COMMUNICATION FROM THE COMMISSION - European Community support for regional economic integration efforts among developing countries
Date: 1995-06-16
Institutions: European Commission
Subjects: EU aid, aid system, developing countries, development aid, economic integration, free-trade agreement, generalised preferences, regional aid, regional integration, third country

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

Brussels,  16.06.1995 
COM(95) 219  final 

COMMUNICATION FROM THE  COMMISSION 

European  Community support for  regional  economic integration  efforts  among 
developing countries 

CONTENTS 

List of acronyms 

Summary 

Introduction  and  motivation 

I.  Conceptual  framework 

II.  EC  support to  integration  efforts throughout the 

developing  world 

III.  Lessons  learnt to-date 

1.  Preconditions for  successful  regional  integration 

2.  Design  of regional  integration 

3.  Implementation of regional  integration 

IV.  Recommendations  on  external  support for  regional  integration 

1.  Trade  policy 

2.  Development cooperation  policy 

3.  Donor coordination 

Appendix  A  Overview of EC  support for  regional  integration  among 

developing  countries 

Appendix B  List of major economic cooperation  and  integration groupings  and 

their membership 

11 

2 

6 

8 

9 

10 

11 

12 

12 

13 

16 

17 

25 

- i \.  -

LIST  OF  ACRONYMS 

ADB 
AEC 
ALADI 
AMU 
APEC 
ASEAN 
BEAC 
CARICOM 
CBI 
CEAO 

CEMAC 

CEPGL 

African  Development Bank 
African  Economic  Community 
Latin American  Integration Association 
Arab  Maghreb  Union 
Asia Pacific Economic Cooperation 
Association  of South  East Asian  Nations 
Banque des  Etats  d'Afrique  Centrale (Bank  of Central  African  States) 
Caribbean  Common  Market 
Cross-Border Initiative (Eastern  and  Southern Africa) 
Communaute Economique de  l'Afrique  de  l'Ouest 
(Economic Community  of West Africa) 
Communaute Economique et Monetaire  de  l'Afrique  Centrale 
(Economic  and  Monetary  Community  of Central  Africa) 
Communaute Economique des  Pays  des  Grands Lacs 
(Economic  Community  of the  Great Lakes  Countries) 
Common Monetary  Area (Rand  zone) 
Common Market for  Eastern  and  Southern  Africa 
East African  Community 
European Community 
Economic Commission for  Africa 
Economic Community  of Central  African  States 
Economic Cooperation  Organisation 
Economic  Community  of West  African  States 
European  Union 
Global  Coalition for  Africa 
Gulf Cooperation  Council 
Indian  Ocean  Commission 
Junta  del  Acuerdo  de  Cartagena 
Mercado Comun Centroamericano 

North  American Free Trade Area 
Organisation of African Unity 
Organisation for  Economic Cooperation  and  Development 
Organisation  of East  Caribbean  States 
Preferential  Trade  Area for· Eastern  and  Southern  Africa 
South  Asian  Association for  Regional  Cooperation 
Southern  African  Customs Union 
Southern  African  Development Community 
Southern  African  Development Coordination  Conference 
Sistema de  Integraci6n  Centroamericano 
Union Douaniere et Economique de  l'Afrique  Centrale 
(Customs  and Economic Union  of Central  Africa) 
Union Economique et Monetaire  Ouest Africaine 
(Economic and  Monetary  Union  of West Africa) 
Union Monetaire Oues~  Africaine  (West African Monetary  Union) 

CMA 
COME.SA 
EAC 
EC 
ECA 
ECCAS 
ECO 
ECOW AS 
EU 
GCA 
GCC 
IOC 
JUNAC 
MCCA 
MERCOSUR  Mercado  Comun del  Sur 
NAFT A 
OAU 
OECD 
OECS 
PT A 
SAARC 
SACU 
SADC 
SADCC 
SICA 
UDEAC 

UEMOA 

UMOA 

- 11  -

SUMMARY 

The beginning of the nineties has been  characterised by the progressive globalization 
of economic activity  and the increased interdependence among economies in various parts of 
the  world.  A  symptom,  and  at  the  same time  a  response  to  these  developments,  has  been  a 
renewed  attention towards  regional  integration. 

In  Europe,  integration  has  deepened  with  the  completion  of  the  Single  Market 
programme and the formation of the European Union (EU). In the North American continent, 
a  free  trade  area  has  been  agreed,  comprising  for  the  first  time  industrialised  market 
economies as well  as  a developing economy.  In  most parts of the developing world there has 
also been a greatly  increased interest in  regionalism, to some extent stimulated by  the changes 
in  Europe and North America, the role of intra-regional liberalization as a means of expanding 
markets  and  reaping efficiency  and  scale economies gains,  and the attractiveness  of regional 
integration  as  a  stepping-stone towards integration  into the world  economy. 

While recognising the potential  contribution of regional  political  cooperation towards 
peace  and  security,  this  Communication  deals  mostly  with  regional  economic  integration. 
Further  it  approaches  it  as  a  subject  within  the  wider  category  of  regional  cooperation. 
Whereas  regional  cooperation  can  refer  to  all  efforts  where  a  group  of countries  addresses 
issues  of common  interest,  regional  economic  integration  or  for  short  regional  integration 
refers  essentially  to  the  reduction  of  policy-related  barriers  to  the  movement  of  goods, 
services, capital and persons. Regional integration deals with the elimination of tariff and non 
tariff barriers to trade, the removal  of obstacles to investment from  regional  partners,  and the 
facilitation  of payments.  Regional  cooperation  in  the  wider  sense  can  also  deal  with  other 
subjects  such  as 
the 
management  of common  resources  such  as  the  environment. 

telecommunication  infrastructure,  education  and 

transport  and 

Regional  economic  integration  is  not  an  end  in  itself.  Rather,  it  is  part  of a  strategy 
to  coordinate  economic  policies  and  to  improve  the  prospects  for  sustainable  development. 
Notwithstanding  the  role  of domestic  policies  as  the  main  determinants  for  any  country's 
economic  growth,  for  most  developing  countries,  especia1ly  the  sma1ler  ones,  regional 
integration  is  an  important  step  towards  better integration  into  the world  economy. 

The renewed  attention to regionalism takes place in  an international  context of global 
liberalisation  of trade  and  capital  movements.  It has  been  referred  to  as  "outward-oriented" 
or "open regionalism". In contrast with the fears  sometimes voiced, the Marrakesh Act (April 
1994)  has  confirmed the  compatibility  between  regional  integration  and  multilateralism.  At 
the  same  time  it has  clarified  and  strengthened  the  conditions  whereby  a  regional  grouping 
can  claim  to  have  acted  in  accordance with  multilateralism. 

Despite the increase in regional integration initiatives, an assessment of past experience 
shows  a  lack  of  success  in  many  cases.  Important  lessons  should  be  drawn  from  past 
experiences,  both  successes  and  failures.  First  of all,  regional  integration  is  easier  in  some 
regions  than  in  others.  This  is  the  result  of  a  number  of factors,  notably  the  degree  of 
complementarity  among  the  economies;  the  nature  of  geographic  conditions,  including 

- iii  -

geographic proximity;  and the similarity of the cultural  and historical  background.  Secondly, 
there  are  important  pre-conditions  as  well  as  factors  affecting  the  success  of  regional 
integration.  Among  these  are  political  commitment,  peace  and  security,  rule  of  law, 
democracy, good governance and macroeconomic stability. In addition to these pre-conditions, 
successful  regional  integration  requires  a  market-friendly  economic  environment,  openness 
towards  third  countries,  institutions which  are  sufficiently  strong  and  have  a clear  mandate, 
adequate  resources  and  political  support.  A  flexible  institutional  framework,  permitting 
progress  at  different  speeds  ("variable  geometry"),  broad  participation  by  the  private  sector 
and  civil  society,  and  a set-up  where  responsibility  for  dealing with  an  issue  is  kept  as  close 
as  possible  to  the  population  concerned  ("subsidiarity"),  can  also  be  seen  as  critical 
ingredients for  success,  as  the  EU experience shows. 

In  its  relations  with  developing  countries  and  groupings  the  EU takes  these  lessons 
into  account.  Support  for  regional  integration  should  respond  to  the  will  manifested  by  its 
partners  for  such  help.  Further,  it  should  focus  on  encouraging  realistic  and  workable 
integration  schemes.  Lastly,  it  should  be  conceived  as  a  strategy  with  several  interrelated 
components,  as  direct  support  for  integration  can  be  provided  through  both  development 
cooperation  policy  and  trade  policy  provisions. 

Trade policy  can  be used  in  different  ways to  promote effective regional  integration 
among developing countries. In particular, the application of cumulation in the rules of origin, 
currently  granted to several  regional  groupings,  can encourage intra-regional  production  and 
trade.  Further,  trading  arrangements  between  the  EU  and  integration  groupings  could  be 
offered  to  the  latter,  conditional  on  the  partner  grouping  having  an  effective  integration 
structure. 

On  the  other  hand,  to  promote  effective  regional  integration,  a  development 

cooperation policy  should  have the following  broad  components: 

1. 

2. 

3. 

capacity building (including training and  research),  and technical  assistance ( on  areas 
including the design of sectoral  policies, the harmonization of standards,  etc.) to  help 
national  and  regional  administrations implement regional  integration  measures; 
adjustment assistance to help the private sector exploit the opportunities that become 
available through  regional  integration; 
in some regions, particularly in Sub-Saharan Africa,  support for governments that are 
committed to implementing regional  integration measures. 

- I  -

INTRODUCTION  AND  MOTIVATION 

Over the past five years,  there has been a remarkable increase of regional  integration 
and  cooperation  as  part  of  a  strategy  to  improve  prospects  for  economic  growth.  This 
movement  has  been  particularly  strong  in  Europe  with  the  completion  of the  single  market 
programme  and  the formation  of the  European  Union  (EU).  It  has taken  a  looser  form  in 
North  America  with  the  creation  of  NAFT A,  which  is  the  first  regional  arrangement 
comprising industrialised market economies and  a  developing economy.  In most parts of the 
developing world, but most prominently in Latin America, in Africa and in Asia,  there have 
also  been many  attempts to launch  regional  arrangements. 

Regional  integration  can  form  part  of a  general  strategy  for  encouraging  sustained 
economic  growth.  There  are  many  important benefits  which  regional  integration  can  bring. 
It  is  beyond  the  scope  of  the  present  communication  to  elaborate  on  these.  The  most 
important economic benefits include:  greater efficiency in production through  specialisation, 
reduced  unit  costs because  of scale  economies,  standardisation  and  reduction  of formalities, 
better bargaining position towards the rest of the world and  consolidation of macroeconomic 
policy  reforms.  It  has  also  been  demonstrated  that  outward  oriented  regional  integration  is 
compatible with multilateralism. 

The EU has encouraged, partly by example, partly through direct support, many of the 
new regional groupings in the developing world. Most of the support provided by the EU has 
been  on  a  case-by-case  basis,  reflecting  the  varied  reality  of regionalism  in  different  zones 
and continents.  The intention of the present Communication is to launch a debate in  order to 
increase the  effectiveness  of future  EU support to realistic  regional  integration  schemes. 

This communication is structured as follows.  A first  section sets down the conceptual 
framework for the analysis and  clarifies some of the basic concepts.  The second section  deals 
with EU support so far in favour of regional  integration among developing countries.  For the 
sake  of brevity,  the  details  of this  support  are  given  in  Appendix A.  The  third  section 
summarises the lessons that can be derived from  past experience. These lessons form  the basis 
for the recommendations that are the subject of the final  section.  These recommendations are 
intended  to  provide  elements  for  a  strategy  for  the  EU  and  its  member  states  to  support 
regional  integration  in  the  developing  world.  As  a  reference,  Appendix  B  contains  a  list  of 
the  most important regional  integration  groupings  and  the  countries  that  belong to  them. 

I.  CONCEPTUAL FRAMEWORK 

- 2  -

Regionalism  is  on the increase.  even  if it covers different situations 

One of the key features  of the development of Europe in the past decade,  next to the 
collapse  of  the  authoritarian  regimes  in  the  Centrally-Planned  economies,  has  been  the 
strengthening  of integration  in  Western  Europe.  This  has  taken  place  in  terms  of both 
widening  the  geographic  boundaries  of  the  European  Community  and  deepening  the 
interdependence  among  its  member  countries,  via the  implementation  of the  Single  Market 
programme,  the  establishment  of the  European  Union  and  the  creation  of the  European 
Economic  Area. 

Yet,  the  developments  in  this  region  have  not  been  isolated  phenomena.  Reflecting 
both technological  change and increasing interdependence,  regional initiatives have begun to 
either  emerge  or  take  on  renewed  dynamism  in  various  parts  of the  world.  Hence,  as 
communications improve, East-West and North-South linkages are becoming as important as 
the  relations  among  industrialised  market  economies.  Population  growth  and  migration, 
environmental  degradation,  global  warming,  security  issues  and  drug  trafficking  cannot  be 
tackled at the national level and all require international cooperation to be properly addressed. 

On the institutional  front,  the  creation  of the World  Trade  Organisation  (WTO)  and 
the completion  of the  Uruguay  Round  have  stimulated  renewed  interest in regionalism.  At 
the  same time,  revised  and  more precise trade rules have facilitated  open regionalism. 

Yet the emerging regionalism is markedly different from that in Europe.  Indeed, even 
though  it  is  committed  to  strengthening  its  economic  ties  with  its  Eastern  and  Southern 
neighbours,  the  EU  remains,  for  the  time  being,  the  only  example  of  a  well-developed 
regional  integration scheme among industrialized countries.  This, together with  very specific 
historical  factors,  and  the  centuries-long  common  heritage,  underpin  the  uniqueness  of the 
European integration  experience. 

Unlike  European  regionalism,  the  regional  initiatives  that  are  emerging  or  being 
renewed in the rest of the world are taking place either among industrialized and developing 
countries  or among  developing countries  only.  The challenges posed to these arrangements 
differ notably  as the discussion below will  show. 

Delimitation of the  subject 

Regional  integration  can  cover  a  wide  range  of issues.  Regional  groupings  often 
embody a blend of both political  and economic elements. The motivation of many groupings 
is political, even though concrete goals might be mostly economic. So far, the support granted 
by the EU to regional  integration efforts in the developing world has been mostly  limited to 
the  trade  and  development  cooperation  fields.  However,  it  has  become  more  and  more 
apparent that many issues of a political  nature,  such  as conflict prevention or drug trafficking 
can  be  tackled  more  appropriately  by  deepening  regional  efforts.  Moreover,  the  Maaslricht 
Treaty  has  granted  the  EU  new  competences  in  the  political  sphere:  this  trend  could  well 

- 3  -

increase  in  the  future.  It is  therefore unsurprising  that  more  and  more  developing  countries 
are  requesting  the  EU  to  provide  support  in  the  political  field  of regional  integration.  An 
example can  be found  in  the Berlin  Declaration  of September  1994,  where  SADC  countries 
and  the  EU  agreed  to  collaborate  in  several  areas,  ihcluding  the  improvement  of regional 
security  and  the  reduction  of  international  crime  and  drug  trafficking. 

The  importance  of the  political  field  of regional  integration  cannot  be  disregarded. 
However,  it  is  a  new  area  of action  where  the  EU  has  not  yet  acquired  a  great  d~al  of 
experience.  In order not to reduce the operational character of the present communication and 
its  ensuing  debate,  the  coverage  is  limited  to  analysis  and  recommendations  on  regional 
economic integration  issues. 

Even  though  there  is  no  precise  definition  of  regional  cooperation  and  regional 
integration,  there is  a broad  agreement on what they  mean in practice.  Regional  cooperation 
is  a general  concept that refers  to  all  efforts  on  the  part of (usually)  neighbouring  countries 
to  address  issues  of common  interest.  These  efforts  or initiatives  can  be  divided  into  two 
broad  groups:  those  whose  objective  is  the  elimination  of policy-induced  barriers  to  intra 
group movement of goods, services and factors of production (usually referred to as  "regional 
integration"), and those aimed at reducing other barriers to the intra-group flows  (such as  the 
facilitation  of transport  and  communication  infrastructures),  as  well  as  any  other  activities 
leading to furthering  the  interdependence of the  economies and  to  the  better management  of 
common  resources  (usually  referred  to  as  "regional  cooperation"). 

The communication focuses on the first sub-group of activities. However, it should be 
clear that this does not mean that only trade aspects are covered.  Regional  integration efforts 
include  all  activities  that  contribute  to  the  establishment  of a  single  market  in  goods  and 
services.  For  example  the  coordination  of macroeconomic  or  sectoral  policies  very  much 
influence the formation  of a single market and  are thus part of regional integration as defined 
above.  Establishing  a  single  market  clearly  has  also  legal  implications  for  example  in  the 
domain  of company  law and  the  agreement on  standards. 

Regionalism  among  industrialized  and  developing  countries 

The most notable initiatives among these countries  are NAFTA,  ASEAN and  APEC. 
North America has seen the establishment of NAFT A as  a free-trade  area.  Furthermore, with 
the  encouragement  of both  the  US  and  Japan,  these  two  countries,  together  with  some 
advanced  developing  countries  in  Pacific  Asia,  have  established  APEC.  This  loose,  but 
progressively strengthening organization of many of the countries in the Pacific area including 
some  Latin  American  countries,  foresees  the  elimination  of trade  and  investment  barriers 
among  its  members within  the first two  decades  of the  next century. 

In  South-East Asia,  ASEAN,  which  encompasses a newly  industrialized country  such 
as  Singapore, together with less advanced countries such as Indonesia and the Philippines, has 
accelerated  its  efforts,  particularly  since  1992,  to  develop  further  its intra-regional  trade  via 
the establishment of an ASEAN Free-Trade Area (AFT A); further, new members are expected 
to join this  grouping  in the  coming years. 

The disparity among the members of these groupings creates particular challenges that, 

- 4  -

to  some  extent,  also  explain  their  unwillingness  to  go  beyond  a  free-trade  area.  A  first 
challenge  deals  with what in  European  integration  terms  is  known  as  "cohesion",  i.e.,  both 
the  willingness  and  the  ability  to  use  non-market  instruments  to  ensure  an  equitable 
distribution of the fruits of integration.  As the disparity  among members increases,  the costs 
of cohesion  goes  up  as  well.  Therefore,  initiatives  of this  nature  are  less  likely  than  those 
among  similar  partners to  evolve  much  beyond  trade-policy  measures.  A  second  challenge 
results .from  the  perceived  risks  for  the  more  advanced  countries  within  the  grouping  of 
environmental  and  social  dumping from  the less  advanced  ones. 

While  both  of these  challenges  limit  the  degree  of integration,  the· relatively-high 
institutional  sophistication  of even  the  less  advanced  members  of these  groupings  plays  in 
favor  of integration  success. 
In  other  words,  the  institutional.  capabilities  associated  with 
middle and upper income countries ensure a certain degree of implementation and  success in 
their integration  efforts,  once  a  commitment in  that direction  has been  made. 

Regionalism  among  developing  countries 

In parallel to the increased emphasis on regional economic integration in industrialised 
countries,  or  among  the  latter  and  some  developing  countries,  there  has  recently  been  a 
revival  of regional  initiatives among  other developing  countries and  a strengthening of trade 
within  their  regional  groupings.  Over  the  last  two  and  a  half decades  world  exports  have 
increased  by  a  multiple  of about  12,  while  trade  within  regional  groupings  of developing 
countries has risen by  a multiple of nearly  17.  This growth is remarkable,  as  it is only  since 
the end of the  1980s that these groupings began to overcome the great institutional  and  trade 
crises they  experienced  throughout the  1980s. 

The move towards the spreading and strengthening of regional initiatives has been the 
strongest  in  Latin  America.  New  arrangements,  such  as  Mercosur,  have  advanced  very 
rapidly in the reciprocal lowering of trade barriers.  At the same time,  older ones,  such as the 
Andean Pact, have finally  begun implementing policy  steps decided years ago.  The results  in 
terms of  intra-regional trade growth  have been  remarkable in both cases.  Likewise,  the free 
trade  area  already  established  among  the  most  integration-minded  members  of the  Central 
American  Common  Market,  has  begun  to  bear  fruit. 
In  CARICOM,  the  share  of intra 
regional  trade  in  total  trade  has  been  around  10%  in  recent  year  after  a  long  period  of 
stagnation  at  a much  lower level. 

In  Africa,  over  the  past  few  years,  there  has  been  a  great  increase  in  regionalism, 
which  however  has  not yet led  to  a  significant  rise  in  recorded  regional  trade.  Countries  in 
Eastern  and  Southern  Africa  and  the  Indian  Ocean  have  signed  a  Treaty  on  the  Common 
Market for Eastern and  Southern Africa (COrvffiSA).  In  Southern Africa,  SADC has adopted 
a new explicit integration agenda.  With South Africa becoming a member,  SADC  is now the 
regional grouping in Africa with the highest share of intra-regional traqe. In West and Central 
Africa the various monetary unions are seeking to evolve into fully  fledged  economic unions 
(UEMOA and  CEMAC,  respectively). 

In  Asia,  SAARC  and  ECO  are  showing  renewed  interest  in  strengthening  their 
integration  efforts,  the  second  grouping  now  including  countries  that µsed  to  be  part  of the 

- 5 -

Soviet  Union.  Other  regional  initiatives that  have  begun  to  take  shape  in  the  region  of the 
former  Soviet Union  include those involving the  Caspian  and  Black  Sea  countries. 

Last,  but not  least,  although  still  in  its  infancy,  regional  cooperation  and  integration 
are  seen  as  a  cornerstone  in  the  Middle  East  peace  process  as  well  as  in  the  economic 
development of the Mediterranean Basin and  Western Asia.  The  Gulf Cooperation Council 
and  the  Union  du  Maghreb  Arabe,  also  in  this  area,  are  examples  of regional  schemes  still 
in their  early  stages  of evolution. 

Even  among  the  group  of developing  countries,  integration  schemes  face  different 
challenges.  At  the  risk  of  excessive  generalization,  it  can  be  said  that  some  of  these 
groupings,  such as  those in  Sub-Saharan Africa,  face  particular difficulties.  Firstly,  some of 
their  (potential  or  actual)  member  countries  are  themselves  weakly  integrated,  both  in 
economic and in political terms,  and institutionally weak.  Secondly, some of their members' 
public finances rely particularly on  customs'  duties:  the liberalization involved in the process 
of integration can thus create problems for  public sector finance.  Thirdly,  weaknesses in  the 
financial  sector,  including the non-convertibility of several  currencies, make exporting to the 
industrialized  countries  (from  whom  hard  currency  can  be  obtained)  more  attractive  than 
exporting to  regional  partners. 

International  support for  regional  initiatives  among  developing  countries 

The  renewed  interest  in  regional  integration  amongst  developing  countries  is  being 
actively  supported  by  several  development  cooperation  agencies.  This  is  particularly 
noteworthy,  as  in  the  past  some  of these  agencies  had  been  reluctant  to  appreciate  the 
development value of r~gional  integration initiatives.  Indeed,  their past support for  national 
structural  adjustment programmes had  often placed  ari  insufficient emphasis on the  regional 
and  subregional  obligations of these countries.  Moreover,  structural  adjustment programmes 
have  generally  failed  to take  into  account the  regional  dimension  of the  reforms. 

By  emphasising  that  regionalism  is  not  an  alternative  to  integration  in  the  world 
economy,  the  European  Commission  has  been  influential  in  making  both  the  IMF  and  the 
World  Bank more  sympathetic to  regional  initiatives.  Indeed,  the  Commission's  support  for 
the  new regionalism  is based  on the  view that outward  looking  or open  regional  integration 
is  a complement and  a facilitator  of multilateral  trade liberalization.  The contribution  of the 
EU has often been recognised by numerous regional groupings and international organisations, 
as well  as by  fora of donors and beneficiaries, notably the Global  Coalition for Africa (GCA). 

Likewise, the OECD has been following with interest the move towards regionalization 
in  the  developing  world. 
In  the  first  meeting  ever  held  by  its  Development  Assistance 
Committee on this issue,  in  1992,  its members encouraged the  donor community to be more 
supportive  of these  efforts.  Similarly,  UNCTAD,  the  international  institution  that  has  been 
most  outspoken  in  its  support for  these  initiatives,  has  begun  to  push  for  the  establishment 
of some  form  of a  dialogue  forum  where  donors  and  regional  institutions  can  analyze  and 
encourage the  support of regional  integration  initiatives  among  the  developing  countries. 

Regional  integration and  multilateral  trade liberalisation 

- 6  -

Until recently, the history of regional integration among developing countries has been 
dominated almost consistently by a great gap between the rhetoric of expressed intentions and 
the hard facts  of the unwillingness or inability to  carry  out these intentions.  The strength of 
current  efforts  and  a  number  of their  features  seem  to  suggest  that,  in  some  promising 
instances,  past difficulties are being overcome;  in contrast, other attempts remain halfhearted. 
Successful  regionalism  owes  much  to  the  context  of  global  liberalization  of  trade  and 
multilateralization of concessions.  Some liberalization initiatives have been unilateral,  even 
if undertaken  on  the  advice  (and  even  pressure  or  conditionality)  of the  Bretton  Woods 
institutions.  Others have  taken place in the  context of GATT negotiations.  Unsurprisingly, 
this  new  approach  to  regional  efforts  has  been  referred  to  as  "open  regionalism".  Another 
feature  of successful  schemes has been the built-in automaticity  and  clearly-set deadlines for 
the  dismantling  of barriers. 

These  features  tend  to  reduce  possible  shortcomings  in  terms  of trade  diversion  and 
other  inefficiencies,  as  well  as  to  short-circuit  efforts  at  slowing  down  the  liberalization 
process.  At  the  same time,  they  can  facilitate  the  compatibility  of regional  integration  with 
multilateralism as  long as  they  comply with the minimum  requirements set forth  by  GATT's 
Art.  XXIV. 

As  recognised  already  in the recent Commission  Communication  "Free Trade Areas: 
An  Appraisal",  the  Marrakesh  Act  which  concluded  the  Uruguay  Round  confirmed  the 
compatibility  of regional  integration  and  multilateralism  while  strengthening  the  conditions 
whereby a regional grouping can claim to have acted in accordance with multilateralism when 
establishing itself or expanding geographically.  The Act reaffirmed that regional  integration 
initiatives  must  cover  substantially  all  trade.  Furthermore,  it  has  established  that  the 
dismantling  of  mutual 
trade  barriers  should  only  exceed  ten  years  in  exceptional 
circumstances.  In  addition,  the  resulting arrangement,  once fully  implemented,  should  result 
in reciprocal  and  symmetrical trade liberalisation. Within the framework  of the World Trade 
Organisation  (WTO)  regional  integration  initiatives  must  be  notified  for  scrutiny  without 
delay,  and periodic reports have to be given by  the parties involved on the functioning of the 
agreement.  Differences  between  WTO  members  on  regional  integration  can  be  referred  to 
WTO  dispute  settlement. 

Il.  EUROPEAN  COMMUNITY  SUPPORT  TO 
THROUGHOUT THE  DEVELOPING WORLD 

INTEGRATION  EFFORTS 

The European  Union  is  a  "natural"  supporter  of regional  initiatives.  Furthermore,  its 
success  as  a  regional  grouping  has,  in  turn,  fuelled  demands  by  developing  countries  for 
political  and  financial  support for these regional  initiatives.  Thus it is not surprising that the 
support for  regional  integration  and  regional  cooperation  appear frequently  in  EEC  and  EU 
documents  on  development  policy. 

This  support  can  be  traced  back  at  least  to  1969,  when  the  Second  Yaounde 
Convention established that the regional  organizations of the Convention's  signatories could 
be  beneficiaries  of Community  aid,  that  special  preferences  could  be  granted  to  African 

- 7  -

regional  enterprises  bidding  for  EC-financed  contracts,  and  foresaw  the  possibility  of 
extending  preferential  duty-rates  on  imports  from  regional  groupings  of  Convention 
signatories.  Five  years  later,  the  Development  Council  meeting  of April  1974  adopted  a 
"Resolution  on  regional  integration  among  developing  countries" 1  in  which  the  Community 
expressed  its willingness  to respond  favourably  to  development  aid  requests  from  countries 
that were undertaking  regional  integration and  cooperation initiatives. 

More  recently,  the  Lisbon  European  Summit  of  1992  gave  a  new  emphasis  to 
regionalism.  At this  summit,  the Heads of State  and  Government confirmed the importance 
of pursuing  policies  in support  of integration  efforts  in  Latin  America,  selected  the  support 
for  moves  towards  regional  integration  as  one  of the  five  priorities  for  the  Union  in  the 
Maghreb,  and declared their willingness to contribute to regional  cooperation and integration 
in  Central  and  Eastern  Europe.  Several  Summits  since  then  have  referred  to  regional 
integration  in  the  context  of EU  external  relations.  Thus,  the  last  European  Summit  of 
December  1994  in  Essen  spoke  of the  need  to  support  Mercosur's  integration  efforts  and 
endorsed  the Commission's  proposal  to  establish  a  Mediterranean-wide free-trade  area. 

So,  regional  cooperation  and  integration  support  has  been  a  cornerstone  of  EU 
development  policy,  particularly  in  those  countries  and  areas  that  have  shown  a  special 
interest in  receiving  part of their  assistance in  such form. 

The  dialogue  from  region-to-region  (Rio  Group-EU,  San Jose,  ASEAN-EU,  SADC 
EU) has  also  contributed in a  major way  to  enhancing the political  status  and  the economic 
bargaining power of EU regional partners, thereby strengthening their commitment to deepen 
and to further institutionalize their own integration arrangements (Mercosur, ASEAN, SADC). 

Article 

l 30u  of  the  Maastricht  Treaty  specifies  that  policy  in  the  sphere  of 
development cooperation  shall  foster  "the smooth  and  gradual  integration  of the  developing 
countries into the world  economy".  One way  this can  be achieved  is by  a process of regional 
integration  which  can  pave  the  way  for  multilateral  integration.  By  competing  in  regional 
markets,  developing  countries  can gradually  and  smoothly  increase their  competitiveness  so 
as  to  become integrated into the world  economy  in  a  sustainable way. 

· 

Currently, all major strategy documents and undertakings of the European Commission 
addressing  the  problems  of developing  countries,  and  the  EU's  relations  with them,  place  a 
high  priority  on  the  support  of  regional  initiatives.  This  was  true  for  the  4th  Lome 
Convention,  whose  present  mid-term  review  has  confirmed  the  importance  of  regional 
integration  to  address  the  development  problems  of the  ACP  countries.  It was  true  of the 
1992  Guidelines  for  Cooperation  with  Latin  America  and  Asia.  Similar  considerations 
underlie  the  Mediterranean  Basin  and  the  Asia  strategy  papers  issued  by  the  European 
Commission in the  second  semester of 1994. 

· The  above  reflections  provide  a  comprehensive  overview  of the  strong  commitment 

1
.  "The Community will respond favourably  to requests for assistance coming from developing countries or 
groups of developing countries that are in the process of carrying out the creation or consolidation of economic 
cooperation or regional integration, in cases where it is anticipated that it can make an efficient contribution." 

- 8  -

that the EU has  made to  support  regional  initiatives among  developing  countries.  Whatever 
the instruments chosen (trade policy,  financial  and  technical  cooperation,  political  dialogue), 
the main purpose of this support until  now has been to facilitate the development process  of 
these  countries.  Yet as  some  of the  more  recent  regional  initiatives  involving  the  EU  have 
shown,  the  latter's  role  has  changed  with  the  Union  becoming  an  active  partner  in  the 
integration  process  rather  than  remaining  a  supportive  and  interested,  but  essentially  non 
participating  outsider.  This  is the  case  regarding the  new regional  initiatives  concerning the 
EU and  Mercosur,  as  well  as  the  new  strategy  for  the  Mediterranean. 

This development has two important implications which distinguish these recent efforts 
from  earlier EU support for regional  initiatives among developing countries.  Firstly,  as  these 
initiatives  are  based  on  the  idea  ·of  partnership,  they  respond  to  interests  of  particular 
importance  to  the  EU  as  well  as  to  the  grouping  of developong  countries.  Secondly,  they 
involve a negotiation process and a change of policies, not only on the part of the developing 
countries,  but on that of the EU as  well.  While it is  perhaps too early  in this  new process to 
derive useful  lessons  or recommendations for  the future,  it is  nonetheless important to  keep 
in mind that the challenges posed by those initiatives differ from those that arise in the earlier 
approach.  Moreover,  it is  not anticipated  that  one  approach  should  replace  the  other,  rather 
the specific circumstances of the developing countries concerned as well as the interest of the 
EU should  determine the line to  take. 

The efforts of the EU to promote and  support regional  integration among developing 
countries  should not at all  be interpreted as  an  attempt to  "export"  the European integration 
model. Clearly, there are different approaches towards integration and economic development. 
It  should  be  recognised  that  the  European  model,  shaped  by  the  continent's  history,  is  not 
easily  transferable  nor  necessarily  appropriate  for  other  regions.  On  the  other hand,  to  the 
extent that the European model  of integration has become an unavoidable  "reference model" 
for  virtually  all  regional  initiatives,  the  EU  should  share  with  other  interested  parties  its 
experience  on:  improving  the  functioning  of regional  institutions,  absorbing  the  adjustment 
costs  originated  by  lowering  barriers,  and  sharing the  benefits from  integration. 

The details of EU support for the promotion of regional integration among developing 

countries  are given in Appendix A. 

ID.  LESSONS  LEARNT TO  DATE 

There  are  a  number  of le~sons  that  can  be  drawn  from  the  experience  of regional 
integration in various parts of the world.  Probably the most important lessons can be derived 
from  the  European  experience,  not  only  on  account  of its  relatively-long  history  but  also 
because,  to  a  large  extent,  it  can  be  considered  as  the  only  successful  example  of regional 
integration so far.  However, an examination of the European experience should not be limited 
to the highly  advanced  character of the European Union following the Maastricht Treaty.  It 
is  the  evolution  over time  of European  integration  and  the way  in  which  various  obstacles 
were surmounted in the process that are most relevant, rather than its specific institutional set 
up.  In addition to the European experience, there are also important insights to be gained from 
the  relative  success  of some  regional  integration  initiatives  and  the  failure  so  far  of many 
others  in various parts of the  developing world. 

The  lessons  learnt  can  be  subdivided  into  those  related  to  the  preconditions  and 

success  factors,  the  design  and  the implementation  of regional  integration initiatives. 

- 9  -

1.  Preconditions  and  success  factors  for  regional  integration 

Regional  integration  is  not  the  only  strategy  for  developing  countries  to  follow:  to 
make  a  success  of regionalism,  countries  must  be  both  able  and  willing  to  strive  for  the 
benefits of integration and  accept the costs that such a path implies.  As  a result,  the chances 
of  success  vary  widely  and  have  to  be  analyzed  on  a  case-by-case  basis.  Thus,  while 
regionalism might be working for some countries, others might prefer or might need to chose 
other arrangements  or different routes  for  insertion in  the world  economy. 

To  start with,  geographical  constraints  might  play  a  key  role  in  limiting integration 
options.  Physical  barriers  such  as  the  Andean  Cordillera  or  the  Himalayas  are  enormous 
obstacles  to  trade:  the  costs  of overcoming  them  might  induce  countries  to  look  elsewhere 
rather than  for  neighbouring  partners. 

Furthermore,  two sets of preconditions as well  as factors  affecting the success can be 

distinguished: 

a.  Preconditions  as  regards  the  actual  and  potential  relationship  among  partners 

Existence  of  genuine  common  interests.  Such  common  interests  can  arise  in  very 
diverse areas:  a common border,  a common river basin or a shared natural  resource.  In many 
cases the  common interest is  a function  of proximity  so  that regional  integration  often  starts 
with  neighbouring  countries.  A  common  interest  can  also  take  the  form  of reacting  to  a 
common  threat  as  integration  makes  it possible  to  pool  resources  in  order to  be better  able 
to  cope with a threat,  be it economical  or political.  The protection of the Amazonian Basin, 
which  has  given  rise  to  the  Amazonian  Pact,  exemplifies  the  idea  of a  common  interest 
resulting from  a shared natural  resource.  The  same  can  be  said  of the  regional  use of water 
as  a  building  block  for  peace  and  cooperation  in  the  Middle  East.  Similarly,  the  struggle 
against  desertification  may  constitute  a  stimulus  for  integration  among  several  African 
countries  in  the Sahelian zone.  As the threat of an  extension  of Soviet hegemony  constituted 
an  important  encouragement  for  economic  integration  in  Western  Europe,  the  SADC  was 
formed  to  better  cope  with  the  destabilisation  of the  apartheid  regime.  Both  the  GCC  and 
ASEAN  also  rose with the  aim  of strengthening  cohesion because  of a  security  threat. 

Compatible historic. cultural and political patterns.  Common interests or even physical 
proximity are not a guarantee for integration, or for it to be the best option for every country. 
As  relations  between  neighbours  such  as  the  countries  of  South  America,  or  India  and 
Pakistan,  or Israelis  and  Palestinians,  or as  Iran and  Iraq  show,  both  culture  and  history  can 
work  as  incentives  or  as  disincentives  for  regional  integration.  ECO's  relaunching  on  the 
basis  of Islamic  solidarity  and  Yugoslavia's  breakdown  are  alternative  examples  on the  role 
that  a  cultural  factor  such  as  religion  can  play,  as  either  a  binder  or  a  diluter  of regional 
initiatives. 

- 10  -

b.  Preconditions as regards the internal political and economic situation in  partner countries. 

Political  commitment:  Integration  calls  for  a  strong  political  will  to  that  effect.  In 
addition, this political will should be sustained in order to be credible for economic actors and 
trigger self-fulfilling expectations among  society  at large.  Political  commitment also  implies 
the willingness to  share  certain  aspects  of sovereignty. 

Peace and  security:  Progress on  regional  integration  and  peace,  security  and  stability 
within the members of the  grouping  are  closely  interlinked.  Lacking both the resources  and 
the incentives to implement the necessary policy re(orms, countries that suffer from civil strife 
or conflict will  not be able  to  participate  effectively  in  integration initiatives.  By  the  same 
logic,  political  and  economic  migration  will  transfer  some  of  their  problems  to  their 
neighbours. 

c.  Factors that facilitate  the  success  of regional  integration. 

Rule of law, democracy and good governance are necessary for a meaningful  political 
dialogue  among  partners  that  will  ensure  the  irreversibility  of the  process.  They  are  also 
necessary  for  giving  confidence  about  the  predictability  of policies  and  of the  economic 
environment.  Rule  of law  and  good  governance  are  essential  for  the  proper functioning  of 
basic  economic  institutions,  while  democratic  legitimacy  provides  the  necessary  political 
underpinning.  Without confidence in  government there will  be no long-term  investment,  but 
rather there will  be a tendency  towards  capital  flight  and  plunder. 

Macroeconomic stability:  Integration should be accompanied by compatible economic 
policy frameworks. These include reasonably stable exchange and inflation rates, and adequate 
management of public finances  and  of the  balance  of payments. 

It has often been observed that there are important feedback  effects,  once integration 
is  successful,  to  help  "lock-in"  the  above  preconditions.  In  other words,  once  integration  is 
working it becomes easier for countries to maintain security  and macroeconomic stability.  In 
the  European  case  integration  could  only  start  because  peace  and  security,  as  well  as 
democracy, were reasonably assured. However, at the same time, European integration further 
consolidated  this  peace and  security  as  it became  inconceivable that there  would  again  be  a 
serious  conflict among the EU member states. 

The  above  preconditions  and  success  factors  appear  not  to  be  satisfied  in  many 
developing countries. Therefore, it is not surprising that the results of integration efforts have, 
so  far,  been  disappointing. 

2.  Desian  of regional  inteKration 

Two  basic  alternative  approaches,  intergovemmentalism  or  supranationalism,  may 
secure  an  institutional  framework  for  regional  integration.  Intergovernmentalism  means that 
governments  continue to exert their full  sovereignty:  institutions are  only  created  to  act  as  a 
Secretariat,  preparing  and  implementing  integration  policies.  Supranationalism  means  that 
governments  decide  to  share  jointly,  through  an  institution,  some  specific  aspects  of 
sovereignty. Under supranationalism, the legal provisions for integration take precedence over 

- 11  -

national  laws,  and  these  provisions  are  enforceable  through  the  courts  if necessary.  In  this 
case  the  budget to  carry  out integration  policies  is  determined,  implemented  and  controlled 
by  common  institutions.  Under  intergovernmentalism,  states  agree  on  certain  matters  that  . 
become  part of their national  legislation,  but there is  no  body  of common  law. 

European  integration  is  a  blend  of  supranationalism  and  intergovernmentalism. 
Virtually  all  other  integration  initiatives,  including  those  among  developing  countries,  are 
almost fully  intergovernmental, even if there are a few exceptions in the monetary field  ( e.g., 
the  cases  of the CF A  zone  and  the  CMA). 

The  lesson  to  be  learnt  in  relation  to  the  design  of regional  integration  is  not  that 
organisations  should  be  supranational  or intergovernmental,  but that whichever  approach  is 
taken  the  institutions  should  have  a  realistic  mandate.  They  should  also  have  available 
this  mandate.  It  helps  if  own-resources  are  generated 
adequate  resources  to  fulfil 
automatically, via, for instance, the proceeds of a common external  tariff,  rather than paid out 
of national  budgets.  It seems likely that most of the integration initiatives among developing 
countries will remain by and large intergovernmental. Still, the complexity of integration calls 
for  institutions that are  capable  of formulating  and  implementing  regional  policies.  Human 
and  financial  resources  should  be  in  line  with  the  objectives.  Finally,  there  should  be  no 
conflict or overlapping between the mandates of different institutions, as is presently the case 
for example in Sub-Saharan Africa, because this leads to inefficiency and  waste of resources. 

Other lessons learnt from experience refer to the principles of subsidiarity and variable 
geometry.  The subsidiarity  principle implies that the  responsibility  for  dealing with  an  issue 
should  be  kept  as  close  to  the  population  concerned  as  possible.  The logic  of this  principle 
is very strong,  as it is difficult for civil society to accept that those decisions that can be most 
effectively be taken at a low level  should be referred to an intergovernmental or supranational 
body.  This principle may  also offer some guidance for determining a realistic and appropriate 
mandate  for  different  regional  organisations. 

Furthermore,  the  framework  for  regional  integration  should  allow  enough  flexibility 
to permit progress at different speeds.  If all  member states of a regional grouping must move 
at the  same speed,  progress will  be determined by  the  speed  of the  slowest moving member 
state.  In  contrast,  the  principle  of variable  geometry  implies  that,  within  a  grouping,  some 
sub-groups  of  countries  may  move  faster  than  others  towards  the  integration  objectives. 
Hence,  variable geometry  makes  it possible for  a grouping with  a  large  number of member 
states  to  contain  one  or more  sub-groups that  have  a  more  ambitious  programme,  while  all 
share  the  same  core  programme.  Variable  geometry  is  not  compatible  with  overlapping 
groupings, because in that case there will be inconsistencies in the policies to be implemented. 

3.  Implementation  of regional  integration 

One of the most important lessons from  the limited  success of past integration efforts 
among  developing  countries  is  that  there  should  be  sufficient  openness  towards  third 
countries.  While  regional  integration  introduces,  by  definition,  a  preferential  treatment  for 
partner countries,  regional  markets should  remain  open.  A balance should be struck between 
openness  and  regional  preference.  Past experience demonstrates that success  does  not result 
from  very  high  regional  protection levels that  encourage  expensive trade  diversion. 

- 12  -

Furthermore,  integration  should  not  only  or mainly  be an  official  affair.  The  private 
sector and  civil  society  should participate fully  in the process.  If integration does  not reflect 
the  aspirations  of the private  sector and  civil  society,  it has  little  chance  of success. 

Finally,  an  aspect  of  implementation  to  which  much  attention  has  been  devoted 
concerns the distribution of costs and benefits of integration over the participating countries. 
As with  economic  liberalisation  in  general,  there  is  a tendency  for  costs to  be  concentrated 
and short-term, while benefits are likely to be more dispersed and long-term.  In the European 
case,  the  importance  of regional  and  social  policies  designed  to  facilitate  adjustment  and 
reduce transition costs has increased gradually. These policies amount to a redistribution from 
the wealthier  parts  and groups  of the Union,  that normally  benefit from  the large  European 
single market, to less prosperous parts and groups that need to adapt so as to benefit from the 
integration  opportunities.  Some  of the  integration  groupings  of developing  countries  have 
devised  a  redistribution  policy  (e.g.  the  CEAO  in  West  Africa).  In  most  cases,  these 
redistribution policies have not been successful.  Alternatively,  transition  could be facilitated 
by  allowing  longer transition  periods  for  countries  facing  a  high  adjustment  cost.  External 
support could  also  play  an important role. 

IV.  RECOMMENDATIONS  ON  EXTERNAL  SUPPORT  FOR  REGIONAL 
INTEGRATION 

In  spite  of the  known  benefits  of regionalism  and  despite  sizeable  external  support, 
many  of the earlier regional  integration initiatives among developing countries did  not fulfil 
their expectations.  The lessons outlined above  help  to  explain  this  situation.  The question  to 
be  raised  then  is  how  EU  external  support  for  regional  integration  can  be  made  more 
effective.  An important aspect is to see what external  support can do about the pre-conditions 
described above, bearing in mind that the promotion of peace and security, good governance 
and  macro-economic  stability  are  outside the  scope  of the  present Communication. 

The  recommendations  below  address  the  design  and  implementation  of integration 
arrangements.  Recent  initiatives  to  promote  more  effective  regional  integration  among 
developing countries,  in which the EU was involved and included in the overview presented 
in  appendix  A,  provide essential  elements for  these  recommendations. 

These  recommendations take  into  account the  existence  of three  broad  categories  of 
developing countries' integration groupings.  Firstly, neighbouring regions whose own regional 
integration is closely  connected to the European  Union's integration,  e.g.  the Mediterranean 
region.  Secondly,  the  middle-income  developing  countries,  mainly  in  Latin  America  and 
Asia,  that  are  relatively  advanced  along  the  integration  path.  Thirdly,  the  other developing 
countries, especially in Africa, where regional  integration, while badly needed, faces difficult 
challenges for  economic,  institutional  and  political  reasons. 

1.  EC  trade  policy  as  a  way  of  promoting  regional  integration  with  and  among 

developing  countries 

As regional integration consists mainly of lowering or eliminating tariff and non-tariff 

- 13  -

barriers,  it is of crucial  importance for the  region to  receive proper trade treatment from  the 
EC,  which  is  the  main  world  trading  partner.  Two  dimensions  of trade  policy  can  be 
particularly  relevant in  this  respect: 

a)  Establishment of free-trade  agreements with  developing  countries  of a certain  region 

There  are  important  arguments  for  moving  gradually  towards  less  unilateral 
preferences and more reciprocity  in the trade regimes between industrialised  and  developing 
countries. A reciprocal arrangement increases transparancy and facilitates regional integration 
and  integration  of developing  countries  into  the  world  economy.  A  reciprocal  arrangement 
also  improves the  credibility  of economic policy  reform,  which is a necessary  condition for 
long-term  investments  to  take  place. 

The  prospect  of  a  free-trade  area  such  as  the  one  already  proposed  for  the 
Mediterranean  Basin,  starting  with  bilateral  agreements  with  Morocco,  Tunisia  and  others, 
could  act as  a major incentive for  the  partner countries to lower intra-regional  trade barriers 
in  order to get into a region-to-region liberalization deal  with the EC.  This will  apply,  as the 
Peace Process  evolves,  to  the Middle East and  is  being  contemplated  for  the  EU-Mercosur. 
Evidently,  the  offer  of a  free  trade  area  arrangement  must  generally  be  supplemented  by  a 
series of actions aiming at legislative convergence,  harmonisation of standards ~nd  easing the 
restructuring  of the  partner economies  so  as  to  avoid  major  distributional  imbalances.  This 
is  why  the policy  package proposed  for  the Mediterranean  region  and for  Mercosur includes 
the  promotion  of  European  investment  in  the  region,  technological  cooperation,  the 
encouragement of small  and  medium  enterprises,  as  well  as  assistance  for  the  alleviation  of 
the social impact of liberalization policies and for the improvement of regional infrastructures. 

b) Granting of cumulation in the rules of origin and other concessions within the Generalized 
System  of Preferences  regime 

Neither  the  Lome  Convention  nor  the  Generalised  System  of  Preferences  imply 
conditionality on the beneficiary countries in terms of regional integration.  However, the GSP 
provides  for  the  cumulation  of  rules  of  origin  for  regional  groupings  that  request  this 
privilege.  In the case of Lome, the cumulation of rules of origin applies automatically to the 
full ACP group. This cumulation provides an indirect, yet significant support for intra-regional 
trade  and  investment liberalization.  Efforts  to  extend  and  improve  its  use  should  continue. 
Moreover,  some  special  GSP  regimes  such  as  the  drug  scheme  granted  to  the  Andean  and 
Central  American  countries  are  also  proving  supportive  of these  regions'  efforts  towards 
. integration. 

2.  Development cooperation policy 

External support for regional integration under the heading of cooperation policy could 
be subdivided into the following broad categories that will be described below:  a) support for 
capacity  building  and  institutional  strengthening;  b)  aid  for  the  private  sector  to  strengthen 
competitiveness;  and  c)  assistance for  governments to  facilitate  policy  reform. 

a)  Capacity  Building  and  institutional  strengthening 

- 14  -

The  design  and 

implementation  of  regional 

integration  proposals  are  not 
straightforward. The availability  of the necessary skills cannot be taken for granted, but must 
be developed.  The EC is in a unique position to be able to offer assistance and  advice based 
on  its  own  experience.  This  is  clearly  demonstrated  in  the  demands  for  technical  support 
addressed to the EC by Mercosur,  ASEAN,  UEMOA,  SADC  and the Andean Pact countries, 
among  others. 

Attention  should  continue  to  be  devoted  to  technical  assistance  and  to  training  with 
a  view  to  increasing  the  local  capacity  to  formulate  and  implement  regional  integration 
policies.  This  should be directed  at both national  and  regional  administrations.  Exchange  of 
staff between  European institutions  and  those  in  developing  countries  to  deal  with  specific 
technical  subjects could  be beneficial  in strengthening integration initiatives. 

The eventual  success  of regional  integration  initiatives will  depend  on  how well  the 
measures are internalised.  This  is  particularly  relevant in  Africa where  it is  crucial  to  help 
build  up  the  local  capacity  to  undertake  and  implement  the .reform  agenda. 
In  UEMOA, 
assistance  to  set up  a multilateral  surveillance  scheme offers  an  example  of how  this  might 
be approached.  Similarly, at a more basic level, the assistance provided to national Technical 
Working Groups in the countries that participate in the Cross-Border Initiative offers a useful 
model  of how to  build up  local  capacity  and  a  "constituency"  in  favour  of the  reforms. 

Another  aspect  of capacity  building  is  related  to  research.  Endogenous  research  on 
regional integration, which the EC has supported for years particularly in Latin America ( e.g., 
SELA -Sistema Econ6mico Latinoamericano-, ALADI)  should be promoted in other regions 
as  well.  This  should preferably  be done  in  a research programme framework,  rather than  in 
a  fragmented  ad  hoe  way.  Programmes  should  also  be  set  up  to  raise  awareness  and  the 
involvement of the private sector and  civil  society  (including trade unions) in the  subject of 
regional  integration.  Easily  accessible  databases  on  regional  regulations  and  procedures 
should  be developed for  the  benefit of private  sector operators. 

b)  Direct support to the  private  sector to help  firms  exploit the opportunities  resulting from 
regional  integration 

As  with  any  liberalisation  process,  regional  integration  will  inevitably  lead  to 
adjustments at the  level  of the private sector.  Some firms will  be able to  expand  and  benefit 
from  the  new  opportunities,  and  new  firms  will  emerge.  At  the  same  time,  other firms  will 
suffer from  the  increased  competition  and  may  have  to  close  down.  The  lobbying  of those 
who are likely to suffer might diminish the political will  to sustain integration. It is therefore 
crucial  to  provide  some  form  of adjustment  assistance  to  the  private  sector  to  support  the 
integration  effort.  Given  budgetary  pressures,  external  support  becomes  important  as  most 
governments  in  developing  countries  will  not  be  in  a  position  to  offer much  help.  This  is 
especially  true  as  regards  both  the  poorer  countries  of  Sub-Saharan  Africa  and  those 
Mediterranean  countries  facing  the  formidable  challenge  of  creating  an  FTA  with  the 
European Community. 

Support  in  this  area  can  take  a  variety  of  forms  including  e.g.  financing  meetings  of 
entrepreneurs  to  encourage  joint  ventures,  setting-up  advisory  and  information  centres  on 
market  opportunities,  providing  training  for  acquiring  new  skills,  and  facilitating  seed- and 

- 15  -

risk-capital  activities.  The EC has already  developed programmes along these lines for Latin 
america  and  the Mediterranean (AL-INVEST, :MEO-INVEST  and  ECIP). 

In the Indian Ocean region,  as a complement to the policy reforms already underway 

as  part of a more general  process of regional integration,  a pilot project is presently being set  · 
up  to  assist the private sector.  The project offers  a combination of small  loans  and  grants to 
finance services which firms may need to reorganize their activities.  A similar pilot operation 
is being examined for Southern Africa.  Such projects should become an essential  component 
of an EC  strategy to  support regional  integration efforts in those countries with weak private 
sectors. 

The  absence  of compensation  mechanisms  makes  some  countries  or  sectors  face  a 
disproportionately  high  adjustment  cost.  Donor  support  could  supplement  intra-regional 
solidarity  and  much  improve the  cohesion  of an  integration  grouping. 

Another  important  way  to  assist  the  private  sector  with  the  integration  process  is  to 
improve the availability  and  efficiency  of financial  services.  In  most cases,  Northern  exports 
to  the  South  are  generally  appropriately  covered  in  terms  of credit guarantees.  However,  it 
is  usually  difficult  and very  costly  to  secure finance for  exports from  the  South to the  North 
and even more for South-South intra-regional  trade and investment.  Thus, in  many  countries, 
the  actual  implementation  of increased  cross-border  economic  activity  by  the  private  sector 
is likely  to  be impeded by  weak financial  and  payments  systems.  Especially  in  view  of the 
need  for  open  integration  efforts,  rather than  excessive  regional  preferences,  it is  important 
to  improve  the  financial  instruments  available  to  exporters  from  the.  South.  Otherwise, 
southern  firms  will  continue  to  face  a  serious  competitive disadvantage.  Some work  under 
taken  in  the  context of the  CBI  could be useful  in  developing  projects  for  other  integration 
efforts. 

c)  Balance of payments/budget  support to  help  meet net transitional  costs 

Intra-regional  economic liberalisation  implies  policy  reform  that will  lead  to  costs  to 
the  public  sector and  the  balance of payments  of the  integrating  countries.  One  of the  main 
impacts on the public sector budget is the reduction in tariff revenue.  The costs occur mainly 
in  the  short  run,  and  they  are  likely  be  offset  by  gains  resulting  from  the  expected  supply 
response.  However,  the  tariff revenue  loss  might  still  have  to  be  compensated by  increased 
indirect  taxes  of  another  type  (for  example.  the  introduction  of  a  value  added  tax). 
Nevertheless,  these transitional  costs contribute to  explaining why the political  will  has been 
lacking in many  developing  countries to implement the  decisions  agreed  in past attempts  at 
regional  integration. 

External  assistance  can  play  a  crucial  role  in  getting  the  process  moving.  T~is  is 
especially  the  case  for  the  smaller  and  poorer  developing  countries,  largely  concentrated  in 
the  ACP  group,  for  which  it  will  be  difficult  to  implement  regional  integration  without 
transitional external support.  The Cross-Border Initiative (in Eastern/Southern Africa and the 
Indian  Ocean)  has  developed  an  approach  to  using  balance  of payments/budget  support  for 
the countries undertaking regional  liberalisation as a complement to their national  adjustment. 
This  approach  could  be  relevant for  other parts  of the  developing  world. 

3.  Donor coordination 

- 16  -

Regional cooperation in general, and regional integration in particular, are areas where 
donors  often  act  in  an  uncoordinated  and  sometimes  conflicting way.  In  some  cases  donors 
support  a  particular  organisation  without  looking  at  the  wider  context.  This  situation 
diminishes  the  need  for  the  organisations  themselves  to  harmonise  and  rationalise  their 
programmes.  Rather,  they  are  encouraged  to  formulate  duplicating  requests  in  as  many 
domains  as  possible  in  order  to  maximise  their  own  external  funding.  Some  critics  even 
attribute the  proliferation of regional  institutions in the developing countries (particularly  in 
Africa)  to the role  of donors  in  creating  and  keeping them  afloat. 

There  should  be  more  effective  donor  coordination  on  the  promotion  of  regional 
integration.  In  view  of the  Maastricht  treaty,  the  Commission  should  take  the  initiative  to 
improve  coordination  already  at  the  EU  level.  The  Commission  should  also  continue 
coordination  efforts  in  other  fora  such  as  the  Special  Programme  of Assistance  for  Africa 
(SPA)  of the World Bank,  the  Global  Coalition for  Africa (GCA),  the DAC  and  UNCTAD. 

Under a mandate from the Global Coalition for Africa the Commission initiated efforts 
to formulate recommendations to rationalise and strengthen integration institutions in Africa. 
It may  be useful  to  carry  out a  similar exercise for  other parts  of the  developing  world. 

As  regards  donor  coordination,  the  EU has  been instrumental  in  developing  a  novel 
approach towards Africa.  EU member states with a keen interest in the subject and the multi 
lateral  agencies  have  formed  steering  committees  together  with  the  Commission  ( e.g.  in 
UEMOA).  This  is  a  way  to  achieve  the  coordination  of  policies  envisaged  under  the 
Maastricht  Treaty.  Indeed,  the  EU  is  now  committed  to  ensuring  the  coordination  of 
development  cooperation policy  of the Member States  and  the  Union,  as well  as  the  overall 
coherence of EU policies with the objectives of development cooperation.  This applies to  all 
aspects of development cooperation policy including initiatives regarding support for regional 
integration  and  cooperation. 

It  is  also  worthwhile  to  develop  a  mechanism  to  inform  the  EC  member  states 
collectively through an annual report prepared by the Commission.  Such a report would have 
the  added  benefit of keeping the  public informed  of developments,  and  of the results  of EC 
support to  integration efforts in  developing  countries. 

Appendix  A 

- 17  -

OVERVIEW  OF  EC  SUPPORT  FOR  REGIONAL  INTEGRATION 
AMONG DEVELOPING COUNTRIES 

The  European  Union  has  supported  regional  initiatives  and  projects  of  all  kinds, 
without  making  distinctions  between  support  for  regional  cooperation  or  for  regional 
integration. However, in line with the subject of the Communication, this appendix deals with 
EU  support for  regional  integration,  rather than  for  regional  cooperation  in  the  wider sense. 
The emphasis is on recent initiatives that are relevant for the formulation of recommendations 
on  how  to  increase  the  effectiveness  of external  support for  regional  integration. 

a.  Latin  America 

Latin  America  is  the  developing  region  which  has  traditionally  received  the  largest 
portion of EC  development assistance in the form  of technical  and  finandal  aid for  regional 
initiatives.  There are two main reasons for this:  firstly,  in Latin America, the idea of regional 
integration has  strong  cultural  and  political  connotations;  secondly,  it is  also  a region which 
has  shown  strong interest in  receiving  support for  regional  initiatives as  opposed to  national 
projects.  Support for  regional  initiatives has  mostly focused  on three regional  groupings:  the 
Central  American  Integration  System  (SICA),  the  Andean  Pact and  Mercosur. 

As  regards  the  Central  American  Common  Market,  the  most  visible  component  of 
SICA,  the European Community was the key  external  player in the  efforts to  revive it,  after 
its near-collapse resulting from  the effects of war and the  debt crisis of the region.  Much  of 
the support has come in the form  of political and economic dialogue with the region (the "San 
Jose dialogue"), based on annual  ministerial level  and more frequent technical-level meetings. 
A  cooperation  agreement  between  the  EC  and  the  Central  American  countries  has  also 
facilitated European cooperation with the region and contributed to reinforce regional efforts. 
Aside from  political  support,  assistance also  came at the beginning of the  1990s in the form 
of  financing  for  the  restart  of  the  payments  clearing  facility;  this  financing  was  made 
conditional  on the elimination of intra-regional trade barriers.  When the need for this facility 
became  unnecessary,  the  remaining  funds  where  reconverted  and  used  for  a  program  to 
encourage  intra- and  extra-regional  exports  of the  weakest  members.  By  channelling  the 
management of a number of regional projects through institutions of SICA, and by  supporting 
the Central American Parliament, the EC has also contributed to the institutional strengthening 
of the  grouping. 

In the area of trade, the EC  granted the Central  American Common Market in the mid-
1980s,  the possibility of regional  cumulation in the rules  of origin,  thus  providing incentives 
for  intra-regional  production and  trade.  Similar support for  integration  comes from  the fact 
that  all  of the  members  of SICA  receive  the  same  special  preferential  treatment  within  the 
EC's  GSP  scheme. 

For many  years now,  the EC  has  been an  instrumental  supporter of the  Andean Pact. 
Much of the assistance has been in the form  of institutional support, mainly of JUN AC  (Junta 
del  Acuerdo de  Cartagena),  the  executive arm  of the grouping:  85%  of the funding  received 
by  this grouping is provided by the EC.  This  has taken the form  of both technical  assistance 
and  the  financing  of regional  projects  managed  by  this  institution.  While  some  of these 

- 18  -

projects  have  emphasized  regional  cooperation  in  a  general  sense  or  have  contributed  to  a 
strengthening  of the  general  economic  fabric  of the  region,  others  explicitly  emphasized 
production and  trade links within the region.  Projects being currently prepared  deal  with  the 
harmonisation of Andean standards and with assistance for the implementation of the Andean 
Common External  Tariff. 

As with the Central American region, the EC maintains a cooperation agreement with 
the  Andean  Pact,  rather  than  with  each  country  individually,  thus  contributing  to  the 
reinforcement of regional  identity  and  of the regional  institutions.  The Andean Pact has  also 
been  granted  the  possibility  of regional  cumulation  in  the  rules  of origin.  In  response  to 
requests  by  the  region  to  avoid  any  adverse  effects  on  their integration  efforts,  the  EC  has 
extended  to  Venezuela  (in  spite  of  its  relatively  high  per  capita  income)  the  special 
preferential  treatment that its  other Member countries receive within the  GSP  scheme. 

Support  to  Mercosur  is  the  most  recent  regional  intervention  of the  EC  in  Latin 
America.  Until recently, much of the support for this grouping was political and high-profile, 
by  choice of both Mercosur and the European Community.  Thus Mercosur made its official 
entry  on the international  scene in Brussels, when the Foreign Ministers  of its four  Member 
countries  visited  the  European  Commission  and  Council  in  April  1991  and  asked  for  EC 
technical  assistance  to  strengthen  their  emerging  regional  initiative.  The  EU has  since  then 
been  a  committed  supporter  of this  integration  initiative  which,  against  many  odds,  and  in 
record  time,  has  eliminated  most barriers to  intra-regional  trade. 

Although  the  EU  has  signed  cooperation  agreements  with  each  of  the  Member 
countries  of  Mercosur,  a  separate  inter-institutional  agreement  was  signed  between  the 
Commission and Mercosur at the request of the latter, so as to pave the way for the European 
Union's  funding  of training  and  technical  assistance  in  priority  areas  of regional  integration 
and  for a consultation mechanism.  Currently, the EU supports Mercosur in three main areas: 
the  coordination  of some important aspects  of agricultural  policy,  customs management and 
the  harmonization  of technical  norms.  The  EU  has  also  provided  financial  support for  the 
strengthening  of some  of the institutions  of Mercosur in  the form  of technical  assistance in 
policy  design,  of human  resources  management  and  for  the  evaluation  of administrative 
support needs. 

The EU is now in the process of further strengthening its relations with Mercosur via 
the  establishment  of an  inter-regional  agreement  for  trade  and  economic  cooperation  that 
foresees  a  deepening of the current political  dialogue,  an  expansion of EU cooperation with 
the region to strategic areas of common interest, a consultation mechanism on trade issues and 
the preparation of reciprocal  trade liberalization.  Current strategy  towards Mercosur,  already 
approved  by  the  European  Commission  and  currently  under  discussion  by  the  Council, 
foresees for the more distant future the possibility  of establishing a Free Trade Area between 
the  EU  and  Mercosur. 

b.  Mediterranean Basin (including the Middle East) 

While  numerous  factors  (historical,  cultural)  make  it  possible  to  consider  the 
Mediterranean Basin  as  a  cohesive region,  it is  nevertheless  characterised by  a low level  of 
econ?mic interdependence among its  countries.  Evidently,  there  have been  some initiatives, 

- 19  -

both  political  and  economic,  to  redress this  situation.  The North-Western  African  countries 
with the Maghreb  Arab  Union  (MAU) as  well  as  the Gulf region with the  Gulf Cooperation 
Council  (GCC),  and  more  recently  a number  of non-Arab  Muslim  states  in Western/Central 
Asia have  made efforts  at establishing  regional  groupings. 

In  a  recent  Communication,  calling  for  a  Euro-Mediterranean  Partnership,  the 
Commission  placed  high  priority  on  encouraging  regional  integration  and  cooperation 
throughout this area.  The Commission envisages this area to be a zone of peace and  stability, 
based  on  economic  arrangements  comprising  a  Free  Trade  Area  (FTA)  and  wide-ranging 
economic  cooperation  between  the  EC  and  its  Mediterranean  partners. 

The  FT A,  which  should  be  completed  by  about  20 I 0,  would  provide  for  free 
circulation  of  manufactured  products,  progressive  liberalisation  of  trade  in  agricultural 
products of interest to both parties,  liberalisation of the right of establishment for  companies, 
provision  of trans-border  services,  and  free  movement  of capital.  There  would  be  largely 
identical  rules  of origin  among  the  parties,  mutual  recognition  of standards,  a  high  level  of 
protection  of intellectual  property  rights  and  provisions  concerning  rules  of competition. 

The first steps in this process are already under way, with negotiations nearly finished 
with  several  countries.  Negotiations  with  other  countries  are  to  start  soon.  Once  these 
negotiations  are  completed,  the  EC  hopes  that  similar  free  trade  arrangements  will  be 
negotiated  among  the  Mediterranean  countries  themselves,  and  between  them  and  the 
European  countries  that  are  not  members  of the  EU. 

The  process  towards  free  trade'  is  intended  to  be  complemented  by  a  substantial 
cooperation effort on the part of the EU in favour  of these countries, including assistance for 
the  modernisation  of the  private  sector  and  for  the  alleviation  of the  social  effects  resulting 
from  the  transition  to  more  open  economies,  as  well  as  for  the  improvement  of regional 
infrastructures. 

Regional  integration  and  cooperation  occupies  a  significant  place  in  the  EC's 
participation in the Middle East peace  process.  The EC  supports  an  eventual  free  trade  area 
between Israel, Jordan, Egypt and the Palestinian Territories with a view to taking advantage 
of the  complementarities in  the  region  and  using them  as  a vehicle for  stability  and  growth. 

As  regards  the  Gulf Cooperation  Council  (GCC),  the EC  always  strongly  supported 
the  process  of  regional  integration.  This  support  reflects  the  economic  importance  and 
strategic  significance  of  the  Gulf  region.  A  stronger  and  more  integrated  GCC  would 
contribute  to  stabilising  the  Gulf  area  and  providing  an  institutional  framework  for  an 
economic,  energy  and  security  partnership  with  the  EU.  The  EC  support  for  the  GCC's 
regional  integration  has  so  far  been  concretised  by  the  conclusion  of a  region  to  region 
cooperation  agreement  in  1989  and  the  launching  of  a  number  of  cooperation  activities 
intended  to  strengthen  the  GCC's  regional  integration  including  technical  assistance  for  the 
development of a GCC customs union.  In  addition, negotiations are under way  on a free-trade 
agreement between  both  regions. 

The EC's relationship with  the Economic Cooperation  Organization (ECO),  a nearly 
dormant group until  very  recently,  is  still  in its infancy.  However,  the EU has an  interest in 

- 20  -

following closely the evolution of this grouping which might help stabilize this geopolitically 
volatile region,  and has shown a willingness in assisting in the development of its institutions 
and in providing technical  assistance for furthering  its  economic integration. 

c.  Asia 

Of all  developing  areas,  Asia is  so  far,  the  one which  has  shown  the least  interest  in 
regional  integration.  The existing groupings such as  SAARC and  ASEAN have on the whole 
been loose cooperation arrangements, rather than integration undertakings.  In some cases, this 
is due to the relative economic size of some of the countries in this region,  not necessitating 
regional  integration  to  be  able  to  exploit  economies  of scale.  With  national  development 
becoming  more  successful,  especially  in  the  ASEAN  region,  and  the  increased  need  to 
develop  their  own  markets,  the  incentives  for  regional  integration  have  recently  increased. 
There are now moves towards tighter integration arrangements. In its recent Asia Strategy the 
Commission  has  emphasized  its willingness to  support these  moves,  whenever required. 

As  regards  the  South  Asian  Association  for  Regional  Cooperation  (SAARC),  it  has 
recently expressed its intention to establish itself as a preferential trade area.  Hence, although 
some  major  operational  questions  still  need  to  be  decided,  its  member  states  signed  an 
agree_ment  to  that  effect in  1993  under  the  name  of SAPT A (South  Asia  Preferential  Trade 
Arrangement).  Its  first formal  contacts  with  the  EU  date  only  from  1994.  The fruit  of these 
contacts  has  been  the  expressed  intention  of the  European  Commission  to  assist  in  the 
strengthening of SAARC  institutions via technical  assistance  and  training  of officials. 

The Association  of South East Asian  Nations  (ASEAN)  was  founded  in  1967  to  encourage 
economic cooperation between its member countries, as well as to promote peace and stability 
in the region.  Aside from  strengthening their political,  social,  cultural  and  overall  economic 
ties,  ASEAN established itself as  a preferential trade area.  An agreement to deepen this trade 
arrangement  into  an  ASEAN  Free  Trade  Area  (AFTA)  was  reached  in  1992.  While  the 
original  target date  was  the  year  2008,  the  conclusion  of the  Uruguay  round  has  brought it 
forward  to the year 2003. 

The  formal  basis  for  ASEAN's  relations  with  the  EC  is  provided  by  a  cooperation 
agreement,  between the  EU and  the  ASEAN countries  as  a group.  The  overall  political  and 
economic relations are dealt with at the foreign  ministers level  every two years.  The EU also 
participates  together  with  the  other  main  "dialogue  partners"  in 
the  Post-Ministerial 
Conference  and  in  the  recently  created  ASEAN  Regional  Forum  which  deals  with  security 
issues.  These  periodic  meetings  together  with  the  operations  of the  joint  sub-committees 
established  by  the  cooperation  agreement  have  served  to  increase  ASEAN's  internal 
coordination in some of these areas.  Additionally, financial  assistance for institutional support 
is  currently  granted  to  ASEAN's  Secretariat,  reinforcing  its  structure  and  establishing  links 
with  the  EC  and  several  other  leading  international  organisations.  Furthermore,  the  EC  has 
already  offered assistance and  is  currently  considering a proposal  for a project in  support of 
the  AFTA  integration  scheme.  Finally,  in  the  trade  field,  ASEAN  countries  also  enjoy 
regional  cumulation in the  application  of the rules  of origin in the  context of the  GSP. 

d.  Sub-Saharan  Africa (SSA) 

- 21  -

Sub-Saharan Africa has a long tradition of regional integration and cooperation.  Since 
1960  a  large  number  of regional  organisations  have  been  created  for  this  purpose.  There  is 
also  a  trend  of Pan-Africanism,  exemplified  by  the  signing  in  1991  of the  Abuja Treaty  on 
a  Pan-African  Econ@mic  Community.  The  Pan-African  Community  can  be  considered  as  a 
long-term goal,  that first  requires progress towards integration at sub-regional  level.  The EU 
has  a long tradition  of support for  regional  initiatives in  SSA through  the Lome Convention 
provisions  for  regional  cooperation.  In  terms  of cooperation  projects,  attention  has  been 
focused  on  cross-border  infrastructure,  education  and  the  struggle  against  endemic  cattle 
diseases. 

Despite the attention for regional  integration in  SSA,  so far progress has been limited 
and  disappointing.  The  Global  Coalition for  Africa (GCA)  from  its creation  in  1991  has  re 
iterated  the  need  for  effective  regional  integration  as  a  crucial  component  of a  strategy  to 
overcome  the  constraints  facing  the  African  economies.  Over  the  past  few  years,  the 
Commission  has  collaborated  with  the  GCA  on  defining  ways  to  increase  the  effectiveness 
of regional  integration in  Africa.  The brief overview below reflects  that  collaboration. 

Regional integration efforts in Eastern and  Southern Africa and the Indian Ocean have 
been mainly conceived through four organisations: the Preferential Trade Area for Eastern and 
Southern Africa (PT A), the Southern African Development Community (SADC), the Southern 
Af~ican Customs Union (SACU) and the Indian Ocean Commission OOC).  In addition,  there 
have been  steps towards  a revival  of the  former  East African  Community  (EAC).  The  PT A 
has  recently  been  transformed  into  the  Common  Market  of Eastern  and  Southern  Africa 
(COMESA). 

EC  support for integration efforts in this  sub-region has  come in a variety  of forms. 
Of the  institutions  mentioned  above,  the  COMESA has be~n  the first  to  develop  an  explicit 
integration  agenda.  _The  EU  supported  work  on  items  such  as  trade  preferences,  non-tariff 
barriers,  transport  and  insurance  documentation  and  regional  clearing  of payments  through 
studies  and  technical  assistance. 

Until  1992,  EC  support  for  SADC  has  focused  on  sectoral  cooperation  including 
mainly transport infrastructure. The present orientation of SADC is to develop and implement 
an agenda of market integration. There has not yet been significant EU support for integration 
of SADC,  but  it  intends  to  make  this  an  important  priority  for  the  future  (in  line  with  the 
Berlin Declaration signed in  September  1994 by  SADC  and  the EU).  Support for  integration 
could  also  be  provided to facilitate  the  restructuring  of  SACU. 

As  regards  the  IOC,  its  members have  agreed  that one  of their  main  priorities  in  the 
1990s  will  be  the  promotion  of trade  in  the  context  of regional  integration.  An  important 
project  is  under  preparation  (PRIDE)  to  enable  its  private  sector  to  reposition  itself  and 
enhance  its  competitiveness on  regional  and  international  markets. 

Additionally,  since  1992,  EC  support  for  regional  integration  in  this  sub-region  has 
been  focused  on  a  broad  initiative  to  facilitate  regional  trade,  investment  and  payments  in 
Eastern and Southern Africa and the Indian Ocean under the name of Cross-Border Initiative, 

- 22  -

CBI.  This  initiative  is  geared  to · members  of CO MESA,  SADC  and/or  IOC.  It  intends  to 
promote regional integration in a novel and pragmatic way and address the regional  dimension 
of  adjustment.  The  initiative  is  co-sponsored  by  the  African  Development  Bank,  the 
International  Monetary  Fund  and  the  World  Bank.  Reflections  on  its  development  have 
involved  various  regional  and  sub-regional  organisations  in  Africa. 

The participating countries were asked to set up Technical Working Groups consisting 
of public and private sector representatives.  These working groups made an inventory  of  the 
most important obstacles to cross-border business.  They also made recommendations on how 
to  remove  these  obstacles.  The  emphasis  has  been  on  identifying  the  regulatory  constraints 
that increase the cost of  private sector cross-border business.  Examples of  such constraints 
are  licensing  and  duties  for  imports,  complex  procedures  for  the  allocation  of  foreign 
exchange  and  time-consuming  arrangements  for  approving  investments.  The  country  level 
recommendations were synthesised in a common programme of action that was subsequently 
endorsed  at a ministerial  meeting  in  August  1993,  in  Kampala,  Uganda. 

Many  of the  recommendations  on  removing  the  obstacles  to  cross-border  business 
dealt  with  issues  that  were  already  on  the  agenda  of the  above-mentioned  organisations. 
However,  practical  implementation  was  lagging  behind.  CBI  therefore  supports  these 
organisations  in  carrying  out  their  work  programme.  The  emphasis  on  removing  regulatory 
constraints is not meant to forget the importance of diminishing physical  obstacles (e.g.  in  the 
area of transport and  communications infrastructure).  Progress should be made in both areas. 
However,  removing regulatory  constraints can lead to very  rapid  results  at a  low budgetary 
cost  and  should  not  be  postponed.  The  Commission  intends  to  maintain  the  priority  for 
removing  the  physical  obstacles  to  cross-border  economic  activity  through  its  regional 
cooperation  programmes. 

The  CBI  co-sponsors,  including  the  EU,  have  indicated  their willingness  to  support 
the  initiative  by  helping  to  cover  the  short-run  transitional  costs  that  may  arise  at  country 
level  from  this  implementation.  This  will  mainly  be  in  the  form  of balance  of payments 
assistance.  In addition, work is under way  to set up  complementary  support projects with the 
regional  organisations.  Some  of these  projects  are  aimed  at facilitating  the  restructuring  of 
the private sector in view of the wider regional and world markets. Other projects will address 
the facilitation of payments through an export credit guarantee system.  Finally, there are also 
projects to strengthen or build the capacity to deal with regional integration issues, particularly 
at  regional  organisation level. 

The  strong  awareness  in  the  West  African  Region  of the  need  for  in-depth  regional 
integration  encouraged  the  seven  member  States  of  the  West  African  Monetary  Union 
(UMOA)  to  transform  their  monetary  union  into  a  fully-fledged  Economic  and  Monetary 
Union  (UEMOA)  in  1990.  The  main  axes  are:  to  work  towards the  convergence  of  macro 
economic policies,  to  establish  a macro-economic surveillance mechanism,  to  harmonise the 
legal  and  regulatory  framework,  to  create  a  single  market  and  to  adopt  common  sectoral 
policies.  External  support for the initiative is being provided by the EU as well  as by France, 
the  IMF  and  the World Bank. 

The initiative foresees a progressive implementation of this integration scheme, based 
on  the  existing  core  of a  monetary  union.  It is  open to  other  countries  in the  region  and  is 

- 23  -

compatible with the integration efforts pursued by the Economic Community of West African 
States  (ECOW AS). 

Beyond  the  integration  created  by  opening  economies  to  each  other,  the  most 
innovative aspect of these reforms is the regional multilateral  surveillance mechanism, which 
will  permit  the  coordination  and  harmonisation  of  economic  policy.  The  UEMOA 
Commission,  set up  at the  beginning  of 1995,  should  quickly  take  decisions  relating  to  the 
implementation of the planned reforms,  notably  in the field  of multilateral  surveillance  and 
the  establishment of a  customs union. 

Within the framework of the Regional Indicative Programme of Lome IV, the Central 
African  region has  decided  to  focus  on  the  economic  integration  process by  building  on  an 
existing regional  initiative, the Central  African Customs and Economic Union (UDEAC). The 
UDEAC was already founded in  1964 and benefited from  the start from  a single currency (the 
CFA franc).  Nevertheless,  national  policies pursued  by  its  members progressively  withdrew 
all  substance from the Union, resulting in the fragmentation of the regional  market.  Negative 
repercussions  were  felt  by  firms  and  were  reflected  in  public  finances,  employment  and 
investment  levels, and the formal  economy in  general.  In view of this situation, the six  heads 
of State  of UDEAC  approved  in  1990  a  Regional  Programme  of Reforms  (RPR)  supported 
jointly  by  the  EC,  France,  the  World  Bank  and  the  IMF.  The  aim  of these  reforms  was 
notably  to  restore  a  Customs  Union,  with  a  Common  External  Tariff  together  with  the 
harmonisation of internal indirect taxation.  Another area of reform,  directly  supported by  the 
EU,  has  been inter-state transit transport. 

Following  the  devaluation  of the  CFA  Franc  in  early  1994,  the  UDEAC  members 
expressed  their  desire  to  create  a  more  ambitious  framework  for  economic  integration,  and 
signed  a  Treaty  to  establish  the  Central  African  Economic  and  Monetaty  Community 
(CEMAC).  CEMAC is still at an embryonic stage, but aims at the creation  of a fully-fledged 
economic  and  monetary  union  in  the  region. 

e.  The  Caribbean 

The  Caribbean  region  is  characterised  by  a  large  diversity  in  the  history  and  ethnic 
background of its population.  Several  regional  integration initiatives have taken  shape in  the 
region.  The  Organisation  of East  Caribbean  States  (OECS)  groups  the  smaller  and  least 
developed  anglophone  Caribbean  states,  which  all  share  a  common  currency.  Almost  all  of 
the OECS members are also members of the Caribbean Common Market (CARI COM), which 
includes most of the other anglophone Caribbean states.  The Association of Caribbean States 
(AC.S} was founded  recently,  in  1994,  and  groups  all  the  countries  of the  insular  Caribbean 
and  of the  Central  American  and  Latin American  coastline  of the  Caribbean  Sea. 

CARIFORUM  is  a  grouping  of  the  Caribbean  ACP  states,  ie  CARICOM  plus 
Dominican Republic and Haiti. It acts mainly as a coordination body for regional cooperation 
under the Lome Convention.  Since 1992, the EU cooperation with the Caribbean Lome states 
includes regional integration as an important component. Operational programmes are focused 
on  regional  trade  and  tourism  development. 

The  potential  for  regional  integration  within  CARICOM  is  constrained  by  the  small 

- 24  -

size  of the market reflecting  a population of around  five  million.  However,  there  have been 
some  significant  achievements  including  the  strengthening  of  the  Caribbean  voice  in 
international  fora,  the  joint  promotion  of ·exports  with  EU  support  and  the  attraction  of 
investment through the Caribbean Development Bank.  The EU is currently preparing further 
work on trade  development at the wider CARIFORUM  level. 

f.  The  South Pacific region 

The  South  Pacific region  is  highly  diverse,  and  distances  are  huge  in  comparison  to 
virtually  any  other region.  This probably  explains the  absence  of an  integration framework. 
There are however some loose regional  groupings that have mainly  a cooperation objective. 
The South Pacific Forum (SPF) groups most of the states in the region and  has an important 
role  for  the  implementation  of  Lome  regional  cooperation.  Another  grouping  is  the 
Melanesian Spearhead Group. The eventual possibility of regional economic integration in the 
South Pacific region will  depend  greatly  on  the  efforts  of Australia and  New Zealand. 

- 25  -

Appendix  B 

LIST OF  MAJOR ECONOMIC  INTEGRATION  GROUPINGS 
INVOLVING  DEVELOPING COUNTRIES  AND  THEIR MEMBERSHIP 

A.  AFRICA 

Arab  Maghreb  Union (UMA) 
Algeria,  Libyan Arab  Jamahiriya,  Mauritania,  Morocco,  Tunisia 

Economic  Community  of West African  states  (ECOW AS) 
Benin,  Burkina  Faso,  Cape  Verde,  Cote  d'Ivoire,  Gambia,  Ghana,  Guinea,  Guinea-Bissau, 
Liberia,  Mali,  Mauritania,  Niger,  Nigeria,  Senegal,  Sierra Leone,  Togo 

West  African  Economic Community  (CEAO) 
Benin,  Burkina Faso,  Cote  d'Ivoire,  Mali,  Mauritania,  Niger,  Senegal 

Preferential  Trade Area for  Eastern  and  Southern  African  States (PT A) 
Angola, Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, 
Mauritius, Mozambique, Namibia, Rwanda,  Seychelles,  Somalia,  Sudan,  Swaziland,  Uganda, 
Tanzania,  Zambia,  Zimbabwe 

Southern  African Development Community  (SADC) 
Angola,  Botswana,  Lesotho,  Malawi,  Mozambique,  Namibia,  South  Africa,  Swaziland, 
Tanzania,  Zambia,  Zimbabwe 

Southern African  Customs Union  (SACU) 
Botswana,  Lesotho,  Namibia,  Swaziland,  South  Africa 

Indian  Ocean  Commission  (IOC) 
Comoros,  Madagascar,  Mauritius,  Reunion,  Seychelles 

B.  ASIA AND  THE PACIFIC 

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

Economic  Cooperation  Organization  (ECO) 
Afghanistan,  Azerbaijan,  Islamic  Republic  of  Iran,  Kazakhastan,  Kyrgystan,  Pakistan, 
Tajikistan,  Turkmenistan,  Turkey,  Uzbekistan 

South Asian Association  of Regional  Cooperation (SAARC) 
Banghladesh,  Bhutan,  India,  Maldives,  Nepal,  Pakistan,  Sri  Lanka 

Association  of South East Asian Nations  (ASEAN) 
Brunei  Darussalam,  Indonesia,  Malaysia,  Philippines,  Singapore,  Thailand 

Melanesian  Spearhead Groyp  (MSG) 
Papua New Guinea,  Solomon Islands,  Vanuatu 

- 26  -

C.  LATIN AMERICA AND  THE CARIBBEAN 

Latin  American  Integration  Association  (ALADI) 
Argentina,  Bolivia,  Brazil,  Chile,  Colombia,  Ecuador,  Mexico,  Paraguay,  Peru,  Uruguay, 
Venezuela 

Central  American Integration  System (SICA) 
Costa Rica,  El  Salvador,  Guatemala,  Honduras,  Nicaragua,  Panama 

Central  American  Common  Market (CACM) 
Costa  Rica,  El  Salvador,  Guatemala,  Honduras,  Nicaragua 

Andean  Groyp 
Bolivia,  Colombia,  Ecuador,  Peru,  Venezuel.a 

Southern Cone Common Market (MERCOSUR) 
Argentina,  Brazil, Paraguay,  Uruguay 

Caribbean Community  (CARICOM) 
Antigua  and  Barbuda,  Bahamas,  Barbados,  Belize,  Dominica,  Grenada,  Guyana,  Jamaica, 
Montserrat,  St.  Kitts and Nevis,  Saint Lucia,  Saint Vincent and the Grenadines, Trinidad and 
Tobago 

Organization of Eastern Caribbean States (OECS) 
Antigua  and  Barbuda,  Dominica,  ~enada, Montserrat,  Saint  Kitts  and  Nevis,  Saint  Lucia, 
Saint Vincent and the  Grenadines 

D.  OTHER GROUPINGS 

Asia  Pacific Economic Cooperation  (APEC) 
Australia,  Brunei  Darussalam,  Canada,  China,  Hong  Kong,  Indonesia,  Republic  of Korea, 
Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Philippines,  Singapore, Taiwan, 
Province of China,  Thailand,  United  States  of America 

North American Free Trade Area (NAFT A) 
Canada,  Mexico,  United  States of America 

South Pacific Forum  (SPF) 
Australia,  Cook  Islands,  Federated  States  of Micronesia,  Fiji,  Kiribati,  Marshall  Islands, 
Nauru,  New  Zealand,  Niue  Island,  Papua  New  Guinea,  Western  Samoa,  Solomon  Islands, 
Tonga,  Tuvalu,  Vanuatu 

ISSN 0254-1475 

COM(95) 219 final 

DOCUMENTS 

EN 

11 

Catalogue number  :  CB-CO-95-246-EN-C 

ISBN 92-77-89330-3 

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