be contained by repressive measures alone, tough as they may be. (This point is covered by the additional cooperation agreement dealing with labour and human resources).

4.3.3.1. In addition, the USA is certainly not blind to the potential market of Mexico, whose population is expected to rise to 100 million by 2000.

4.4. Estimates of the consequences of the agreement for the three countries concerned differ fairly sharply, according to the econometrics employed: some estimates suggest a 7.7 % net increase in Mexican exports to the USA, whilst others give a figure of only 1.3 %. On the employment front, estimates range from the creation of 1,464,000 jobs, to the loss of 158,000. Faced with discrepancies of these proportions, we can only wait and see what the outcome will be in a few years' time.

4.4.1. Hence the rationale behind NAFTA is complementarity and rationalization.

4.5. As for potential developments in the Continent as a whole, other horizons would open up if, as many speculate, NAFTA serves as a bridge for further integration with other Central and Latin American countries. Chile, for instance, which already has a free trade agreement with Mexico, makes no secret of its interest in NAFTA.

4.5.1. NAFTA has been given a mixed reception in several Central and Latin American countries, with reactions ranging from attraction to concern. With reference to the recent Opinion on Community relations with Latin America, it should be emphasized that the Latin American integration process - albeit a distinct experience for each country in terms of consistency, stability and prospects - should be supported, and the potential identified. It is to be hoped that these integrated areas will agree to cooperate with NAFTA in specific fields, so that the countries concerned are not confined to a strictly bilateral relationship with the USA ('hub and spoke' system).

5. Japan, South-East Asia and China

5.1. South-East Asia and Japan are seen as the Pacific area with greatest potential for economic cohesion and integration. The New Industrialized Economies (NIEs) - Hong Kong, Singapore, South Korea and Taiwan - and the 'new NIEs' - Indonesia, Malaysia, Philippines and Thailand - will also be considered part of this area.

5.1.1. In 1967 Indonesia, Malaysia, Philippines, Thailand and Singapore set up the ASEAN (Association of South-East Asian Nations) free trade area.

5.1.2. China and the two Koreas, with their rapid rate of expansion, will also be considered in this context.

5.1.3. The sheer size and complexity of China, together with its potential both as a producer and a market-place, mean that it should be considered separately. Whilst not intending to play down the extent of the problem posed by China, it should be remembered that, despite its size and potential (a population of 1.2 billion, 12.8 % growth in 1992, rising to 13 % in 1993, and a 15 % annual increase in exports), its GNP is still only half that of Italy.

5.2. From the political angle, the whole area has been strongly influenced by the 'Pax Americana' since the Second World War. Only recently, with the increasing US military disengagement, prompted by the ending of the cold war and budget cuts, the North American influence has declined sharply, giving way to Japanese economic strategy, characteristic of post-war Japanese foreign policy.

5.3. Despite high levels of growth in the NIEs, the new NIEs and China in recent years, their trade gap with Japan is still very wide and Japan asserts itself as the undisputed economic leader in the area. Its leadership ranges from technology to finance, rooted in its unflagging balance of payments surplus.

5.3.1. Japan is still a very closed economy, with foreign trade (calculated in ecu) accounting for 16.3 % of GDP in 1991. (The Figure for EU external trade in the same year was 18 %). Japanese trade policy is neo-mercantalist in emphasis, and is widely criticized for closing its markets to imports.

5.3.2. Japan has remained consistent, at any rate up to a few years ago, and even vis-à-vis the South East Asian countries, in refusing to grant preferential treatment.

5.4. Japan's relations with South East Asia bear the heavy imprint of history. Its imperialist past is still very much alive in the memories of the older generation in those countries. There are fears that the military policy domination of one era will be transmuted into economic domination. Japan was deliberately excluded when ASEAN was founded though gradually it has come to play a key role in bodies closely related to ASEAN.

5.5. Japan's economic leadership seems a sine qua non in any blueprint for integration of the area. However, as pointed out in a paper of the Economic Planning Agency (EPA) in 1988, the focal place which it is intended to assign to the Japanese economy surpasses that of Germany in the EU or the USA in NAFTA. The idea is a form of close economic association between NIEs, new NIEs and Japan 'like parts of a human body' but with the 'head' securely anchored in Tokyo. However, many observers consider this scenario premature on both economic and political grounds.

5.6. Nonetheless, Japan appears to have assumed such a role. In 1987 the New Asian Industries Development Plan (NAIDP) announced a strategic fund to redirect Japanese FDI to South-East Asia because of the increasingly closed US market. In 1988 the ASEAN-Japan Development Fund was set up to promote the rechannelling of the Japanese surplus towards the area.

5.7. Of all Japan's bilateral relations, its relations with the ASEAN countries are most promising. Regardless of the sharp financial and technological imbalance, the two partners' production structures complement each other perfectly: Japanese exports with a high technology content can be profitably exchanged with the natural resources of which the South East Asian countries have a plentiful supply. In this area Japanese FDI draws advantage from labour costs which are lower than in the NIEs.

5.8. The major risk for Japanese production is some kind of technological boomerang effect: these countries could soon be in a position to copy advanced technologies and therefore to oust Japanese goods on the international market. Wary of this risk, Japanese firms export only established technologies to these countries.

5.9. China-Japan bilateral relations are in good health. One distinguishing feature of Japan's post-war foreign policy has invariably been to keep on good terms with all Communist countries in the East. China sees Japan as the closest financial centre. Once the Chinese economy has opened up completely, this will be of decisive importance.

5.10. Japan's bilateral relations with the two Koreas are very similar to those with the two Chinas. Japan's equidistance from the two has played heavily to its advantage. Among the non-Communist countries, Japan is North Korea's main trade partner: Japan is poised to reap rich rewards from a North Korean 'perestrojka', (still unlikely, despite the death of Kim il Sung).

5.11. The enlarged South East Asian area is an excellent terrain for integration. Complementarity, especially between Japan and the new NIEs, presages substantial profits for such integration. The close complementarity (far greater than between the USA and Mexico and perhaps only to be compared to that between the EU and CEEC) could indeed prepare the ground for development of a trade bloc.

5.11.1. If Japan could succeed in laying to rest its infamous past, cultural considerations could also encourage such an integration process.

6. India and Africa

6.1. Albeit for different reasons, India and Africa have experienced a sharp deterioration in their world trade position over the past thirty years. Sluggish development, numerous structural problems, heavy foreign indebtedness (especially in the case of Africa), compounded by increasingly sharp competition on all markets, have resulted in Africa and India being relegated gradually, but with more and more drastic consequences, to the sidelines, thereby accentuating the already significant gap in income and prosperity affecting one-third of the world's population.

6.2. India has only recently started to regard exports as a development priority. Rooted in an economic development strategy focusing on self sufficiency and import substitution, India has seen its share of world trade drop from 2.4 % in 1951 to 0.42 % in 1991. During the two-year period 1991-92, exports accounted for only 1.8 % of India's GDP while it ranked only 35th on the list of importer countries (with a volume of imports equivalent to that of Ireland, despite its population being 242 times the size).

6.2.1. India's position vis-à-vis the other Asian LDCs has also deteriorated: India's share of the total manufacturing exports of the Asian LDCs fell over seven years (1980-87) from 4.2 % to 3.3 %.

6.2.2. Only very recently have manufacturing exports risen (rapidly), in tandem with a policy swing towards export support and free trade. In 1992 the value of Indian exports rose to $18,400 million and forecasts for 1993 indicate a further rise to $21,800 million, viz an annual increase of 18.5 %

6.3. At regional level India is a member of SAARC (South Asian Association for Regional Cooperation), which also includes Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka. This organization was set up in 1985 with the basic aim of speeding up economic and social development in the area through joint cooperation ventures in a number of sectors.

6.3.1. However, a long history of friction between the members of SAARC has so far complicated cooperation on both the economic and political fronts.

6.3.2. Though the economies of these countries are competitive, they are handicapped by their reliance on agriculture (or, to be more accurate, the dependence of the great majority of their populations on agriculture, even if goods and services have accounted for a significantly higher share of GNP in recent years). There is little trading within the region: internal exports constitute under 4 % of the total volume.

6.3.3. Nonetheless, at the last SAARC summit, held in Dacca, on 11 April 1992, the SAPTA (South Asian Preferential Trade Arrangements) was signed. This agreement could mark a significant shift in direction and stimulate SAARC to turn to programmes and methods of economic and trade cooperation that would set a clearer strategy for integration within the area.

6.4. The main reason for Africa's marginalization on the world trade scene is probably its concentration on exports of raw materials to the industrialized countries. In their turn, these exports are conditioned by fluctuations in world prices, which have moved steadily downwards (and at times even slumped) in recent decades, due in part to export refunds payed by the industrialized countries.

6.4.1. Trade in raw materials has varied between 85 % to 95 % of total African exports. Between 1964 and 1987 Africa's share of total world trade dropped from 4.2 % to 2.1 %. At present it is just above 1 %.

6.4.2. However, even in the case of raw materials, African exports continue to decline. From 9.1 % of non-oil commodity exports in 1970, they had dropped to 4.1 % in 1987. Various factors have influenced the deterioration of Africa's trade position. For instance, its produce has been ousted on world markets by the exports of other LDCs, benefiting from better climatic conditions (more frequent and regular rainfall), lower production costs, better infrastructure and tax policies more favourable to producers.

6.5. A number of trade agreements have been concluded between African countries but there has been only a limited growth in trade within the region. Between 1976 and 1987 trade between the member countries of ECOWAS (Economic Community of West African States, encompassing the English-speaking, French-speaking and Portuguese-speaking countries) rose from 3.1 % to 5.5 %. As for the CACEU (Central African Customs and Economic Union, comprising the French-speaking countries), internal trade rose from 2.1 % in 1970 to 3.1 % in 1976 and 4.1 % in 1980 but then, largely because of internal disputes, dropped sharply to 0.9 % in 1987.

6.5.1. The true scale of economic integration in Africa can only be properly assessed, however, if account is taken of the web of informal bonds, which are hard to quantify, uniting the various countries. In practice such integration is far greater. Much trade operates in the form of smuggling or simply unmonitored flows across almost invisible borders. Similarly, the mobility of factors of production, and in particular labour, is far greater than is reflected in the official statistics. ILO estimates that migrants make up 21 % of the total population in the Ivory Coast and 6 % in South Africa. The same phenomenon can be observed in Nigeria.

6.5.2. One problem encountered by all the various trade integration ventures in Africa is that countries often rely on single crop production and, in addition, their produce is very similar: basically raw materials (agri-foodstuffs and minerals for export to the industrialized countries). The potential for developing internal competitiveness is purely theoretical, however, since in practice commodity prices are fixed on the international markets, making the producer countries virtual slaves to such mechanisms.

6.5.2.1. The inability of the producer countries to influence prices is compounded by a decline in demand from the importer countries, partly because of the large reserve stocks built up by the user countries of almost all these commodities.

6.5.3. An UNCTAD study has attempted to identify sectors which could, if they received development aid, provide scope for diversifying production in the various regions of Africa. It concludes that promising sectors include the production of semi-processed and light industrial products such as beverages, meat, salt, cosmetics, pharmaceutical products, shoes, timber, textiles, cement, tinned fruit and vegetables and a variety of chemical products.

6.6. The impact of the structural adjustment policies and related operations promoted by the guidelines of the IMF and the World Bank (which pressed forcibly for the recent devaluation of the CFA franc) has been less than effective. The social costs have also been enormous especially because budget cuts have triggered a sharp decline in health and education with dire consequences in human terms.

6.6.1. The conditions of the vast majority of African countries, strangled by foreign debt, militate for much more tailormade and targeted joint operations as part of a far-reaching review of action by the Bretton Woods organizations. No trade agreement, however perfect on paper, will have an impact on the situation in Africa unless backed by measures to foster effective, stable development on the continent.

6.6.2. Here the Lomé Convention, providing as it does for measures aiming both to promote trade and foster cooperation, remains a useful model. However, as the ESC has pointed out in its recent Opinion on the mid-term review, particular attention must be given to guarantee funding and to adjust cooperation methods and procedures along lines that ensure true efficiency and act as a catalyst for sustainable development.

7. Conclusions

7.1. The tendency towards regional organization of world trade became evident in the immediate postwar period. This trend is compatible with increasing multilateral trade liberalization. In theory, a combination of the two trends ought to enhance welfare and prosperity worldwide.

7.2. Needless to say, certain conditions will have to be fulfilled, by national policies and by policies adopted jointly by countries which have embarked upon some more or less advanced form of integration (during the Uruguay Round negotiations, the EU, for example, showed that it was able to defend both the interests of the Member States and the interests of the Community as a whole) ().

7.3. The inauguration and operation of the WTO will soon provide an important testing ground for the extent of effective commitment to meeting these conditions.

7.4. Even if the WTO gets off to the best possible start, it will not achieve on its own the welfare objectives which are needed to make world development socially and environmentally compatible.

7.4.1. If we accept that multinationals play an increasingly important role in world trade (cf. points 2.4 and 2.8), and we refuse to ignore the influence the financial markets have on the real economy (cf. points 1.8 to 1.8.2), then the creation of an international framework to ensure well-balanced and universally acceptable interaction between markets, development and democracy becomes imperative.

7.4.2. The prospect of a new 'Bretton Woods' agreement is an attractive one, but if it is to be more than just an empty promise, and/or produce nothing more than streamlined versions of existing international organizations, acting according to the dictates of the great economic powers, then it must provide an adequate, open forum in which international society can articulate its basic requests.

7.5. Within the confines of the present Opinion on the Regional Structure of World Trade, the following conclusions set out comments and suggestions intended to underpin the EU commitment to consistent implementation of the policies laid down by the Treaty (particularly Articles 3b and 3q).

7.6. The albeit brief analysis outlined above shows that regional integration achieves optimum results in terms of general welfare, when:

- development levels, technology and production of the partners are similar;

- integration takes place against a background of liberalization, both within and outside the area;

- the parties concerned are highly motivated economically and politically, or have an agreed, comprehensive plan and follow it through with consistency;

- there is substantial scope for economies of scale.

7.7. Integrated areas - either 'de facto' (regionalizations) or 'de jure' (regionalisms) - can be set up even where one (or more) of the above factors is weak or missing, but the successful outcome of the venture will be greatly affected, as will the creation/diversion of trade flows, and particularly development, both within and outside the area in question.

7.7.1. It is clear that only an ambitious venture, involving a certain amount of institutional machinery, will be able to produce arrangements for offsetting the weak or missing factors (e.g. EU cohesion policy, which aims to overcome the development gap between some Member States).

7.8. The factors listed in point 7.6 can be used to gauge the success or otherwise of the various regionalist ventures which have been launched in different areas of the world. They are, however, insufficient to explain certain situations in detail (e.g. the problems involved in African integration projects or, at opposite extremes, the enormous potential of de facto integration in Asia).

7.9. The Community experience of regional integration is undoubtedly the richest, most complex and long-lasting.

7.9.1. When the Community was founded, the four conditions outlined in point 7.6 were all present, the consequently the EC was unlikely to form a trading bloc. As it developed, and - more importantly - enlarged, the initial relationships changed, making it necessary to adjust policies or introduce new ones (e.g. at Community level, new budgetary measures, cohesion policy, etc.).

7.9.2. Although the Community offers an excellent example of integration, it would be unrealistic to use it as a blueprint elsewhere without any changes. Each integration project has to meet specific needs, and these will, in the final analysis, determine objectives, strategy and time-scale.

7.9.3. In its relations with the rest of the world however, the Community would be wrong not to hold up two aspects of integration which have stimulated particular interest among our partners for some time: 'social Europe', and our way of handling areas of diversity. These are the two examples most often cited by external partners when referring to the appeal of the Community.

7.10. The present Opinion should try to establish whether the Community experience has led to an increase in general prosperity for the Member States and their external partners, and offer guidelines for future EU tasks and responsibilities.

7.10.1. There is no doubt that the Member States have consistently derived a wide range of benefits from Community membership, and that these benefits would never have materialized without their common commitment.

7.10.2. The impact of integration on non-EU countries is not so straightforward in greater detail. Clearly, the abolition of internal tariffs has gone hand-in-hand with a reduction in external tariffs. The EU has one of the lowest levels of tariff protection in the world, particularly for LDC imports (an average of 1.9 %). Some researchers believe that, had they not joined the EC, the individual Member States (particularly those with the strongest economies) would have maintained much higher levels of protection (producing greater diversion of trade flows), and would have been much less flexible in multilateral negotiations than they actually proved to be as members of the Community. Moreover, the smaller countries actually increased their bargaining power by joining the Community.

7.10.3. As already noted, the CAP is often labelled protectionist. Not only is the CAP blamed for deflecting trade flows, but it is also held directly responsible for an increase in poverty in certain areas of the world, particularly in Africa, the Mediterranean area, and, more recently, the CEEC.

7.10.3.1. Many people consider that the CAP - as a protectionist policy - is typical of the Community as a whole. There is little point, however, engaging in a futile argument as to whether, and to what extent, the CAP has impoverished African LDCs and the Maghreb countries, and whether it is an obstacle to development in the CEEC.

7.10.3.2. We should, however, stress the need to:

- proceed along the path outlined by the McSharry reform;

- order a complete rethink of Mediterranean policy (along the lines suggested by the ESC in its various Opinions on the subject);

- strengthen relations with ACP countries, and ensure that the forthcoming review of the Lomé Convention guarantees resources for cooperation-policy integration and allows Europe's socio-economic organizations to play a more decisive role in the social and economic dialogue with ACP partners (e.g. arrangements for monitoring current policy);

- formulate a genuine development cooperation policy, which takes into account the needs and problems facing each individual area, and considers them in the light of current and future Community policies;

- make the Generalized System of Preferences more logical and transparent (e.g. by reducing the range of preferences, and providing more clear-cut criteria for allocating them), thus hindering any further shift towards a 'star system'.

7.10.4. Similarly, protectionist policies in sensitive sectors (textiles, steel, automobiles, etc.), all too often give rise to sterile discussions, or, worse still, to intervention whose sole aim is to placate the country or organizations concerned. Community and Member State authorities should be urged to seek structural solutions to the problems of these sectors.

7.10.5. More complex strategy is needed to deal adequately with the concerns of the CEEC. As already mentioned in point 3.7.2 and 3.7.3 of the present Opinion, the EU - hopefully enlarged to take in the four countries of the EEA - together with the CEEC, makes up, at least in theory, a vast area of continental integration (the 'common European home').

7.10.5.1. If we are to get beyond vague hopes and expectations, or misleading arguments concerning the costs/benefits of such a venture, then priority must be given to devising a viable plan which takes in all the political, economic and institutional aspects involved. More specifically, a coherent trade policy could be formulated to accompany the plan.

7.10.5.2. In the meantime, it is essential that the CEEC association agreements be stripped of the more patently protectionist measures, by unilaterally opening up EU markets to key products from the countries concerned.

7.10.5.3. At the same time, aid and cooperation policy should be stepped up to ease CEEC transition to the market economy, and all necessary decisions taken, particularly those concerning resources.

7.11. The ESC believes that relations between the EU and Africa are a priority for attention: it therefore intends to make a deeper analysis at the earliest opportunity in an Own-initiative Opinion. In relations with other developing areas of the world, particular attention should also be paid to Latin America (cf. the recent ESC Opinion) and Asia.

7.12. Asia has been neglected for far too long. De facto integration and existing regionalisms have not thus far received due attention from the Community. The EU should make up for lost time, and establish a clear, constructive dialogue with these areas (particularly with ASEAN), inviting them to cooperate in certain key sectors (e.g. upgrading of human resources, research, etc.). A similar dialogue should be initiated with Japan, as discussed at length elsewhere (cf. ESC Opinion for more specific details).

7.12.1. For some time now, many Member States have focused their interest and action on China. The enormous potential of this extremely complex country should be studied in detail. In their relationships with China, it is to be hoped that the EU and the Member States exercise maximum cooperation and develop a coherent foreign policy, mindful of the fact that the Treaty provides for a foreign policy which aims to 'safeguard the common values, fundamental interests and independence of the Union', and 'develop and consolidate democracy and the rule of law, and respect for human rights and fundamental freedoms'.

7.13. The EU should attempt to gain a deeper awareness of what the APEC actually involves. A stance similar to that adopted towards ASEAN might be useful here. However, many people question the stability, strength and potential of this vast, diverse association.

7.14. Relations with the United States have recently improved in many respects. The EU must ensure that the trend continues by stepping up discussion, and making the most of the political climate afforded by the Clinton presidency and the entry into force of NAFTA. The ESC could contribute by opening up a dialogue with interested socio-professional groupings.

7.15. On the multilateral front, the EU should endeavour to fulfil its commitments under the Uruguay Round as soon as possible, and start by terminating the agreements on voluntary export restraints (VERs) with non-Member countries.

7.15.1. The EU's main responsibility, however, lies in promoting the social dimension (e.g. by backing the proposal for a WTO social clause), to maintain and encourage the widest possible discussion with other integrated areas, and to define international regulations for fair trade (e.g. by encouraging an anti-trust code - and, even more importantly - anti-trust policing arrangements: here, the recent agreement with the US could be used as a model).

7.16. On the internal front, it has already been argued that the EU should strive to forge links between its trade policy and its policy on cooperation. The ESC is ready to make its contribution, and to this end, would ask EU authorities:

- to make trade policy more transparent, by launching information campaigns and encouraging ample debate among the citizens of Europe in order to involve them fully in the necessary decisions; and in particular to do more to inform and involve the ESC as an advisory body for the Commission and the Council (with regard to this, the ESC intends to ask the 1996 Inter-Governmental Conference to introduce adequate legal provision for compulsory referrals in certain cases);

- to back the ESC's on-going commitment to a dialogue with social partners from integrated areas outside the Community, and to allow an appropriate extension of that dialogue to social partners from other areas;

- to allocate sufficient funds to external relations and development cooperation. This would amount to a reversal of the short-sighted logic which dictates that policy must be shaped within the confines of the available budget, in favour of a more enlightened approach in which the budget is designed to meet vital policy and strategy needs.

Done at Brussels, 14 September 1994.

The President

of the Economic and Social Committee

Susanne TIEMANN

() Speech to the World Economic Forum meeting, Davos, 28. 1. 1994.

() 'International economic interdependence', working paper of the Foreign Policy Data Analysis Unit, May 1993.

() P. Bairoch, Enciclopedia Einaudi (under 'Commercio'), 1978.

() A. Sapir, 'Regional Integration in Europe', economic paper No 94, September 1992.

() See footnote 4.

() A. Sapir, La négociation de l'Uruguay Round: leçons pour L'Union Européenne, 1994.

APPENDIX to the Opinion of the Economic and Social Committee

The following amendment, tabled under the Rules of Procedure, was defeated during the discussion:

Point 7.10.2. Add:

'although other barriers apply to agricultural imports competing with EU agricultural products.'

At the end of the third sentence:

'The EU has one of the lowest levels of tariff protection in the world, particularly for LDC imports (an average of 1.9 %).'

Reason

As 98 % of imports entering from ACP countries are duty-free, the rest are deterred, including by the levy system which applies to any ACP 'temperate' agricultural products over and above those allowed in by quota concessions.

Voting

For: 16, against: 25, abstentions: 14.