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# 52008SC2539R(01)

**COMMISSION STAFF WORKING DOCUMENT accompanying the Communication on Regional Integration FOR DEVELOPMENT in ACP Countries {COM(2008) 604} {SEC(2008) 2538} /\* SEC/2008/2539 final/2 \*/**

  

EN

|| COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 6.10.2008

SEC(2008) 2539/2

CORRIGENDUM
Annule et remplace le document SEC(2008)2539 du 1.10.2008
Référence ajoutée dans la footnote 16

COMMISSION STAFF WORKING DOCUMENT

accompanying the
Communication on Regional Integration
FOR DEVELOPMENT in ACP Countries
{COM(2008) 604}
{SEC(2008) 2538}

TABLE OF CONTENTS

List of Acronyms. 4

1........... The
relevance of regional integration in a globalised world. 7

1.1........ The
global context 7

1.1.1..... The
global economic context 7

1.1.2..... Increasing
attention to regional integration. 8

1.2........ The
increasing commitment of ACP countries to regional integration. 10

2........... The
challenges facing regional integration in ACP countries. 12

2.1........ The
economic structure. 12

2.1.1..... Dual
economies, weak export base and insufficient complementarity. 12

2.1.2..... Vulnerability
to economic and financial shocks. 14

2.2........ The
need for (more effective) regional policies beyond trade. 14

2.3........ Inefficient
and/or incomplete infrastructure networks. 16

2.4........ Weak
regional governance. 17

3........... Why
does the EU care?. 18

3.1........ EU-ACP
relations and regional integration: an ancient partnership. 18

3.2........ More
and better can be done. 21

3.2.1..... The
need for a consolidated EU vision. 21

3.2.2..... Setting
out the objectives. 22

4........... Three
possible approaches for EU support 24

4.1........ Elimination
of barriers to trade. 24

4.2........ Policy
co-ordination and co-operation for sustainable development 26

4.2.1..... Reducing
physical barriers through infrastructure networks. 27

4.2.2..... Strengthening
interdependence by action at macro-economic and micro-economic level 28

4.2.3..... Management
of common resources or challenges. 30

4.3........ Developing
political co-operation for effective regional integration. 31

4.3.1..... Regional
cooperation for peace and stability: 31

4.3.2..... Good
governance as a regional good. 32

4.3.3..... Harnessing
the effects of migration. 32

4.4........ Comparing
the approaches. 32

4.4.1..... Overview
of advantages and drawbacks. 32

4.4.2..... The
contribution of different approaches to EU policy objectives. 40

4.4.3..... Finding
the right mix. 41

5........... EDF
support to regional integration: a mix of approaches. 42

5.1........ The
9th EDF regional programmes. 42

5.2........ The
10th EDF regional programmes. 44

5.3........ Exploiting
the synergies for inter-regional cooperation. 45

5.4........ Design
of regional integration and EU support 46

5.5........ Risk
factors. 47

Annex 1: Overview of regional integration in ACP regions. 50

Annex 2: Review of existing literature on regional
integration in ACP. 64

Annex 3: Stocktaking of EPAs and regional integration. 67

Annex 4: EC financial support for regional integration. 70

Annex 5: Overview of 9th EDF regional programmes
(2002-2007) 71

Annex 6: Evaluation of EDF Programmes. 74

Annex 7: References. 77

List of Acronyms

ACP || African, Caribbean and Pacific countries

APF || African Peace Facility

APRM || African Peer Review Mechanism

ASEAN || Association of South East Asian Nations

AU || African Union

CACM || Central American Common Market

CARICOM || Caribbean Community and Common Market

CEMAC || Communauté Économique et Monétaire de l'Afrique Centrale

CEPGL || Economic Community of the Great Lakes Countries

CET || Common External Tariff

CFA Franc || Communauté financière d'Afrique / Coopération financière en Afrique centrale Franc (currency)

COMESA || Common Market for Eastern and Southern Africa

CSME || Caribbean Single Market Economy

CSP || Country Strategy Paper

DRC || Democratic Republic of Congo

EAC || East African Community

EC || European Community/ies

ECCAS || Economic Community of Central African States

ECOWAS || Economic Community of West African States

EDF || European Development Fund

EIB || European Investment Bank

EPA || Economic Partnership Agreement

ERDF || European Regional Development Fund

FDI || Foreign direct investment

FTA || Free Trade Area

IfS || Instrument for Stability

IGAD || Intergovernmental Authority on Development

IOC || Indian Ocean Commission

IRCC || Inter-Regional Coordinating Committee

MDG || Millennium Development Goal

MERCOSUR || Mercado Común del Sur

MNC || Multi-National Corporation

NAFTA || North American Free Trade Association

NEPAD || New Partnership for Africa's Development

NIP || National Indicative Programme

OCT || Overseas Countries and Territories

OECS || Organisation of East Caribbean States

PICTA || Pacific Islands Countries Trade Agreement

PIF || Pacific Islands Forum

REC || Regional Economic Community

RIP || Regional Indicative Programme

RISP || Regional Indicative Strategic Development Paper

RSP || Regional Strategy Paper

SACU || Southern African Customs Union

SADC || Southern African Development Community

SME || Small and Medium Enterprises

SOPAC || South Pacific Applied Geosciences Commission

SPBEA || South Pacific Board of Educational Assessment

SPC || Secretariat for the Pacific Countries

SPREP || South Pacific Regional Environmental Programme

SPS || Sanitary and Phytosanitary standards

SPTO || South Pacific Tourism Organisation

TBT || Tariff barriers to trade

UDEAC || Union Douanière et Économique de l’Afrique Centrale

UEMOA || Union économique et monétaire ouest-africaine

UNCTAD || United Nations Conference on Trade and Development

USP || University of the South Pacific

1.           The
relevance of regional integration in a globalised world

1.1.        The global context

1.1.1.     The global economic context

Over the last
decade, the globalisation process has gained further momentum, changing the
global economic landscape and bringing the emergence of new economic powers
such as China and India. Global trade and investment flows have grown much more
rapidly than national economies, bringing about an unprecedented level of
economic interdependence.

In an
increasingly complex web of economic and political relations, economic
interdependence has grown much more rapidly and deeper than the political
cobweb. Not all actors – governmental or commercial – have been able to adapt
and take advantage of the new course. In this respect, larger and stronger
players have a significant advantage as they have retained (or gained) the
ability not only to adapt to, but to actually shape, globalisation.

This explains
why globalisation has tended to marginalise the smaller and weaker states and
companies, thereby increasing inequalities – both within countries and between
countries – between winners and losers. In this context, most ACP countries
have not been in a position to harness globalisation to achieve their
development objectives and, in particular, to accelerate poverty reduction. As
shown in table 1 below, their share of world trade and investment has stagnated
while developing countries at large have been reaping the benefits of
globalisation.

Table 1: The position of developing
countries and ACP countries in world trade and investment

Indicator || 1990 || 2006

Developing countries' share of world trade Sub Saharan African countries' share of world trade || 23.2% 2.9% || 34.7% 2.7 %

South-south share of world trade Sub Saharan African intra-regional trade as a share of world trade || 7.6% 0.1% || 17.0% 0.2%

Developing countries' share of FDI flows Sub Saharan African countries' share of FDI flows || 17.8% 0.8% || 29.1% 0.9%

Developing countries' share of FDI stock Sub Saharan African countries' share of FDI stock || 20.5% 2.0% || 26.3% 1.7%

Source: UNCTAD

This trend is
not inevitable, as exemplified by the recent surge of growth rates in Africa.
This accelerated growth is, however, based to a large extent on a commodity
boom that needs to be translated into long-term development. In any case, at
the current pace, ACP countries would need much time to catch up with the most
developed economies. It is also widely recognised that additional growth is needed
if developing countries are to meet the 2015 targets of the Millennium
Development Goals (MDGs). Table 2 below shows clearly that sub-Saharan Africa
is currently not on track to achieve any of these goals. Accelerated growth is,
in particular, a necessary – if not sufficient – condition for the central
objective of poverty reduction is to be achieved.

Table 2: The Millennium Development
Goals and selected indicators for Sub-Saharan Africa.

 Goal Sub-goal / indicator || Progress

1990 || 2004

1. Eradicate extreme poverty and hunger Halve the number of people living on less than $1 per day (1990 – 2015) Halve the proportion of people who suffer from hunger (1990 – 2015) Measured by the number of under 5s under age. || 46.8% 33% || 41.1% 29%

2. Achieve universal primary education Ensure all boys and girls complete a full primary school course (measured by enrolment rate) || 54% || 70%

3. Promote gender equality and empower women Measured by the share of women in single or lower houses of parliament || 7.2% || 16.5%

4. Reduce child mortality Reduce by two thirds the mortality rate under 5 || 185 per 1000 || 166 per 1000

5. Improve maternal health Reduce by ¾ the maternal mortality rate || 940 per 100 000 || 920 per 100 000 (2005)

6. Combat AIDS, Malaria and other diseases Halt and reverse the spread of aids (measured by prevalence of AIDS in 15-49 year olds) || 2% || 6%

7.Ensure environmental stability Reduce by half the proportion of people without access to basic sanitation || 68% || 63%

Source: United
Nations

1.1.2.     Increasing attention to
regional integration

The recent proliferation in the number of
regional integration projects and the focus on their importance can be
attributed to the fact that regional integration provides a response to the challenges
of globalisation. Smaller states find themselves in a weak position to attract
global companies and to exert political influence an international level.
Regional integration provides smaller states with recognition and weight and
increases their ability to better harness the benefits and negative impacts of
globalisation.

The EU itself is a prime example of this
kind of response, where the internal market and common policies allow companies
based in Europe to build up a strong regional economic base, while enabling
Member States to pool their sovereignty to address common challenges in a
cooperative manner.

While the
concept of regional integration among developing countries has existed since
the formation of SACU (Southern Africa Customs Union) in 1910, its rise in
popularity began during the 1960s with the formation of organisations such as
CACM (Central American Common Market) and ASEAN (Association of South East
Asian Nations). More recently, regional integration has become one of the
dominant features of international politics. The 1990s saw the emergence of new
organisations such as MERCOSUR (Mercado Común del Sur – Southern Common Market)
and the unique NAFTA (North American Free Trade Association), which joins
developed countries (Canada and US) with a newly industrialised country
(Mexico). Since the beginning of the 21st century, regional
organisations have both expanded in membership and broadened co-operation
areas.

ACP states did
not stay out of this trend towards increased regionalisation. Across the ACP
region, there are now some 20 regional integration arrangements and dozens of
specialised regional cooperation organisations. Many of the ACP arrangements
are focussing in the first place on achieving objectives relating to economic
and trade aspects or cooperation

This attraction
for regional integration can be easily understood and explained by the outcomes
it is expected to bring in at least three areas (see also annex 2 for a
review of the literature on the benefits of regional integration):

–
Through cooperation and institutionalisation of conflict
prevention and the peaceful conflict resolution, regional cooperation
helps stabilisation. Regional organisations play an increasingly
important role in conflict management, peace-keeping and peace-building. They
can play an important role in helping to tackle the root causes of conflicts as
well as promoting and protecting human rights, building trust and thereby
enhancing understanding among societies and cultures leading to reconciliation
in post-conflicts situations. By deepening interdependence, regional
integration provides disincentives for countries or groups to act aggressively
against neighbouring countries and populations.

–
By building up larger markets, creating
harmonised and effective frameworks for economic operators, fostering the
exchange of goods and resources, regional integration can foster economic
development through economies of scale and stimulation of investment.
From an EU perspective, regional integration is a step towards integration into
the global trading system by allowing efficiency gains through enlarged markets
and an open regional integration. It is, in particular, a means to foster
south-south trade in a context where many developing countries trade more with
developed countries than with their neighbours. By being essential for economic
growth, regional integration is therefore a vehicle for accelerated poverty
reduction.

Box 1: Regional integration and growth Literature[1] on regional integration and growth generally does not find a direct link between the two, but rather an indirect association, or so called "dynamic growth effects". Te Velde (2008) completed a study of regional integration and growth in ACP regions, and found positive effects on growth through regional integration in trade and investment. In particular, "regional integration is likely to increase aggregate growth through the growth effects of increased trade and investment, and one supporting piece of evidence is that exporting firms have higher productivity". Schiff and Wang (2003) similarly found that NAFTA imports raised Mexican productivity by between 6.5 and 7.5%.

–
Regional cooperation is also the best way to provide
or protect "regional public goods" because it is more
effective in addressing challenges with a trans-national dimension. Expected
effects of regional cooperation are i) the provision of "regional
governance public goods" such as international economic governance and
regional institutional development; ii) the provision of "regional
knowledge public goods" such as experience learning and information
sharing; iii) overcoming "other market and coordination failures and
coordinating activities with strong regional externalities" such as
competitiveness challenges (ODI 2008). Typically, transmissible diseases and the
fight against migratory pests, protection and management of natural resources (e.g.
water, land) or migration are cross-border challenges that require cross-border
cooperation if they are to be mitigated and if increased economic activity of a
regional scale is to be sustainable.

Box 2: Regional public goods Public goods should be provided at a regional rather than national level if either the underlying problem cannot be tackled at national level, or if regional level intervention is more efficient.[2] Examples of potential regional public goods include: cross-border transport links, peace-keeping operations, fighting human trafficking, the fight against specific crimes (notably fraud and smuggling), infectious disease control, agricultural pests control and specific climate agricultural research (this could include food security). A natural problem with regional public goods is their source of finance. Countries are less keen to take loans to finance regional public goods with larger spill-over effects to other countries in the region, and multi-country loans are hard to manage in practical terms (Ferroni, 2001).

1.2.        The increasing commitment of ACP countries to regional
integration

The vulnerability of most ACP economies,
their fragmentation and the resulting lack of resources requires action going
beyond national borders. This is felt by ACP countries themselves as all belong
to at least one form of regional cooperation or organisation. They see this as
a remedy to their inadequate economic size with regard to the globalizing
economy and an opportunity to adopt a more strategic approach to their
development and speed up their socio-economic transformation. It is also a
powerful means to stabilize their geo-political environment through fostering
peace, reconciliation and stability in their immediate environment.

The importance of regional
political integration was exemplified in Africa by the establishment in
2002 of the African Union (AU). The AU includes all
African countries (except Morocco) with the ultimate aim of forming a "United
States of Africa". Currently, it is involved in a variety of chiefly
political activities, such as conflict prevention and peace keeping (e.g.
Darfur), but economic and monetary union is also part of its agenda and the African
Regional Economic Communities (RECs) are regarded as stepping stones to this
goal.

In other regions as well, regional
integration is seen as key. The Pacific region contains a number of
organisations with specific fields of co-operation (e.g. SPBEA and USP for
education). In the Caribbean, 12 of the 15 CARICOM members have progressed to a
single market.

There have been long-standing efforts to
harness regional integration for economic development. These efforts
have been further stepped up in recent years, with many free-trade areas and
customs unions under creation and a number of regions designing plans for
ambitious common policies (see Table 3 below and Annex 1).

Table 3: Regional Economic Communities
in the ACP: State of play of economic integration

REC || Integration reached [3] || Integration planned[4]

Caribbean

OECS || Single Market (through CARICOM) || Economic Union (2009

CARICOM || Single Market (2006) || Single Market and Economy (2008)

Central Africa

CEMAC || Single currency (CFA Franc pegged to the Euro), FTA (1998) and Customs Union (1994) || Full FTA, Customs Union and Common Market (no fixed date)

ECCAS || FTA launched in 2004 and slowly implemented || Customs Union (2011), Common Market (no fixed date)

Eastern Africa

EAC || Customs Union (2005) || Common Market (2012)

COMESA || FTA (2000) || Customs Union (2008)

Southern Africa

SADC || FTA (2008) || Customs Union (2010)

West Africa

UEMOA || Single currency (CFA Franc pegged to the Euro), Customs Union (2000) || Common Market (no fixed date)

ECOWAS || Partial FTA and Customs Union || Full customs union 2007 (delayed) Monetary Union (2009)

Pacific

PICTA || FTA (2003) || No further step planned

Beyond trade and economic integration, many
initiatives aim at pooling efforts and resources of ACP states to tackle common
problems.

In the Pacific, the Forum Fisheries Agency
has developed an integrated approach in the management of fish, a vital
economic resource for many countries. The Forum Fisheries Agency has provided state-of-the-art
legal and economic advice for the conclusion of fishery agreements,
surveillance of fishery activities in members' exclusive economic zones and for
the development of a domestic tuna industry. Higher education has also
traditionally been provided at the regional level in the Pacific as it was
recognised as the most effective way for small countries to deliver university
education to high standards, as demonstrated by the University of South Pacific
(USP), the Fiji School of Medicine, or the University of Papua New Guinea
(UPNG) – all with highly-evolved distance education facilities in the
non-campus islands.

In Eastern and Southern Africa, the Nile
Basin Initiative (NBI) was officially launched in 1998 by the ten riparian
states. In a region that is characterised by severe poverty and instability and
where the allocation and use of Nile waters have long been a source of serious
tension, the participating states agreed on a shared vision to achieve
sustained socio-economic development through the equitable utilisation of, and
benefit from, the common Nile basin water resources. To convert this vision
into action, multi-purpose infrastructure (for water supplies, hydro-electric
power, irrigation systems) is being developed jointly to reduce vulnerability
to droughts, to manage floods better, to ensure more water, more food and more
electricity in a sustainable manner.

In the same region, the COMESA Free Trade
Agreement (FTA) has proved beneficial to intra-COMESA trade, with trade growing
at an annual average of 9% within COMESA and by 16% among FTA Member States between
2000 and 2007 – much more quickly than overall trade. A World Bank study
concluded that the FTA has had a positive impact on growth in the members that
joined the FTA, on cross-border investment flows and on the development of
intra-industry linkages, with trade on semi-manufactured goods between FTA
members overtaking trade of similar products with the rest of the world.

In the Caribbean, although tropical storms
and hurricanes are frequent and have a large adverse impact on the fragile
economies of the region, the present regional capacity to determine how severe
a particular weather condition will be, and the likely effect in a localised
area is very limited. CARICOM, the Caribbean Meteorological Organization and
the national disaster agencies decided to pool resources in order to promote a
reliable warning system and to obtain the advanced technologies that will
provide the information needed to improve the preparedness of the authorities
and the general public and thus help minimise loss of life and damage to
property.

2.           The challenges facing
regional integration in ACP countries

Despite real progress and clear commitment
to enhance regional integration, a number of critical challenges remain if
regional integration is to fulfil its development potential for ACP partners.

2.1.        The economic structure

2.1.1.     Dual economies, weak export base and insufficient
complementarity

Most ACP countries (especially those with
fragmented markets) suffer from dual economies; that is to say small
companies operate on a very local level, while larger, predominantly foreign
multinational corporations (MNCs) are either present on the larger markets of
the country (goods not produced locally; business services) or operate in a de
facto off-shore mode (goods produced but not consumed locally – typically raw
material). The result is a lack of medium-sized enterprises able to operate on
a national, let alone regional, level.

Firstly, this is an issue as medium-sized
enterprises are essential for growth and competitiveness. Secondly, the dual
economy causes ACP countries to have a weak export base as
demonstrated by the ratios of sectoral import and exports between the ACP and
EU shown in Table 4 below. While the ACP region runs a trade surplus with the
EU, it clearly exports primary goods (78.8% of their exports) and imports
manufactured goods (74% of their imports).

Table 4: EU / ACP trade by sector 2006
(excluding South Africa).

Sector (Sub-sectors) || ACP Exports to EU || ACP Imports from EU

Primary Products || 78.8 || 23.9

Agriculture || 25.4 || 13.1

Energy || 43.5 || 9.1

Manufactured Products || 20.4 || 74

Machinery || 0.8 || 28.9

Transport || 4.9 || 15.7

Chemicals || 1.5 || 10.8

Source: European
Commission

The combined effect of this duality and weak export base is a
poor complementarity of national economies within a region, as
economies find themselves producing and exporting a narrow range of similar
products. As a result, trade integration is very limited in ACP regions and, as
shown in Table 5 below, trade with the EU is generally larger than with regional
neighbours. CEMAC countries, for instance, conduct 1% of their trade between
themselves and about 45% with the EU. In a number of cases, however,
significant trade barriers still persist and reduce the trade potential or
trigger informal trade flows which do not appear in official statistics. Table
5: ACP regions import and export shares for 2004

Region || Exports || Imports

Within region || Other ACP || EU || Within region || Other ACP || EU

ECOWAS || 9.3% || 1.2% || 31.9% || 10.5% || 1.3% || 37.0%

CEMAC || 0.8% || 3.2% || 37.8% || 1.4% || 8.2% || 53.5%

COMESA || 9.2% || 4.8% || 29.9% || 6.4% || 2.7% || 22.4%

SADC || 2.1% || 4.5% || 32.6% || 2.5% || 4.3% || 23.3%

Caribbean || 8.9% || 0.8% || 20.0% || 5.8% || 1.4% || 18.1%

Pacific || 0.6% || 0.5% || 15.4% || 1.3% || 0.8% || 8.8%

Source: CEPII

Where conditions for effective and credible
integration are strengthened, trade stands a chance to take off. This is the
case in EAC where Kenya's traditional exports to neighbouring countries exceed
its traditionally dominant exports to Europe.

The lack of diversification and
complementarity is not only due to the aforementioned factors, but also to the
continued existence of many regulatory, administrative and physical trade
obstacles between countries in the same region and to the narrowness of the
national markets (itself an effect of limited purchasing power). As a
consequence, contrary to developed economies, the potential gains and prospects
of regional integration in ACP countries lie more in longer-term prospects than
in the rationalisation of existing production structures.

2.1.2.     Vulnerability to economic and financial shocks

ACP countries are vulnerable due trade
shocks due to their reliance on a small group of products, exported to
a limited number of export markets (as mentioned above). Fluctuations in
commodity prices are a cause of instability for people's income, fiscal
revenues and macroeconomic stability. One striking example occurred in Ethiopia
between 1986 and 87. A fall in the world price of coffee caused a 40% decrease
in Ethiopia's terms of trade, ultimately resulting in a 6% decline in
Ethiopia's real income. Foreign capital inflows, most of which are short-term,
make many ACP countries vulnerable to financial shocks[5].
As financial shocks can also affect exchange rates, they can also prove
disruptive for regional trade.

2.2.        The need for (more effective)
regional policies beyond trade

From European experience, regional
integration requires more than elimination of trade barriers to be effective
and beneficial for all (business, consumers, workers, citizens). Regional
integration should serve the objective of sustainable development and poverty
reduction, and therefore be able to develop co-operation and address common
challenges.

These common challenges may
include negative externalities, in particular the environmental and social
impacts of increased regional economic flows. Such challenges can often be tackled
at a regional level through the provision of appropriate regional public
goods.

Agriculture
is one example area; it remains the economic base for the majority of the poor
in Africa and accounts for about a third of Africa’s GDP plus the bulk of its
employment. In view of this, the AU and NEPAD have launched the Comprehensive
Africa Agriculture Development Programme (CAADP) to foster agricultural
development. In its communication "Advancing African agriculture",
the European Commission, while recognising that the national level is where the
most intense cooperation will continue to take place, expressed its view that
in many areas (such as research, knowledge dissemination, trade facilitation,
harmonisation of norm and standards, management of cross-border resources),
action at continental and regional levels can contribute to agricultural
development.

Regional integration can also make an
important contribution to food security. Most ACP regions have put in place
regional food security strategies to exploit the potential benefits of enhanced
integration, notably in terms of trade (lowering the cost of inputs),
infrastructure (sharing the costs of irrigation projects; improving road and
lowering the cost of transport), market management (stocks, improved market
information, regional exchanges) and control of animal and pest diseases.

Migration is
a further area which can be addressed with policies at regional level. Growing
mobility and migration leads may have destabilizing effects in countries
characterised by weak governance and lack of social safety nets; for example,
more rapid spread of communicable diseases across borders or xenophobic
reactions. This challenge can best be met by regional cooperation and
cross-border actions in support of national responses.

Regional economic integration between poor
and poorer countries may also lead to a concentration of wealth in the
lead economic area (regional power house) to the detriment of the poorest
regions (Venables, 2000). In particular, integration will lead to increased FDI
at a regional level, but this new investment may be focussed specifically
within richer areas of the regional powerhouses, thus challenging the objective
of poverty reduction for the region as a whole. This theory is backed up by
empirical work on US and UK FDI in developing countries; it was found that
countries with a larger market, or those countries closer to the larger market,
received more FDI (ODI, 2006). Policies that aim to cushion potential losers
are even more necessary in the case of "open" regional integration,
where increased competitive pressure comes not only from the
"powerhouse" in each region, but also from third parties.

A further area which can benefit from wider
regional policies is that of industry competitiveness and the business
climate. Well-functioning integrated regional markets benefiting from
reduced transaction costs will increase trade, strengthen competition,
encourage innovation and provide new and better quality goods and services to
more people. This is particularly important for fledgling SMEs that need incentives
to trade across borders. By contrast, the lack of business support services
(inefficiency of financial markets, segmentation of services markets, etc) and
of industrial strategies with a clear regional perspective are limitations to
the creation of new businesses and the diversification of economic structures.

However, for SMEs to fully benefit, it is
necessary to ensure that the relevant financing systems, which provide SMEs
with access to borrowing, are in place. The improvement of regulatory framework
and business climate will also contribute to attract foreign direct investments
(FDI) in a context of local financial systems that fail to channel local
savings to local investments. FDI is particularly valuable as/when it brings
not only growth but also much-needed productive capacities (skills, technology,
externalities, productivity). Furthermore, the need for increased R&D is
being recognised by most leaders in developing countries as imperative for the
diversification and upgrading of their economies. However, many of the results
of R&D investment are only visible in the medium- to long-term while
national budgets are hard-pressed to tackle other development urgencies. This
makes the case for regional instruments in R&D particularly appealing.

Regional integration should also ensure macro-economic
convergence and stability. ACP countries differ highly with respect to
their macroeconomic indicators and policies. Strengthening the regional
coordination of macroeconomic policies and structural reforms will help build
stronger regional markets and macro-economic stability, including low
inflation, less volatile exchange rates, sound fiscal policies and sustainable
levels of public debt. Economic governance plays also an important role e.g. in
the management of natural resources, fight against corruption, modernizing and
reforming public finance. Regional coordination in these areas contributes to
securing stability and the smooth economic adjustment needed for growth and
poverty reduction.

Box 3: The challenges of monetary integration There are four monetary unions in ACP, covering a) four of the five countries of the Southern African Customs Union (SACU); b) the two economic and monetary unions in West and Central Africa that tied their common currency, the CFA franc, to the euro; and c) the OECS in the Caribbean that tied their currency towards the US dollar (and previously the British pound). SADC, ECOWAS, EAC, COMESA and CARICOM also aim to establish monetary unions. All regions have agreed on programmes of macroeconomic policy coordination and convergence. In Africa, the overarching objective is to implement a monetary union and a single currency by 2021 as agreed by the AU. Regional integration agreements are regarded as stepping stones towards a common currency for the continent. To date member countries have mixed results of macroeconomic convergence and therefore failed to reach their ambitious calendars for monetary integration. Incomplete trade integration, a weak business environment and underdeveloped financial sectors have remained problems. In ECOWAS, where the alignment of the UEMOA zone with the non-UEMOA members was originally envisaged by 2005, the heterogeneous economic structures of member states, notably of oil producer Nigeria as the biggest economy, and country-specific political and economic problems seriously constrained their ability to pursue consistent macro-economic policies. Another problem is the non-convertibility of currencies (except the CFA Franc) which hinders cross-border financial settlements (ODI, 2008).

2.3.        Inefficient
and/or incomplete infrastructure networks

The benefits of trade integration are
hampered by weak trade facilitation infrastructure and systems, while natural
handicaps (insular economies, landlocked countries) can be offset by regional
cooperation.

In its
Communication on the EU-Africa Partnership on Infrastructure[6], the European Commission has explained the need to secure the
interconnectivity of the African continent and its different regions. Despite
slow improvement, transport costs remain high, much higher than in other
developing regions, averaging 14% of the value of all exports compared with
8.6% for all developing countries, and higher still for many landlocked
countries – Malawi (56%), Chad (52%) and Rwanda (48%). This imposes a huge
burden on cross-border trade and economic development at large.  
While the lack of energy remains a strong constraint on growth, there is a wide
convergence that energy resources can be optimally exploited from a regional
platform. Energy pooling and interconnectivity are addressing the problem of
unreliable and costly services. Increased cross-border energy cooperation and
trade is essential for improving reliability, affordability and access. The
potential of regional integration and cooperation is particularly large when,
as is the case in Africa, energy resources are substantial but require massive
investment to be used.

2.4.        Weak regional governance

There are three main causes of weak
regional governance. Firstly, regional institutional capacities are not
sufficient. The agendas for regional integration of most ACP regions are
fairly ambitious and/or precise, but implementation is weak and hampered by the
coordination ability of regional organisations and/or national governments. For
example, the CEMAC Commission employs only 39 employees and 61 execution agents
for, yet the ambitious integration agenda proposes to unite 35m people across 6
countries. While improving capacity should be a primary objective, it is also
important that ACP states design the most appropriate regional integration
agendas with a realistic degree of ambition that will work best in the specific
regional ACP context.

Secondly, a wealth of regional
organisations exists (see Annex 1). The RECs often have overlapping
agendas, mandates and memberships and / or too weak structures and political
weight. In Africa, a rationalisation exercise of the RECs is being undertaken
by the African Union and NEPAD and the long-term aim is continental integration
(e.g. a continental free-trade area in Africa).

However, the question remains as to how far
this rationalisation process can actually go and what progress can be achieved
in the short term given the differences in focus that sometimes exist between
the AU formally recognised organisations and the actual capacities and mandates
to deliver on an active economic and functional cooperation (see Table below).Table
6: Overview of African regional organisations

|| Focus || EC-ACP co-operation || AU recognised

|| Eco. || Fun. || Pol. || Eco. || Fun. || Pol.

West Africa || || || || || || ||

UEMOA (Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger Senegal, Togo) || X || || || O || || ||

ECOWAS (UEMOA + Cape Verde, Gambia, Ghana, Guinea, Liberia, Nigeria, Sierra Leone) || X || || X || O || || O || O

CILSS (Burkina Faso, Cape Verde, Chad, Gambia, Guinea Bissau, Mali, Mauritania, Niger, Senegal) || || X || || || \* || ||

Central Africa || || || || || || ||

CEMAC (Cameroon, Central African Republic, Gabon, Equatorial Guinea, Rep. Congo, Chad) || X || X || || O || || ||

ECCAS (CEMAC + Angola, Burundi, DCR, Sao Tome) || X || X || X || O || \* || O || O

ESA || || || || || || ||

IGAD (Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan, Uganda) || || X || X || || O || || O

EAC (Burundi, Kenya, Rwanda, Tanzania, Uganda) || X || || X || O || Cap || || O

IOC (Comoros, La Reunion, Madagascar, Mauritius, Seychelles) || || X || || || Cap || ||

COMESA (EAC – Tanzania, IGAD – Somalia, IOC – La Reunion, + Angola, DCR, Egypt, Malawi, Swaziland, Zambia, Zimbabwe) || X || X || || O || O || || O

Southern Africa || || || || || || ||

SACU (Botswana, Lesotho, Namibia, RSA, Swaziland) || X || || || \* || || ||

SADC (SACU + Angola, DCR, Madagascar, Mauritius, Malawi, Mozambique, Tanzania, Zambia, Zimbabwe) || X || X || X || O || O || O || O

North Africa (non-ACP) || || || || || || ||

AMU (Algeria, Libya, Mauritania, Morocco, Tunisia) || || || X || || || || O

Inter-regional || || || || || || ||

CENSAD (Benin, Burkina Faso, Burkina Faso, Central African Republic, Comoros, Côte d'Ivoire, Djibouti, Egypt, Eritrea, Gambia, Guinea, Guinea-Bissau, Ghana, Libya, Liberia, Mali, Morocco, Niger, Nigeria, Senegal, Sierra Leone, Somalia, Sudan, Chad, Togo, Tunisia) || || X || || || || || O

Notes:

Eco. : Economic integration             X           Key focal area

Fun. : Functional cooperation         X             Minor focal area

Pol. : Political cooperation                O            Area
of EC-ACP co-operation

Cap. :     Co-operation in capacity building  \*             Minimal
EC-ACP co-operation

Finally, there is insufficient
ownership and diversity of stakeholders. Putting in place trade
liberalisation and integration policies, plus broader co-operation requires strong
political commitment to regional integration, a strong institutional and legal
system, the awareness of all stakeholders (e.g. business, trade unions, civil
society) and the convergence of their views. These pre-conditions do not always
exist in ACP countries. The processes rely too often on general declarations by
national leaders, without in-depth ownership by a wide range of actors such as
national politicians, administrations, parliaments, business and non-state
actors. The results of the public consultation back up the idea that broader
stakeholder participation is required.

3.           Why does the EU care?

Progress and difficulties in ACP regional
integration are of strong interest for the EU. One of the objectives of EU
development policy is to help developing countries
to integrate into the world economy, together with the sustainable economic and
social development of developing countries and the fight against poverty
(Article 177 EC Treaty). The EU sees regional integration as a vehicle for
smooth integration into the global economy and therefore lends its support to
regional integration in developing countries. This is a long standing feature[7] of EU policy and that is
particularly the case for ACP countries.

Conversely, the economic, social and
environmental challenges facing ACP regional efforts may weaken efforts to
reduce poverty and to foster sustainable development of ACP countries, and
eventually counteract action supported by the EU.

3.1.        EU-ACP relations and regional
integration: an ancient partnership

Conceptually, there are several ways of
conducting relations with third countries. These can be held principally in
multilateral fora, on a bilateral basis with each individual country, or with
regional groupings of countries arranged according to political, geographical
or other interests. These levels are, of course, not mutually exclusive.

The EU-ACP relationship is, for historical
reasons, not run primarily on a multilateral basis. A long-standing
relationship, it formally began in March 1957 with the signature of the Treaty
of Rome, which made special allowances for the then-called Overseas Countries
and Territories (OCTs) of the European signatories of the Treaty. Since then,
these countries became independent, but provisions were made to preserve the
special economic relationships inherited from the past and to promote their
economic and social development. Hence a first generation of association
agreements with largely francophone former colonies in the form of two
"Yaoundé Conventions" (1963 and 1969), and later, following UK
accession in 1973, a second generation of agreements, the "Lomé
Conventions" (1975, 1980, 1985, 1990) extending this special relationship
to former British colonies in Africa, the Caribbean and the Pacific.

Therefore, since the origins of the EC
itself, a special relationship between Europe and the ACP countries as a group
has been developed. It encompasses trade arrangements, economic and
technical assistance, development assistance and, increasingly, political
dialogue and the protection of fundamental rights. For a long period of time,
these successive conventions, that gradually expanded into new areas, remained
the most far-reaching, elaborate and complex North-South contractual agreement,
and were held as the flagship of EU development policy and external relations.

This special relationship with a group of
developing countries remains at the core of EU development policy. It is
recognised as such by the EC Treaty itself (Article 178(3)). Even when the EU
was critically looking at the experience of the past and exploring new ways for
the future[8],
the multilateral option which would replace any bilateral arrangements with the
ACP as a group or individually or regionally – i.e. going back on 40 years of
special EU-ACP relations – was not contemplated.

EU relations with ACP countries have
traditionally been conducted within a collective framework, the successive Lomé
and Cotonou conventions, but in practice, mainly at the national level. This is
the case for most Cotonou instruments: Political dialogue takes place mainly
with national governments; development assistance has been mostly spent through
National Indicative Programmes (NIPs) that respond to national Country Strategy
Papers (CSPs); under Cotonou and until 31 December 2007, EU-ACP trade relations
were governed by a unilateral EU trade regime towards ACP countries
individually.

However, a purely bilateral
relationship with each individual country is an option that has been discarded
for a long time. Countries of the ACP group, and in particular of each of the
sub-regions – Sub-Saharan Africa, Caribbean, Pacific – have common
political, economic, social and geographic characteristics that make
cooperation with them as regions or as a group more effective: general
political undertakings shared by all; a single financial instrument (the
European Development Fund) and the same financial procedures; and shared goal
to reduce poverty and integrate into the world economy through a number of key
policy areas (such as economic and financial cooperation, human and social
development, improved governance).

This is why regional integration has
been supported by the EU-ACP partnership agreements already since the second
Lomé Convention (1979)[9].
The regional dimension of the EU-ACP cooperation is seen as a necessary
complement to its national component. In effect, the general objectives of
EU-ACP cooperation as set out in the Cotonou agreement (Article 19) are
poverty reduction, sustainable development and integration into the world
economy as the overarching aims of the partnership. In order to achieve them,
regional integration and cooperation is one of the fundamental areas of
interest of the Cotonou agreement. Among the overall objectives of the
partnership, "regional and sub-regional integration processes which
foster the integration of the ACP countries into the world economy in terms of
trade and private investment shall be encouraged and supported"
(Article 1). To this effect, "cooperation support shall aim to:

(1)
foster the gradual integration of the ACP
States into the world economy;

(2)
accelerate economic cooperation and
development both within and between the regions of the ACP States;

(3)
promote the free movement of persons,
goods, services, capital, labour and technology among ACP countries;

(4)
accelerate diversification of the
economies of the ACP States; and coordination and harmonisation of regional and
sub-regional cooperation policies; and

(5)
promote and expand inter and intra-ACP trade
and with third countries." (Article 28).

In addition, protection of the environment
and natural resources, as well as enhancing the role of non-state actors, are
cross-cutting issues that should also be pursued at regional level (Article
32).

This makes the EU a unique partner of ACP
as most other bilateral or multilateral actors of development policy have,
until now, not placed the same emphasis on regional integration. Indeed, some
have virtually no operations at regional level.

USAID has regional programmes in all areas
of Sub-Saharan Africa plus the Caribbean, and works with a variety of partners
including RECs such as EAC and ECOWAS across a range of areas relevant to
regional integration. These regional programmes have been in existence for
several years. Aid for regional projects in 2007 totalled $72m for West Africa,
$30m for Southern Africa, $28m for East Africa, $15m for Central Africa, $316m
for "Africa regional aid" and $15m for the Caribbean.

Canada has a "Pan African"
programme which primarily supports institutions in building their capacity and
structure. The support is limited to financial support and the organisations
themselves must propose (and then implement) projects with a regional impact.
CIDA quotes the African Union as a partner for this program. None of the RECs
appear to be partners at present, and there is no direct focus on regional
integration.

Japanese assistance to Africa is limited to
a handful of countries, and does not include any clear regional development
initiative. Assistance to the Pacific is more developed but still does not
appear to contain any regional aspects.

The World Bank has recently adopted its
"Regional Integration Assistance Strategy for Sub-Saharan Africa". On
regional integration, the EU seems to be "leading by example" since
the concepts and ideas developed in this document are very much in line with
what the EU has been doing for long on regional integration.

Overall, the trend towards an increased
focus on the regional level is now established as witnessed by the number of
important development partners who are developing regional strategies This
fact, in itself, confirms the need for further regional integration in the
current global climate.

3.2.        More and better can be done

While development co-operation is a shared
competence between the EU and its Member States, the EU has a key role to play
in supporting regional integration through its development policy. The EU's own
experience with regional integration makes it a natural partner for regional
organisations in ACP regions and it has developed significant experience and
expertise in dealing with regional organisations and regional matters in
developing countries. In addition, as in all areas of development cooperation,
the EU has a key role to play in the co-ordination of Member States' efforts to
increase aid effectiveness.

The EU has been very responsive to the trend towards enhanced regional integration in ACP
countries. Many recent EU initiatives and policies seek to support this
process, in particular: the regional strategies for Africa (October 2005), the
Caribbean (March 2006) and the Pacific (May 2006), and the Joint EU-Africa
Strategy of December 2007; the negotiation of region-to-region Economic
Partnership Agreements (EPAs); the EU-Africa Infrastructure Partnership focused
on network interconnectivity; the programming of the 10th European Development
Fund (EDF) and the increase of Regional Indicative Programmes (RIPs) therein;
the promotion of dialogue and cooperation with European outermost regions and
overseas countries and territories (see Annex 7 for the full references of
these documents).

3.2.1.     The need for a consolidated EU vision

However, more can be done to make this
partnership between the EU and ACP more effective. There is need for a
consolidated vision, at EU level, of regional integration from a development
point of view, as well as the necessity to better identify key challenges and
tools in order to make EU policies in support of regional integration more
effective. Three issues are critical in this regard.

First, there is a need to deepen the
approach to regional trade integration, and
adapt it to today's trading reality. While it remains essential that tariff and
non tariff trade barriers be lifted on a regional level, and to support ACP
capacities to do so, it is also important to reflect on the most appropriate
ways to fulfil the Cotonou objectives to cooperate in other areas of regional
dimension, such as trade in services (including maritime transport and
information and communication technologies), competition policy, intellectual
property rights, standardisation and certification, customs legislation and
procedures, and sanitary and phytosanitary standards.

Second, it is necessary to develop a
more consistent and articulated EU vision of the role of policy cooperation in a number of areas which are essential to bring forward the
concept of sustainable regional integration and protection of regional
public goods (agriculture, food security, environment and natural resources
management, disaster risk management, health, higher education, research and
development, rules aspects of business development). There is also a need to
establish a better linkage with the key political ingredients for sustainable
regional integration, notably peace and security. In all these areas, it is
important to identify what needs to be done at which institutional level
(continental, regional, national) and what is the role of the regional level.

Finally, it is appropriate to review
the tools with a view to enhancing their
complementarity and efficiency. Policy tools at EU level are diverse (development
policy, trade policy, political dialogue), and the most appropriate policy mix
needs to be developed to ensure its efficiency as well as its adequacy with
varied regional realities. These tools need also to be complementary and
coordinated with EU Member States and other donors' activities in support to
regional integration, in order to develop the principles of aid effectiveness
also in the context of regional interventions. The 10th EDF Regional
Strategy Papers (RSPs) will provide the basis for the Commission and EU Member
States to support regional integration in a coordinated fashion.

3.2.2.     Setting out the objectives

A reinforced EU-ACP partnership in support
of regional integration should pursue the following objectives:

–
Reinforce the link between regional
integration/cooperation and growth generation.
The objective is to strengthen the impact of accelerated and deeper market
integration (and of all forms of regional cooperation) on growth and
poverty reduction.

–
Reinforce the sustainability of the outcomes of increased economic integration. This means
reinforcing cooperation with a view to protecting and delivering key
regional public goods. This implies strengthening support for the
integration agenda of the various regions and for their regional policies
aiming to deliver these public goods.

–
Strengthen the efficiency of regional
governance, both at regional level and at
national level. This requires a more streamlined organisation of
regional agendas, increased capacity building at regional and national
level, and broader stakeholder participation at regional and national
level.

–
Strengthen political dialogue and joint
understanding between the EU and ACP countries
and regions on the merits and objectives of regional integration, notably on
the basis of EU experience. This means going beyond delivering financial
assistance and develop new ways of working together toward more regional
integration

Enhanced efforts to achieve the above
objectives should also pursue more operational objectives, notably:

–
Maximise the efficiency of the new
generation of the 10th European Development Fund (EDF) programmes, and in particular the regional programmes, with a view to better
leveraging regional economic development through clearly identified priorities
for regional intervention, based on the regions' own agendas and a review of
past implementation methods an increased coordination of EDF programming;

–
Identify key issues for supporting the
implementation of a major element of the EU-ACP
relationship, i.e. the Economic Partnership Agreements (EPAs). The
EPAs are aimed at strengthening regional integration by building upon,
supporting and fostering existing integration processes. There are challenges
that need to be addressed as regards the capacity of ACP economies and
structures to implement and adjust to the EPAs.

–
Enhance the efficiency of EU assistance (including outside EDF) with increased coordination and
complementarity of Community, Member States and other donors' support. Regional
programmes (RIPs) will serve as a basis for this coordination. On the basis of
the European Consensus for Development, improving coordination between EU
donors is a key objective for EU development policy – and a key to its success.

Figure 1: Problem tree linking general objectives, challenges and
specific objectives

4.           Three possible approaches
for EU support

Considering that the regional integration
agenda is set by the ACP countries themselves, EU support must aim specifically
at supporting the regional integration process in ACP countries, i.e. helping
ACP regions reach the goals they have set for themselves. Ownership is a
central principle of the partnership between the EU and ACP countries and
regions. The EU is therefore not in a position to make choices about regional
integration in ACP countries. In a context of limited financial resources, it
can, however, decide, among the choices made by ACP regions, which approach it
will support as a priority in order to best achieve the objectives presented in
Section 3.2.

Conceptually, three approaches for EU
support to regional integration in ACP countries can be envisaged: elimination
of barriers to trade; policy coordination to foster sustainable development;
political cooperation to ensure the effectiveness of regional integration. They
are presented here as separate concepts because each one has specific results
that it is important to evaluate. In reality, policies are a complementary and
mutually reinforcing mix of these three approaches, as shown in section 5. This
mix is, and will remain, different in each region, as it depends on a region's
own priorities.

4.1.        Elimination of barriers to
trade[10]

This approach is what has most often been
referred to as "regional integration" and defined as the reduction of
policy barriers to the movement of goods, services, capital and persons
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
at the centre. This approach was the main focus of the 1995 Commission
Communication, and is reflected in Article 29 of Cotonou agreement on
"regional economic integration"[11].
It heavily builds, although not exclusively, on trade policy and trade
agreements between regional partners.

There is still plenty of scope for more
effective trade integration in ACP countries. While regional agendas are
ambitious (see Annex 1), implementation generally lags behind. There is, in
particular, a potential for progress to be made in the following areas:

–
Effective implementation of all regional trade
liberalisation commitments (FTAs, customs
unions) at national level is essential for the benefits of regional integration.
As highlighted in the public consultation, this is the prime area where
regional integration can deliver benefits and help attain development
objectives. Protectionism and concerns about national sovereignty need to be
overcome for these benefits to accrue. Regional trade will spur local
competition as cheaper imports from regional partners will lower the price of
agricultural and industrial inputs, as well as of household products. As far as
customs unions are concerned, the correct implementation of external regional
duties is as important as the free circulation of goods as it allows the region
to protect its industry and agriculture as appropriate, to collect public
revenue (sometimes, as in UEMOA, for the benefit of regional organisation) and
to maintain the delicate regional balance of costs and benefits from openness
to the rest of the world.

–
Services:
most ACP regions have not advanced much in liberalising services between
themselves. As a result, there are currently no real regional markets for
services. Wherever regions engage in building up such regional markets,
however, they are likely to draw very large benefits – if commitments are
effectively implemented. Indeed, whereas services are
essential to any economy, regardless of its level of development, the service
sector remains underdeveloped in most ACP countries and the excessively high
cost of services can sometimes increase the cost of industrial products by as
much as 20%. Establishing more transparent, stable and liberal regional rules
on sectors crucial to development could considerably reduce the excessive costs
currently borne by both businesses and consumers. This is, in particular, the
case for infrastructure service sectors such as telecommunications, transport,
banking and insurance, which are vital to the competitiveness of all businesses.
The importance of lowering obstacles to regional trade in financial services
was highlighted in the public consultation as a crucial way of improving the
business climate.

–
Investment:
investment is key to growth and development. Lowering or abolishing regional
barriers to investment can strongly contribute to a more dynamic regional
economy. Easier cross-border investment within a region acts as a multiplier of
more open regional goods and services markets. Free capital movement within a
region improves the allocation of capital and helps attracting FDI by offering
improved security to investors, be they regional or outsiders. Solid and transparent regional rules are particularly important to
rebalance economies and attract investment outside the traditional fields of
mining and oil.

–
Customs and trade facilitation: Complex, diverse and inadequate
customs procedures represent an important obstacle to trade, especially to
intra-regional trade, in developing countries. This is particularly true in
relation to transit procedures. As result of delayed deliveries, African
countries tend to increase their inventory holding. Firm surveys among 9
African countries found that firms hold, on average, the equivalent of three
months of input needs, which imposes heavy and unnecessary costs on them. These
reforms should be carried out at regional level but appropriate capacities are
needed in national customs administrations to ensure a smooth implementation on
the ground.

–
Technical barriers to trade (TBT): beyond SPS (see box below), TBT
are an important impediment to regional trade. Lack of standardisation leads to
otherwise unnecessary controls and restrictions to the free circulation of
products, thereby reducing in practice the advantages of regional economic
integration. Some of these technical barriers may indeed be designed to
restrict competition and favour local producers – at the cost of local
consumers. The adoption and effective implementation of regional technical
rules and standards is thus an important step to increase regional trade flows.

Box 4: Sanitary and Phytosanitary Standards (SPS) The experience of the EU shows how regional integration in SPS can be of assistance to development. Unharmonised SPS act as a significant trade barrier, as trade in food and livestock is subject to costly checks and certification at borders. Harmonisation therefore brings the benefits expected from trade integration including less price distortion, and higher quality through competition. Harmonised SPS can also have wider effects. They provide a mechanism for addressing food safety on a regional level. Plant and animal disease eradication is a potential regional public good as disease, by definition, cross borders. Naturally, to reach a high level of SPS integration requires not just harmonised policies, but also strong capacity at both regional and national level.

The Economic Partnership Agreements
(EPAs) have to be seen under this approach as an important contribution in
support of regional economic integration. They are an innovation as the previous
trade instrument used (unilateral preferences granted by the EU) could not
foster regional integration: the Cotonou trade regime was granted to ACP
countries on a national basis for their imports to the EU. EPAs are different
in that they are negotiated with ACP regions and trade not only between ACP and
the EU but also within ACP regions.

To date (see Annex 3 for further details),
the comprehensive EPA concluded with Cariforum has had a positive impact on
regional integration in the Caribbean as the negotiating process itself has
allowed the region to build common positions and to strengthen its own
ambitions. The final text covers not only trade in goods, but also technical
barriers to trade (TBT), sanitary and phytosanitary measures (SPS), investment,
trade in services and e-commerce, competition, intellectual property and public
procurement, thereby allowing the region to develop and strengthen its own
rules in all these important trade-related areas.

In all other regions, the commitment to a
comprehensive regional EPA has been renewed at the highest political level and
negotiations are still going on. It has been noted, however, that the
negotiations have had an accelerating effect on a number of regional projects –
for instance the finalisation of the ECOWAS Common External Tariff (CET).
Nevertheless, in order to exploit the regional potential of the EPAs, it
remains a priority to conclude the negotiations.

4.2.        Policy co-ordination and
co-operation for sustainable development[12]

This approach focuses on what could be
called the deeper policy aspects of regional integration. It is fully reflected
in Article 30 of the Cotonou Agreement[13]
and builds on other types of cooperation often referred to as "functional
cooperation", i.e. cooperation in policy areas which create the
framework conditions for long-term development and sustainable interdependence
of the economies. These address the physical barriers to
intra-regional economic flows as well as supporting the interdependence
of the economies managing common resources or challenges.

ACP regions and countries are more and more
eager to go in this direction. They have put, or are putting, in place a number
of initiatives and policies which deserve to be supported but are still at
varying stages of development.

4.2.1.     Reducing physical barriers through infrastructure
networks

Regional cooperation on infrastructure is essential to ensure the
interconnection of national networks. Completing the "missing links"
between national networks is vital for roads and telecommunications as they are
preconditions for intra-regional trade (see Figure 2). This is also the case
for border posts. There are also large benefits to be expected from
interconnection of energy networks: larger electricity networks are more
stable and more reliable and pooling resources allows conducting larger
projects (e.g. dams) for the benefit of the whole region.

Most of key growth constraints have a regional dimension, and if
they were overcome, growth would likely increase by 2-4 percentage points.
There have been various studies examining the economic rates of return on
infrastructure projects, concluding that these rates tend to be high – but a
regional functional approach is often needed to materialize the gains. Some
striking examples:

–
There is at present a severe shortage of
electricity-generating capacity in Uganda. This could have been overcome
through the use of effective regional electricity grids.

–
There are also regional constraints to rail.
Uganda’s imports and exports make heavy use of the port in neighbouring Mombasa.
The Uganda-Kenya railways operate under a private franchisee which needs more
effective regional approaches towards safeguarding a stable investment
environment in order to stimulate more investment. The rail link was broken at
the time of conflict in Kenya with big effects for Uganda.

–
In case of Mozambique, higher road user charges
due to the country’s non-membership of COMESA have resulted in a reduced
frequency of use of the Beira Corridor for Zambian transit goods. Due to
non-implementation of the COMESA Yellow Card Insurance Scheme, transport costs
in the Beira Corridor are 5-10% higher than in other corridors of the region.

Figure 2: Trans-African Road Transport
Corridors

·

4.2.2.     Strengthening interdependence by action at macro-economic
and micro-economic level

At different levels (macro, meso and micro), economic policy
coordination is seen as important. Most regional organisations pursue an
agenda of economic policy integration, but success requires objectives to be
set and mechanisms for their implementation which are adequate for the
region-specific context. Coordinating macroeconomic and structural policies is
important to avoid cross-border spillovers within regional economic communities
that can be detrimental to the process of trade integration.

At a more micro-economic level, reinforcing productive capacity
building and improving business competitiveness and climate is key. The
main weaknesses of the private sector in the ACP regions (in terms of
productive capacities, financial services and competitiveness) should be
tackled at different levels: company, national and regional. The relevance of
the regional dimension, however, still seems to be underestimated by the main
public and private actors Beyond the trade aspects of integration, other
actions are relevant at regional level: improvement
of the regulatory environment (such as company law, industrial standards,
competition laws), strengthening of productive capacities, development
of financial markets and improvement of financial regulations, promotion of inter-enterprise co-operation. Box 5 shows
that many of the issues for reducing the cost of doing business have a regional/cross-country
dimension as well as a national one.

Box 5: The cost of doing business Obstacles to doing business in the SADC were identified by ASCCI Regional Business Climate Survey in 2007. Many of them (marked \*) are directly related to regional integration or the lack thereof. They were ranked as follows :

- Crime, theft and corruption - Customs regulations, procedures and bureaucracy (\*) - Exchange rate fluctuation - Lack of market information - Lack of affordable and reliable transportation (road, air transport and ports) (\*) - Economic and regulatory policy uncertainty (\*) - Lack of transparency of rules and regulations - Trade tariffs and customs charges (\*) - Legal environment (enforcement of contractual and property rights) || - Business licensing and operating permits - Access to land - Access to and cost of finance (\*) - Business culture - Skills and expertise - Communication restrictions (\*) - Insurance - Visa regulations (\*) - Import-export licensing (\*) - Phyto-sanitary and veterinary regulations (\*) - Domestic content (\*)

In particular, institutions responsible for
implementation and respect of international standards, like specialized
technical centres and laboratories, controlling, auditing and certification
bodies and training institutions are inexistent at national level - because of
a lack of critical mass - or are small and do not possess the necessary
capacities to support the companies, which, in consequence, affects their
competitiveness.

Box 6: The potential of regional cooperation in R&D In the area of research and development, while policies should be adapted to national capacities and specificities, the regional level is important to coordinate efforts, pool resources and exploit economies of scale. It can assist in important areas for development such as consumer protection, food security, health care and environmental sustainability. This is why the African Union Commission has launched a Science and Technology Consolidated Plan of Action. Regional cooperation is also essential to launch large projects, such as the African Space Agency. Regional economic integration has also an impact on companies R&D policies and therefore competitiveness. Literature shows that increased competition could stimulate investment and enhanced efforts to improve a company’s technological competitiveness, and better access to inputs might promote outsourcing activities. The empirical analysis shows that the impact on R&D investment after having joined a regional trade agreement is driven by product markets rather than by factor markets. Thus, regional integration promotes increased investment in companies’ internal R&D as well as increased purchase of external R&D.

Moreover, the current situation is characterised by a fragile framework of
inter-enterprise co-operation at different levels. In this context, support for
development of regional networks of business intermediate associations and
promotion of regional inter-enterprise co-operation and investment can be more
efficient than actions undertaken only at country level.

Finally, the development of a financial
sector of a regional dimension would improve the conditions of access to credit
institutions for ACP companies, in particular SMEs, and would therefore contribute
to the improvement of their competitiveness.

4.2.3.     Management of common resources or challenges

Tackling challenges of a trans-national
dimension at regional level can be more effective than national policies alone,
or a necessary complement to maximise their efficiency.

This is the case to improve food
security: better-functioning regional markets for food and agricultural
inputs, regional alert systems, improved regional transport infrastructure and
the constitution of regional stocks can all provide a contribution to improved
food security.

On agriculture, the regional – and, as far as Africa is concerned, continental – levels can
provide a significant value added, notably on: the strategic integration of
agriculture in development agendas; agricultural research (improved synergies,
access to knowledge); policy harmonisation between the various levels;
livestock development and disease control ; and risk management.

Similarly, in response to the serious
development and cross-border challenges of communicable diseases,
notably HIV/AIDS, malaria and tuberculosis, ACP countries are cooperating at
regional levels in policy development and horizontal technical collaboration. On
HIV/AIDS, both SADC and CARICOM have, with support of the European Commission,
implemented regional support programmes for responses to the pandemic.

Environmental issues and climate change generally have an impact across borders, not the least because
natural resources are often shared, and should therefore be considered as regional
public goods. In the area of climate change there are particular arguments for regional
cooperation to deal effectively with adaptation and related subjects such as
disaster risk reduction: research on drought resistant crops, early warning for
floods and droughts, insurance mechanisms, for instance, can all better
function at regional level. Hence there are sizeable benefits from regional
cooperation and policy coordination in the area of environment policy. A number
of RECs have real responsibilities in this area but there has also been a
tendency towards the ad hoc creation of separate specialised agencies.

Finally, there is an argument to deal with increasing
disparities (cohesion) at regional level. Regions are increasingly
considered to be the appropriate level to reconcile economic openness with
social cohesion. Regional policies are also likely to increase a sense of
solidarity within a region. Two aspects are present here. The first is the
impact of regional integration on the weaker territories. As explained above,
regional economic integration is likely to bring about an increased
concentration of wealth in a limited number of countries and regions. A
cohesion policy at regional level is the way to rebalance the benefits of
regional integration and to support the legitimacy of the process, in
particular – but not exclusively – when the strengthened and (relatively)
weakened territories are located in different countries.

The second aspect is the impact of regional
integration on the weaker social groups. Regional integration is strengthened
by cross-border social regulations, redistribution mechanisms and the
articulation of regional social rights, as well as by cross-border cooperation
in health, education and social protection policies. Policies to address issues
of cross-border migrant labour are of particular importance. Regions may adopt
a number of instruments to enhance the social dimension of their region
including laws, funds and intra regional social policy dialogue.

4.3.        Developing political
co-operation for effective regional integration

This third approach examines what
conditions are required in order for regional integration to be effective. It
is reflected in Article 30 of Cotonou Agreement[14] and essentially
concerns the political factors surrounding regional integration, such
as:

–
The actual and potential relationship among
partners: existence of genuine common interests, trust and interdependence;
compatible historic, cultural and political patterns;

–
The internal political and economic situation in
partner countries: sovereignty, political commitment, peace and security;

–
Factors facilitating the success of regional
integration: rule of law, democracy and democratic governance.

The above factors are regarded more and
more as important areas of intervention by the EU, and EU support is highly
valued by ACP partners, but action remains stove-piped, disconnected from the continental
political framework. There is also a need for coherence, especially since there
are high expectations of ACP partners and a positive impact on development is
expected in this area. It is particularly the case of the three following
areas, in which ACP regions are increasingly active.

4.3.1.     Regional cooperation for peace and stability:

The drivers of, and threats to, security,
vary in nature and in geographical impact. Responses to security threats depend
on political mandates and frameworks. However, it is acknowledged that
political or civil instability or conflict in one country can have serious
destabilizing effect in neighbouring countries. Preventing them and/or tackling
them through regional cooperation or intervention is increasingly recognised as
necessary.

For the African continent, this is done
through the continental political frameworks for peace and security in Africa.
The EU is supporting these efforts through the Africa-EU Peace and Security
Partnership within the Joint Africa-EU Strategy. The activities of the related
Action Plan require regional engagement and support for their implementation as
well as for the coherence of policies at continental level.

In the Pacific, threats to stability are
intra-state rather than inter-state and mainly due to the very recent accession
to independence of most Pacific ACP countries, highly fragmented ethnic mix in
most Melanesian countries, inalienable land tenure systems and population pressures.
The Pacific Islands Forum adopted a collective security declaration in 2000, in
Biketawa, Kiribati, which was invoked in 2003 with regard to the Solomon
Islands, and in 2004 with regard to Nauru, and allowed the Forum to assist with
the post-December 2006 coup return to democracy in Fiji. In accordance with the
EU Strategy for the Pacific adopted in July 2006, the European Union is
strengthening its region-to-region political relationship through an annual
Ministerial-level political dialogue.

4.3.2.     Good governance as a regional good

Strengthening good governance is
essentially a matter for national governments and institutions. However, there
is also recognition that there are mutual benefits of a dialogue at regional
level on progress made in various countries so as to spread the benefits of
improved governance.

The African Peer Review Mechanism
(APRM) is a mutually agreed instrument voluntarily acceded to by the member
states of the African Union (AU) as a self-monitoring mechanism. The mandate of
the APRM is to encourage conformity in regard to political, economic and
corporate governance values, codes and standards, among African countries and
the objectives in socio-economic development within the AU socio-economic
programme: the New Partnership for Africa's Development (NEPAD). More than half
of the AU’s 53 countries (29) have formally joined the APRM by signing the
Memorandum of Understanding on the APRM. This shows that an increasing number
of African countries are committed to governance reforms to create favourable
conditions for sustainable development and that African-owned mechanisms have
an important contribution to make to improve governance.

4.3.3.     Harnessing the effects of migration

Intra-regional migration or, more
precisely, intra-regional labour-mobility is part of the collective history and
culture of many developing countries. In the past, this phenomenon went largely
unnoticed by policy makers, both in ACP countries and in the EU. With the increasing
importance of migration issues on the EU policy agenda, the call for 'well
managed migration' has appeared at the forefront of cooperation and dialogue
with ACP countries, not only in connection with migration movements to the EU,
but also in its intra- and inter-regional ACP context. Since 2006 – the launch
of the EU Global Approach on Migration – important conferences were held
(Rabat, Tripoli), regional processes aimed at management and facilitation of
free movement of people were strengthened (notably in ECOWAS), and many national
and regional migration management capacity building initiatives were launched.

4.4.        Comparing the approaches

4.4.1.     Overview of advantages and drawbacks

It is important to sketch out the
advantages and drawbacks of the various possible approaches of EU support to
regional integration, even from a theoretical point of view, as the analysis
needs to ensure that a reinforced partnership in this area will effectively
deliver on the objectives of accelerating and deepening market integration in
support of growth and poverty reduction; protecting and delivering key regional
public goods in view of reinforcing the sustainability of regional integration;
strengthening the efficiency of regional governance; and enhancing political
dialogue and joint understanding between the EU and ACP countries with regard
to regional integration.

The following analysis tries to identify,
from a qualitative point of view, the main economic, social and environmental
effects that can be expected of different approaches, while also citing
empirical studies and examples from both ACP and non-ACP regional integration
experiences. These effects are considered in isolation, and therefore only the
effects of an increased focus of EU support on the chosen option are
considered. However, a number of drawbacks arising from one approach may be
minimised if a number of policies are put in place, either at regional or
national level. Conversely, in order for the advantages of an option to accrue,
accompanying policies need also to be put in place.

The starting point is the current
situation. Depending on the starting point in a given region, advantages and
drawbacks from focussing EU support on a given approach will be different.

The time horizon is important, and cannot
easily be accommodated in an overview. A number of policy actions at regional
level may have significant costs in the short-term but large benefits in the
longer term. This is typically the case of economic reforms deriving from
regional integration: while the benefits of the abolition or diminution of
tariffs should be delivered to a large number of people over the long-term,
they will almost inevitably hurt a small number of protected sectors in the
short-term.

This being said, the three possible
approaches – elimination of barriers to trade, policy co-ordination and
co-operation for sustainable development, and political co-operation - have
distinctive economic, social and environmental advantages and drawbacks. These
can be summarised as follows:

Eliminating barriers to trade has many important economic advantages, but the balance is less
clear in social terms and rather negative in environmental terms. The imbalance
between large expected economic advantages and significant social and
environmental drawbacks may raise concerns about the sustainability of the
first approach if appropriate measures and policies are not in place to redress
or prevent them. This is even more important given that the economic benefits
will not be delivered in the short-term but in the medium- to long-term.

Table 7:
Elimination of barriers to trade – Advantages and drawbacks

|| Advantages || Drawbacks

Economic || The reduction or removal of tariffs will result in lower prices for goods imported from other countries in the region, both for producers (including exporters) and for consumers. The reduction or removal of tariffs can lead to increased government revenue through increased imports, production and consumption (tariffs, direct and indirect taxes) Larger, more integrated markets are open to more competition, which will lead to higher productivity, lower prices and increased quality (if the right conditions / legal framework on competition are in place and enforced) Larger, more integrated markets will attract more FDI, with a positive impact on productivity Cross-border flows will increase, which will foster specialisation, improve the division of labour and allow the development of larger regional companies, with associated productivity gains The removal of barriers to trade, standardisation and computerisation of procedures reduces corruption in trade matters. || Infant industries or small local companies in weaker member economies may suffer from the increased competition from stronger member economies or from multinational corporations (MNCs) In the short-term, the loss of revenue from the removal of tariffs may cause funding problems for governments unless fiscal reform is implemented Effective implementation of both SPS and international standards may have negative effects on certain traditional products and production processes, affecting the livelihood of certain communities

Social || There is the potential for a rise in the importance of border regions, fuelled by increased cross-border flows. Standard of living should rise as the costs associated with the transit of goods falls, which should contribute to poverty alleviation, particularly in land-locked countries. Employment (and possibly salaries) will increase in industries that grow because they produce more (as a result of increased exports or enhanced overall growth) and in industries that generate a higher productivity. This should contribute to poverty alleviation. The effective implementation of SPS will improve food safety. The removal of trade barriers can have benefits for food security as agrifood products should more easily reach regional markets. || The freer movement of people may involve problems: people migrating to wealthier areas, thus generating agglomeration; easier cross-border movement could allow unrest and security problems to cross borders; diseases (e.g. AIDS) can spread more easily along trade corridors. Regional disparities may increase as regions with greater potential profit from the new economic opportunities, while poorer regions stagnate. Sectoral disparities may increase as economic sectors with greater potential profit from the new economic opportunities, while other sectors stagnate. In the short-term, there is a risk that food flows more to richer and/or urban regions across borders, thereby adding to food insecurity in poorer and/or rural regions.

Environmental || The harmonisation of SPS provides the opportunity to tackle animal and plant diseases on a regional level if supporting policies are implemented with sufficient organisational capacity || There is the potential for damage to the environment as a result of increased economic activity. Examples are: increased air pollution; strain on water resources; reduction of biodiversity; overuse of resources, illicit trade (ex. timber).

What does empirical evidence say?

–
In the non-ACP regions of the EC and Mercosur,
regional integration was found to have raised intra-regional trade by 65% and
150% respectively. However, the mere reduction or elimination of tariffs on
intra-regional trade will have fewer effects if the potential for
intra-regional trade is small, as is the case in Africa, where intra-regional
trade covers only a small percentage of total trade, partly due to similar
trade and production structures (in addition to informal, un-reported trade).
It is therefore assumed that the ACP countries will mainly gain when moving
towards deeper regional integration.

–
RTAs encourage extra-regional FDI flows and for
some regions intra-regional FDI, though it is not always clear whether this is
because of trade or investment agreements. For example, one study found that
the increased market size of a "Maghreb" region would increase FDI
stocks by up to 165% for its member countries. One particular study found that
membership of a region per se does not increase FDI, but that regions with
sufficient trade and investment provisions will help to attract inwards
investment, with investment provisions in particular being effective as they
provide positive signals to foreign investors. Because ACP regions (e.g.
COMESA, ECOWAS) are only at the beginning of including investment provisions
compared to other regions (e.g. NAFTA and MERCOSUR) the costs of
non-integration in terms of attracting FDI can be considerable.

–
Studies also show that different countries
within a region experience different FDI related effects. This difference
reflects variations in the relative size of the industrial sectors among member
countries, but also the degree to which economic integration, directly or
indirectly, increases the locational advantage of a country relative to other
member countries.

–
Migration provisions in the ACP are most
advanced in the CARICOM. As a result, the stock of Caribbean migrant workers
within the region increased by 18% between 1990 – 2000 And CARICOM nationals
account for over one-half of all flows within the region (52%). Intra-regional
migration has responded well to a relaxation in migration provisions in the
Caribbean.

–
A study of manufacturing firms in three ACP
countries (Benin, Malawi and South Africa) found that exporting firms as a
whole have higher productivity levels than domestically focused firms. The
destination of export was not important for the productivity of firms in Benin
and Malawi, while in South Africa, firms exporting intra-regionally were found
to be more productive than those exporting to the rest of the world. The
implication of these findings is that increased trade and investment from
regional integration will increase aggregate growth.

–
There are a number of factors that may condition
whether regional integration is associated with convergence or divergence of
incomes amongst its members (but the size of the group is not relevant): integration
of monetary policy, harmonisation policy, different institutions and trading
rules; labour mobility; macro economic convergence; presence of a sub-regional
development finance institution; and competitive advantage.

–
While empirical evidence is slightly variable,
it generally points to the fact that there is not a strong link between
regional integration and income convergence. One particular study of 46 African
countries assessed the level and rate of the convergence of income for the
members of SADC, COMESA, ECOWAS, CEMAC and UEMOA. The link between regional
integration and income convergence was found to be low. Three explanations were
given for this. First, the slow growth of output, productivity and accumulation
of production factors; second, the low levels of intra-regional trade, the bias
towards commodity trade and the low factor mobility; and third, the limited
inflow of FDI which further constrained capital accumulation.

The above is comforted by the main findings
of the Sustainable Impact Assessments (SIA) conducted
in the context of the EPA negotiations (these can be found on the following
website: www.sia-acp.org). As EPAs aim at
fostering intra-regional trade through a range of trade and trade-related
measures, they are directly contributing to the elimination of trade barriers
as identified under Approach 1. Out of the twelve main recommendations
highlighted in the SIA[15],
the following are particularly relevant:

"1. The EU
and ACP countries should strive to ensure coherence between EPA negotiating
configurations and overlapping efforts at regional integration and should
ultimately pursue, at regional level, strategies for the developing key
economic and industrial sectors and for promoting sustainability.

6. The EPAs
should contribute to a stable climate for FDI and encourage FDI and regional
investment that support sustainability through, inter alia, including means of
cooperation to achieve compliance with the enforcement of environmental and
social regulations at the national level.

7. EU-ACP
cooperation on standards should focus on addressing obstacles to trade, maintaining
high levels of protection for consumers and the environment and assisting ACP
countries to develop their own national and regional approaches to SPS and TBT.

8. The EU
should engage in ongoing cooperation with the ACP in several areas related to
trade facilitation including, inter alia, customs, transportation, technology,
business information and human resources.

9. Development
cooperation should focus on priority needs for diversification of production
and exports towards higher value-added products, with an emphasis on
reinforcing economic and industrial sectors impacted by the EPAs, while
ensuring the sustainability of new development.

10. Development
cooperation should focus on technical assistance to collect information and
data on trade and sustainability to support sound policy development.

11. Development
cooperation should focus on capacity building to promote sustainable
development in both the private and public sectors, with an emphasis on
training, research and development, and a sound regulatory framework."

These recommendations
point to two important directions:

–
To enhance the benefits of EPAs and minimise
their potential cost, there is a strong need for accompanying measures
at regional and national level.

–
Development cooperation should be broad-based
and cover areas well beyond trade, in particular regional rules for
business and sustainable development.

Policy cooperation and coordination in a number of key areas goes some way towards neutralising the
sustainability issues raised in approach 1. Like the first approach, the second
approach brings many economic benefits. Nevertheless, in order to fully reap
the economic benefits of approach 2, certain preconditions, which are largely
encompassed by approach 1, are necessary. While negative social and
environmental impacts are not on the same scale as under approach 1, there are
still some issues, though social issues are of a more short-to-medium term
nature.

Table 8: Policy
co-ordination and co-operation for sustainable development

|| Advantages || Drawbacks

Economic || Improved regional rules of economic governance will bring further incentives for intra-regional trade, with the associated benefits in terms of lower prices for consumer goods and agricultural and industrial inputs. Improved regional infrastructure will bring down the costs of consumer goods and agricultural and industrial inputs Infrastructure hubs and corridors can be drivers for economic development (creation of industry clusters with high positive externalities). Larger and deeper regional financial markets will improve access to capital and improve the allocation of financial resources. Improved competitiveness and the implementation of international standards increase the export potential, fuelling economic growth. Macroeconomic and monetary co-operation provides a more stable and investment-friendly environment, attracting FDI Improved, harmonised statistics at regional level provide a sounder basis for decision-makers, both at national and regional level, thereby reducing the risk of policy failures (inadequate action). || Environmental protection programmes may restrain the economic opportunities of certain communities. In the short-term, certain local businesses may have difficulties to conform to new standards.

Social || Redistribution initiatives will limit migration flows and levels of disparity. Food security should be improved through co-operation in early warning systems. Co-operation on non-transport infrastructure matters should provide some communities with new amenities (access to energy, clean water), increasing their standard of living. Tackling human diseases in common will improve results. || New infrastructure projects, plus corridors and hubs can lead to the displacement of people as land is needed for the new project (the displaced are more likely to be poorer rural communities). Macroeconomic and monetary co-operation could have negative effects in the short term for certain groups (difficulty with price adjustments, understanding new currencies). The experience of many African countries with currency re-numeration demonstrates these issues (e.g. Ghana – the recent Cedi re-numeration).

Environmental || Joint management of natural resources should increase sustainability. Pooled resources can be managed more effectively (e.g. fisheries, water, forests, energy, dams). A co-operative approach to regional infrastructure will prevent the overuse of certain routes and the environmental damage which accompanies such overuse. || The environment may be damaged through new infrastructure projects (e.g. deforestation) unless environmental impact assessments are carried out.

What does empirical evidence say?

–
There is a dynamic relationship between trade agreements
and other type of cooperation: countries that cooperate most extensively with
each other on trade are also each other's favoured partner for non-trade
related cooperation. Therefore, trade cooperation paves the way for further
cooperation in areas such as infrastructure cooperation, regional environmental
protection or other political integration.

–
While regional integration could improve the
liquidity, efficiency and competitiveness of African countries, it needs to be
carried out at the right pace and in a pragmatic way. National financial
markets must be developed before starting to integrate them. African financial
markets could, however, benefit from closer cooperation including cross-border
listings and enhanced exchange of information and technology.

–
Assessing the macroeconomic indicators within
the ACP, most authors do not find convincing evidence of increasing convergence
of basic macroeconomic indicators; a prerequisite to move towards a monetary union.
There is a positive correlation between infrastructure provision and trade and
growth. An increase of one standard deviation (from the mean) in the
communications infrastructure raises the volume of trade by roughly 11 percent,
compared to a 7 percent effect on transport infrastructure and a 2 percent
effect on trade for tariffs. For least developed countries (LDCs), transport is
more important than communications. The effects of communications
infrastructure on trade grows as a country reaches the middle income range. Upgrading
a primary road network connecting the major 83 urban areas in sub-Saharan
Africa would expand overland trade by around US$250 billion over 15 years. The
new Central African network, linking Chad, the Central African Republic and
Cameroon, is expected to save US $86m per year. In the case of the Kenya-Uganda
transit corridor (linking Mombasa with Kampala) the average transit time had
been reduced by 10 days to 15 days.

–
As a result of regional liberalisation, truck
utilisation in southern Africa has almost similar ratios as European haulers
(8,000 to 12,000 km/month). In Central and West Africa, on the other hand, the
utilisation is as low as 2,000 km/month. For Zambia, the regional
liberalisation of trucking services has reduced transportation costs, increased
foreign (mainly South African) investment in the trucking industry, and
increased the overall competitiveness of trucking services.

–
There is no alternative to regional cooperation
for African countries when it comes to energy supply. The continent’s energy
resources are concentrated in few countries where weak infrastructure and political
conflicts make it difficult to access the resource. DRC and Ethiopia are
accounting for about 60% of Sub-Saharan Africa’s hydroelectric potential but
need to be linked to the economic centres of their region in order to attract
investment, enabling them exploiting their resource. The threshold of 400 MW,
which is regarded as necessary for effective thermal power generation, is only
met by 14 countries in Sub-Saharan Africa.

–
Water is a scarce source in many ACP countries,
and it is increasingly leading to conflicts. Effective regional management of
water resources will therefore help to prevent conflicts. Cooperative
development of water resources offers great opportunities to unlock economic
growth and promote regional integration. On shared river systems, the use of
water in a country can profoundly affect the quality and quantify of available water
in downstream countries. Riparian countries must search for sustainable
solution can allow the equitable sharing of the scarce resource.

–
Enhanced intra-regional trade and cooperation
could avoid using emergency protective measures, such as export bans, and
stabilise prices. While the consumer benefits of trade liberalisation are
well-known there is also evidence that intra-regional trade liberalisation does
not necessarily harm small-scale agricultural producers. In Senegal, higher
tariffs have not resulted in higher prices for farmers but were absorbed by the
rent-seeking behaviour of traders and parastatals.

–
For land-locked countries the management of
grain reserves is likely to be more cost-effective on a regional basis than
national stock holding

–
Informal agricultural trade is estimated at well
above 20% of total Sub-Saharan African trade. Most informal trade is carried
out to exploit the differences between national prices and
international/regional prices and would be largely obsolete by free
intra-regional trade and a regionally harmonised agricultural policy. Reduced
prices in turn, are likely to stimulate the demand of poor consumers, thus
inducing positive growth effect. From the Government’s point of view the
incorporation of informal trade into registered trade flows is also desirable.

Developing political cooperation to
ensure effective regional integration has large
economic benefits, as it provides the preconditions for other policies. Most
notably, peace and security are an essential requirement for further
development, and hence for approaches 1 and 2 to be effective. Conversely,
peace and security cooperation at regional level is most likely to be
successful if countries are bound together by strong common interests, so that
approaches 1 and 2 also appear to be beneficial for approach 3. Yet, it should
also be considered that peace and security are also influenced by national and
international factors that cannot be controlled through action only at regional
level. For this reason, while approach 3 is vital to sustainable development,
its benefits are less certain and no amount of support can guarantee that they
will be delivered in a sustainable manner.

Table 9:
Developing political co-operation for effective regional integration

|| Advantages || Drawbacks

Economic || The long-term economic cost of wars can hardly be overestimated. Peace and stability provide an environment favourable to economic activity and economic growth. ||

Social || Deepened cross-border co-operation may help to reduce political tensions and helps building mutual trust. The prevention of conflicts has many positive social effects: saving lives, stopping migration and displacement, preventing weaker groups being victims of war (e.g. children soldiers, rape of women). Political cooperation can prevent crime, insurgency and terrorism. Greater civil society participation allows the population to both identify with the region, and shape its future || Deeper political integration at a regional level may lead to changes/evolutions of national identity/culture to which some fractions of society may have difficulty to adapt.

Environmental || Improved stability prevents the illicit use of natural resources as a source of revenue for civil conflicts (e.g. “ war diamonds”) ||

All areas || Deeper co-operation fuels the potential for regional organisations to increase their capacity, allowing them to be more effective in all areas. ||

What does empirical evidence say?

–
The probability of forming an FTA is 15 times
higher in democracies than in autocracies, and for economic unions it is almost
50 times higher. Democratic leaders have a stronger incentive to join regional
integration arrangements and to move towards deeper integration than leaders in
autocracies. The development of common democratic values and institutions is in
turn regarded as crucial for regional integration.

–
There is a positive correlation between
countries’ engagement on a multilateral level and regional cooperation.

–
Civil war reduced GDP growth by 2.2% on average
– often leading to negative growth in African countries with low pre-conflict
growth rates.

–
While only a small percentage of spending on
regional peacekeeping missions ends up in the local economy, the amount is
enough to boost very low income countries.

4.4.2.     The contribution of different approaches to EU policy
objectives

The respective contribution of the three
approaches to the four main policy objectives (growth generation, sustainability,
regional governance and political dialogue) is very uneven as highlighted in
Table 6 below: Approach 1 contributes most to growth generation; Approach 2 is
most beneficial for sustainability; and Approach 3 has a potentially strong
contribution to improved governance and political dialogue.

Table 10: The respective contribution of
the three approaches to the EU policy objectives

|| Growth generation || Sustainability || Regional governance || Political dialogue

Elimination of barriers to trade || +++ || -- || ++ || +

Policy co-ordination and co-operation || + || +++ || + || ++

Political co-operation || n.a. || + || ++ || +++

More specifically:

–
Elimination of barriers to trade has a very strong potential for supporting growth since it
focuses on the abolition of the (many) existing barriers to business and
therefore allows countries to reach a higher growth potential. It is also
expected to help regions deliver on their own agendas of improved economic
governance at regional level, thus directly contributing to improved
regional governance. However, it contributes rather negatively to the
objective of reinforcing sustainability as it does not address the
externalities produced by enhanced growth and increased economic integration.
There may also be some drawbacks in the area of governance, as it may
also highlight the conflicts and overlaps between existing regional agendas.
This is also why its contribution to a strengthened political dialogue within
the ACP regions and between the EU and ACP regions will vary: it may foster the
realisation among ACP countries that a rationalisation exercise is much needed;
it may also spur the competition between various regional organisations and
bring the EU into debates that need to be settled by the regions themselves.

–
Policy co-ordination and co-operation for
sustainable development
will contribute to growth generation through
better common rules for business development and common policies that remove
the obstacles to physical integration (energy, transports). However, the main
contribution of this option lies in the strongly improved sustainability
of outcomes of increased regional integration. By making economic integration
more environmentally and socially sustainable, it allows its benefits to be
maximised over the long term, thus making regional integration more desirable
for citizens and more politically sustainable. Its benefits for the
efficiency of regional governance are more contrasted: on the one hand,
there is the risk that new regional organisations will be created to deal with
new policy areas, thereby increasing the institutional complexity ; on the
other hand, policy coordination in a wider range of policy areas – ranging from
environmental policy to cohesion policy – will foster policy dialogue within
the region, and allow such dialogue to be developed also with the EU, which has
a strong experience and expertise and where a strengthened dialogue on policies
could prove mutually beneficial.

–
Political co-operation, by contributing to political stability will contribute to improved economic
conditions and to make the benefits of approaches 1 and 2 more sustainable. Its
contribution to growth and sustainability could therefore be very large
in theory. In practice, there are likely to be more limited since EU support is
just one element in a highly complex political environment. In many other
cases, EU instruments may be insufficient or inadequate to avert a crisis.
Approach 3 has a strong potential for reinforcing the efficiency of regional
governance. Indeed, improved governance is at its core, although
essentially at national level. In practice, the regional dimension should
probably be upgraded in the assessment of national good governance in order to
reinforce the contribution of the national level to effective regional
governance. Moreover, it is unclear to what extent the EU can contribute to the
streamlining of regional organisations. Supporting regional integration on key
security, stability and governance issues could also strongly contribute to
a deeper and broader political dialogue between the EU and ACP countries,
by putting this agenda at the heart of the region-to-region relationship and
not limiting it to the national level as is currently the case.

The three approaches have been considered
in isolation for analytical purposes. In practice, however, they are not
mutually exclusive "options". Indeed, they can and should be
combined, so that the benefits of the various approaches are added while the
benefits of one approach are allowed to offset the drawbacks of the other.

4.4.3.     Finding
the right mix

The above analysis highlights that a "mix
of approaches” may actually deliver on the expected benefits. This will
also crucially depend on the specific situation of each region in terms of
regional integration and of the main features of past and current EU
intervention in this region.

Some conclusions can, however, be drawn
from the analysis above. First, given the strong expected benefits in terms of
growth, which is a condition for development and poverty reduction to take place,
continuing to focus EU support to regional integration on the elimination of
barriers to trade appears essential.

Second, the analysis also clearly
demonstrates that this focus needs to be complemented by a strengthened
support to the two other approaches for:

–
The benefits of increased trade
integration to be maximised: infrastructure is
a case in point: even if the political, legal and administrative conditions for
regional free trade are in place, intra-regional trade will not take off if the
physical infrastructure has not kept pace;

–
The drawbacks of trade integration to be
minimised: the environment is the most obvious
example. Supporting enhanced regional economic integration may have detrimental
environmental consequences if a common regional policy for the sustainable
management of resources is no simultaneously supported;

–
And regional integration to be economically,
socially, environmentally and politically sustainable.

5.           EDF support to regional
integration: a mix of approaches

Overall, over the period 1996 to 2007
covering the 8th and the 9the European Development Fund (EDF), a
total of €3.2 billion has been supporting projects with a regional focus (see
Annex 4). The main area for support has been sustainable development with €1.2
billion, followed by infrastructure development (€777 million) and business
development (€524 million). These three areas can be considered as falling
under approach 2 as presented above, while support to regional integrated
markets (corresponding to approach 1) received €501 million.

5.1.        The 9th EDF regional programmes

Unsurprisingly given the diversity of
regional situations and the multiplicity of policy tools, current regional
intervention is a mix of the three conceptual approaches outlined above.

Within the realm of the elimination of
barriers to trade, the current intervention contains a strong focus on
economic integration.

Although the emphasis differs from one
region to the other, approach 1, as evidenced in Annex 5, Part 2, has been the overall
main focus of 9th EDF RIPs. Economic and trade integration is a
focal sector in all regions, with a foreseen share of regional expenditure
ranging from 25-30% in Central Africa to as high as 75-90% in the Caribbean.
Regional assistance under approach 1 encompasses in particular the
strengthening of regional organisations for the formulation and implementation
of regional economic integration commitments. Capacity-building for EPA
negotiations is mentioned in all regional programmes and is an important part
of this approach, as it concerns the external dimension of regional
integration.

Intervention also includes all-ACP
instruments, such as the Trade.com Facility Programme (€50 million under the 9th
EDF). The specific objective of this programme is to
improve the capacity of ACP countries and regional organisations to design and
implement their own trade strategies and effectively participate in international
(multilateral or bilateral) trade negotiations.

There is also considerable activity in the
field of policy co-ordination and co-operation for sustainable development,
although the regional focus varies.

With regard to business development, the
focus is on 5 areas with accompanying tools. These are: (1) the macro-economic
/ regulatory environment (BIZ-CLIM), (2) investment and business partnership
(PRO-INVEST), (3) Financial market development (EIB), (4) non-financial
services for SMEs (CDE, PRO-INVEST), and (5) Micro business and micro finance
(CGAP). However, assistance at regional level is low, with efforts
scattered over a number of programmes in different areas, with differing
implementation and hence varying effects (see also Annex 5)

Support of infrastructure has had a limited
regional dimension, although this is the main area of intervention of the 9th
EDF country programmes. This support concentrates on co-ordination and
harmonisation rather than a fully blown infrastructure development plan, and the
current transport intervention strategy has been considered as ineffective at
regional level (see also Annex 5). In Africa, the EU-Africa Infrastructure
Partnership, launched in 2007 and accompanied by a new Trust Fund funded by the
EC, the EIB and several Member States, aims at strengthening EU support to
infrastructure networks of a continental and regional dimension and is
specifically designed to support the African Union – NEPAD Infrastructure Plan.
It provides a framework for better interconnecting countries to countries,
regions to regions and Africa to the rest of the world, thus considerably
boosting the attention to the regional dimension of infrastructure development.

Further areas of intervention vary between
different ACP regions, but tend to be the development of plans and regional
capacities for the sustainable management of natural resources. Concerning the
9th EDF RIPs, this is in particular the case in ESA, where natural
resources take up 15 to 25% of the regional, in Central Africa, where the sustainable
management of natural resources is the second focal sector with 20 to 25% of
the budget and in the Pacific, where fisheries is the third focal sector, with 17%
of the budget.

Current intervention in the domain of political
co-operation is essentially limited to the streamlining of regional
organisations, efforts to develop good governance and the support to regional
stabilisation mechanisms.

The EU approaches governance in a comprehensive
way, with an emphasis on the ability of states to deal with their core
functions and to deliver to citizens in an efficient, responsive, accountable
and transparent way. Supporting political will for reform and stimulating
country-owned governance reforms through dialogue and incentives has been a central
feature of ACP-EC cooperation, with the recent "Governance Incentive
Tranche" under the 10th EDF. In a number of cases, partner
governments have considered regional integration as a priority for reform and
have therefore committed to specific reforms in this area. These reforms will
be monitored through permanent political dialogue with partner countries and
the periodic reviews foreseen in the Cotonou Agreement.

The African Peace Facility (APF - €440
million) was created under the EDF to provide the African Union and other
African regional organisations with the resources to mount effective
peace-making and peacekeeping operations. It is the EU’s way of backing the
emerging African resolve to deal with conflicts on the continent with African
solutions. The APF has funded four African peace operations: the AU Mission in
Sudan (AMIS, nearly €300 million); the AU Mission in Somalia, AMISOM (€15
million); the FOMUC mission in the CAR (€23,4 million) and the AU Mission in
Comoros (AMISEC, €5 million). The APF has also backed capacity-building activities
at the regional and sub-regional level in the areas of conflict prevention and
crisis management (around €35 million in total).

The Instrument for Stability (IfS) consists
of a crisis response component (€100 million in 2007) and a longer-term
component (€40 million in 2007) addressing proliferation and trans-regional
threat. Thematically, the measures supported so far cover a broad range of
issues, depending on the specific needs of each conflict / post-conflict
situation. A number of programmes currently underway support regional
peace-building capacity, for instance the AU operation AMISOM in Somalia (€5
million) and the AU-UN mediation in Darfur (€ 3 million).

The above includes the assessment received
from independent evaluations. Such independent evaluation also highlighted a
number of weaknesses in the broader regional intervention strategy used for the
8th and 9th EDF (Annex 5):

–
The Commission faces a "choice of
partner" dilemma, i.e. with which regional organisation to work. This
is closely linked to capacity constraints in implementing regional
policy due to weak institutions.

–
While the Commission is contributing to regional
level governance objectives, the overall effect of this intervention on
sustainability is not always clear.

–
The participation of non-state actors at
regional level is missing from current regional interventions, though this is
complicated by the fact that most non-state actors think on a local or national
level, rather than on a regional level.

–
Efforts towards economic integration are considered
as not tackling poverty satisfactorily at regional level.

–
The articulation / mutual reinforcing between
the national programmes and the regional programmes
can be improved.

–
More focus should be placed on effective local
and regional capacity-building.

5.2.        The
10th EDF regional programmes[16]

The 10th EDF regional programmes
are the primary instrument of EC support to ACP regional integration. While the
overall EDF substantially increased from the 9th to the 10th
EDF, the regional envelope almost doubled to €1.78 billion, reflecting EU-ACP
consensus on the importance of regional integration for development.

The new RIPs will respond to the identified
challenges and provide a mix of the three approaches outlined above. They will:

–
Provide, in all regions, support for regional
mechanisms to foster peace and stability, prevent and manage conflicts,
and fight security threats (such as organised crime), thus furthering a
broadly-defined regional human security agenda. In West, Southern and East
Africa, EDF support will help strengthen the regional pillar of the pan-African
architecture of peace and security.

–
Pay particular attention to regional
economic integration, with almost 75% of the indicative appropriation (i.e.
€1.3 billion) likely to be devoted to this area.

–
Within the regional economic integration agenda,
focus on specific regional priorities, with an emphasis on the
completion of more integrated markets; the development of productive
capacities; and the improvement of infrastructure networks and enhanced
regional cooperation for the promotion of sustainable energy policies. There
will be a particular focus on EPA support measures: almost half of the
Caribbean RIP would be allocated to their EPA commitments.

–
Reflect the diversity of ACP regions
in terms of their priorities for sustainable development. This applies, in
particular, to the second focal sector in the Pacific (fisheries) and in
Central Africa (forestry). Support for food security and agriculture is foreseen
in West Africa, and for land, water and marine resources management in East
Africa.

–
Support good regional governance,
with an emphasis on capacity-building for non-state actors.

5.3.        Exploiting
the synergies for inter-regional cooperation

Regional integration
projects should not be developed in isolation from their immediate environment.
In designing their strategies, ACP regions should be invited to reflect on the
potential for increased cooperation with neighbouring regions/partners, that the
EU could support. This particularly concerns:

–
Cooperation across ACP regions: this applies to Africa and the fact that economic, social,
environmental or political ties do not stop at the borders of a particular
country grouping: desertification should, for instance, be tackled across the
Sahel region, not within regional boundaries. There is therefore a need to take
into account and eventually favour initiatives that will address challenges
that are common to two regional groupings, or will facilitate cross-border
cooperation. This will require well identified needs, and well coordinated and
sequenced support, but in many cases will be more efficient than two separate
sets of intervention.

–
ACP – EU Outermost regions collaboration: the EU is a long standing supporter of inter-regional cooperation,
not the least through the support of its regional and structural funds. The
Commission Communication "Strategy for the Outermost Regions: Achievements
and Future Prospects" of 12 September 2007[17] calls on the ACP, the outermost
regions and the Oversees Countries and Territories to "implement the
specific possibilities and practicalities of a concerted EDF and ERDF
programming with parallel co-financing arrangements, with a view to cooperation
schemes at national and regional level".

–
Territorial cooperation programmes, funded under
the former INTERREG initiative, have been set in all outermost regions to
support cooperation with ACP and OCTs in the Caribbean, Indian Ocean and West
Africa. These programmes include committees entrusted with the collaboration
between EDF and ERDF managers in order to better coordinate financial
programming and facilitate parallel financing of common projects.

–
New links between ACP – EU Oversees
Countries and Territories (OCTs): The Commission's
Communications on a renewed partnership with the Caribbean and Pacific
emphasised the added value of new synergies between these ACP regions and other
partners of the same region. With regard to OCTs, the Commission's Green Paper
on the future EU-OCT relations invited the OCTs and their Member States to
examine how, in the context of increased regional integration that is taking
place in the different regions where OCTs are located, OCTs could increase
their trading relationship with neighbouring (ACP) countries, while ACPs
regions could be invited to accept that an OCT participates in regional
integration if that OCT and its Member State so request. Another area of
increased synergies is the sharing their "European" know-how and
knowledge in a number of areas of interest of neighbouring (developing)
countries.

5.4.        Design of regional
integration and EU support

Whichever the approach for EU support as
described above, a key parameter to be examined is the design of regional
integration, i.e. the model followed, its architecture and its governance
structures. Amongst the various issues are:

–
Intergovernmentalism vs. supranationalism: the EU does not interfere with the choices made by its partners on
whether their cooperation entails maintaining the full exercise of national
sovereignty or sharing (some specific aspects of) sovereignty. It is clear,
however, that the effectiveness of a number of policies is predicated on the
acceptance that sovereignty is to be shared – i.e. that the decisions taken
collectively are to be loyally and effectively applied by all regional
partners. An important realisation in this respect is that, in a globalised
world, pooling sovereignty is increasingly the only way to actually exercise
this sovereignty.

–
Configuration, full inclusiveness or
variable geometry: the EU supports the choices
made by partners, who should decide on regional configurations, the modalities
of political and economic integration and whether some countries in a region
may progress towards (shared) objectives and more far-reaching commitments quicker
than others. In so far as this may have implications for the achievement of
development goals and the effectiveness of the relations with the EU (e.g.
financial or trade cooperation), the EU should be ready to share expertise and
advice on how best to address diversity within a region while encouraging deep
and, over time, fully inclusive integration.

–
Whichever approach is chosen, the number
and relationships between various regional organisations should be manageable
and clear, and institutions should have realistic and contradiction-free mandates
as well as adequate (human and financial) resources to fulfil these. As these
aspects are of direct relevance for the effectiveness of EU support, the EU has
an interest in sharing expertise with ACP partners on these issues.

–
Subsidiarity is a key guiding concept. Not only is it in ACP partners' interest
to deal with issues as close as possible to the population concerned and at the
level that will maximise the efficiency of the activity, but it is of direct
application also for EU interventions, especially when they include financial
support and a decision whether to intervene at country, regional, continental
or all-ACP level.

The design of regional integration as chosen
by ACP partners is bound to have an impact, in particular, on the design of
EU policies toward regional integration in ACP countries and, in
particular, on the following aspects:

–
Articulation between the national and
regional levels of support: the type of
intervention and the desirable balance between regional and national support
are affected by the integration model chosen by a region for a particular
policy. In any case, the national level is essential for the effective
implementation of regional commitments. This may not have been sufficiently
taken into account in past interventions.

–
Global EU approach: Given that the EU (the European Community and its Member States)
is collectively and by far the largest donor of development assistance, uniting
all EU Member States behind a common concept can make the difference in
enhancing the EU-ACP partnership on regional integration and specifically in improving
the effectiveness of EU financial support for regional integration. An EU
concept of support for regional integration will help support regional
priorities, avoid inconsistencies in the institutions / projects funded, allow
a critical mass to be reached and efficiency and effectiveness to be increased.

–
Strategic approach: a more strategic approach could enhance the effectiveness of EU
support. This would, for instance, imply that regional considerations –
positive and negative externalities for regional integration, leverage effect
in boosting further cooperation and integration – become more important factors
in the selection of projects, both at regional and national level.

5.5.        Risk factors

There are many risks and uncertainties. Political instability, at national or regional level, is
clearly the single largest risk for regional integration. Indeed, it can easily
wreck regional integration as the benefits of integration will turn into
drawbacks. This was demonstrated in recent years in Ivory Coast, where
instability has had important consequences on neighbouring countries that were
economically very much linked to Ivory Coast, such as Burkina Faso. This is why
the importance of approach 3 increases with the degree of integration reached:
in addition to its direct benefits, it also helps reaping / preserving the
expected benefits of approaches 1 and 2.

Policy failure is another risk. Although this is inherent to any policy action,
the potential for policy failure may be larger for action at regional level,
especially if and when governance and implementation capacities are low. Even
where the value added of acting jointly at regional level is well-established
and where the policy itself is well-designed, its impact may be less positive
than the sum of national actions. If countries are insufficiently committed to
the common tackling of diseases, this can lead to a worse situation than if
countries were to tackle diseases alone. This is why implementation capacities,
both at regional and at national level, are essential.

Annex 1: Overview of regional integration
in ACP regions

1.         Caribbean

Regional Integration in the Caribbean is
mainly through the Caribbean Community, or CARICOM[18] as
it is more widely known. CARICOM was established in 1973 by the Treaty
of Chaguaramas which was revised in 2001. CARICOM's three main
objectives are: economic co-operation, co-ordination of foreign policy and
functional cooperation including health, education, youth, sports, science and
tax administration. The Caribbean Single Market and Economy (CSME)
contributes to deepening the integration process, based on both market and
economic integration. To support this process, the Treaty of Chaguaramas was
revised and now contains nine chapters covering the major areas of the CSME. When completed,
the CSME will provide for the free movement of goods, services, capital, labour
and right of establishment within the Community and harmonised laws and
regulations affecting commerce. The Single Market component of the CSME was
introduced by Barbados, Belize, Guyana, Jamaica, Suriname and Trinidad &
Tobago in January 2006. The OECS countries (Antigua & Barbuda,
Dominica, Grenada, St. Kitts & Nevis, St. Lucia and St. Vincent & the
Grenadines) signed up to the CSME in July 2006. A Regional Development Fund to
assist in mitigating negative impacts of OECS participation in the CSME
was also agreed.

The CARICOM trade policy is to
remove remaining internal barriers through progressive movement towards a
maximum harmonized tariff, further harmonization of customs procedures and
establishment of a customs union. A Common External Tariff (CET) has been
introduced. Quotas remain as well as allowed tariffs on some agricultural and
other products, which will have to be removed by the end of 2008. A
corresponding policy of legal, institutional and judicial reform is intended to
create an appropriate enabling environment for these moves. The Caribbean Court
of Justice (CCJ) was established in 2006.

The Caribbean States that make up the
Organization of the Eastern Caribbean States (OECS)[19] (all of whom are members of CARICOM)
constitute in some ways an inner circle of Caribbean economic/monetary
integration, and have, since the colonial era, a long tradition of cooperation.
In more recent times, the nature of the cooperation has taken on a more
functional and development-oriented character. OECS' main objective is
economic integration among its member states, and they have a single currency
and an Eastern Caribbean Central Bank, exercise common monetary and exchange
rate policies, share a common Supreme Court, jointly regulate the
telecommunications sector, cooperate on some issues of public procurement and
collectively govern their airspace. In the medium-term, they intend to further
this functional and economic integration. The organisation has begun technical
work with respect to creating regional support systems and mechanisms for the
police and prison services, creating centres of medical and surgical specialization
across Member States and establishing an Economic Union, with free movement of
productive factors.

The next circle is the Caribbean Forum of
ACP States, also known as CARIFORUM[20],
which was created in 1992 by inter-governmental agreement, as a political group
including not only the CARICOM Member States, but also what were then
the new signatories to the Lomé Convention, namely, the Dominican Republic,
Haiti and Suriname although the latter two have since acceded to CARICOM.
Cuba is also now a member state of CARIFORUM, although it is not a
signatory to the Cotonou Agreement. The CARIFORUM mandate is to manage
and coordinate policy dialogue between the Caribbean region and the EU, to
promote integration and cooperation in the Caribbean and to coordinate the
allocation of resources and manage the implementation of Regional Indicative
Programmes financed by the European Development Fund and regional programmes
financed by member states of the EU and any other source. The EU-Caribbean
Economic Partnership Agreement (EPA) was concluded on a CARIFORUM wide
basis.

Hemispheric relations are important to CARICOM/CARIFORUM,
as part of its global integration objectives. In that regard, the region is
committed to effective participation in hemispheric and/or bi-lateral
processes. The hemispheric strategies include strong technical and political
representation, securing special and differential treatment and transitional
measures, design and implementation of measures to cushion the impact of
adjustments, monitoring of parallel negotiations and consistency with other
multi-lateral negotiations.

All Caribbean countries are also part of
the Association of Caribbean States (ACS).

2.         Central Africa

The landscape of regional integration in
the Central African region consists of three, overlapping, regional groupings:
the Economic and Monetary Community of Central Africa (CEMAC); the Economic
Communities of Central African States (ECCAS); and the Economic Community of
the Great Lakes Countries (ECGLC).

The Economic and Monetary Community of
Central Africa (CEMAC[21])
replaced the Union Douanière et Économique de l'Afrique Centrale (UDEAC) in
1994. The main objective of the Community is to reinforce the process of
regional integration in support of development. The monetary union built around
the CFA Franc, which was originally pegged to the French franc and is pegged to
the euro since 1999, worked well during the thirty years of cooperation under
the UDEAC, but this union remained largely disconnected from regional economic
cooperation on non-monetary issues.

Four institutions were created in 1994: the
Economic Union of Central Africa; the Monetary Union of Central Africa; the
Parliament of the Community; and the Court of Justice.

The CEMAC Treaty foresaw a three step
integration process for the economic union: 1999-2004, 2005-2009 and 2010-2014.
The main objectives of this process are the establishment of a common market
for the free movement of goods, services, capital and persons (this includes a
customs union) the elaboration of community legislation in the area of
economics and finance and provides the impetus for macro-economic convergence
between member states; the coordination of national policies through joint
action (by sector: agriculture, animal husbandry, fisheries, trade, tourism,
energy, environment, transports and telecommunications), the coordination of
trade relations with other regions, and community action on horizontal issues
such as education and research.

There is, however, an important gap between
the existing body of legislation, which is quite comprehensive, and the state
of implementation of Community decisions. In several areas, the current results
are still very far from achieving the objectives. For example, despite the
agreement on the free movement of CEMAC citizens, a number of countries in the
region continue to require an entry visa for CEMAC citizens. However, the
Community as a whole does not have a system of sanctions with which to address
the non application by its member states of community legislation.

Currently the Community is in the middle of
a reform process launched in 2005 to improve the efficiency of the community
institutions. In particular the reform will create an independent Commission
which will be in a better position to animate the regional integration process.

The second organization in the region, the
Economic Community of Central African States (ECCAS) is made up of the
same CEMAC six countries plus the Democratic Republic of Congo (DRC), São Tomé
e Principe, Angola and Burundi (Rwanda left the organization during 2007).
Given the weight of DRC, the demographic, political and economic importance of
the region covered by this organization is significant.

The integration process has been slowed
down by the number of conflicts that many countries have faced. During the late
1990s, seven of the eleven countries were in such a situation, which led to a
crisis in the organisation, which only restarted its activities at the end of
the 1990s, notably in the area of conflict prevention.

ECCAS has adopted a trade liberalization
scheme; the free trade area has been launched in 2004 and is slowly
implemented.

The Economic Community of the Great Lakes
Countries (ECGLC-CEPGL), created in 1976, consists of the DRC, Rwanda
and Burundi. After many years of paralysis, the organization has been
officially re-launched in 2007 in the hope of restoring trust between the three
countries. The main objectives of CEPGL are to promote security and economic
development through developing economic activities of common interests in the
energy, environmental and rural development sectors.

3.         East and Southern Africa

Regional integration in the East and Southern
African region is a complex picture. There are four main Regional Integration
Organisations, with significant overlap between them. The regional economic
integration process in the ESA region was first institutionalised in the late
seventies and evolved into the formation of the four organisations that were given
mandates to address specific issues but ultimately with common development
objectives. The organisations concerned are COMESA, EAC, IGAD and IOC.

The Common Market for Eastern and Southern
Africa (COMESA[22])
was created in 1994 by the treaty of Lilongwe, with an objective of promoting
regional economic integration within the region, by developing trade and
investment. COMESA launched its Free Trade Area in 2000, currently with
currently with thirteen members, and is preparing to establish its Customs
Union in 2020. COMESA has programmes in trade and transport facilitation, trade
in services, free movement of persons and investment. Cross-cutting areas and
other issues include gender policy, conflict prevention and a COMESA Court of
Justice. The General Secretariat is the main institution and has a technical
and consultative role on the Treaty's application, whose interpretation is
subject to the ruling of the Court of Justice.

Since October 2000, tariffs have been
abandoned between several ESA States[23].
This free trade area is the greatest success of the region and trade has
increased rapidly between the member countries (+30% the two first years) as a
result. Of the 19 ESA countries, there are currently 13 of them in the Free
Trade Area, with others committed to joining at specified and times. Since then
a medium term Strategic Plan for 2007-2010 has been adopted by the Heads of
State and Government in December 2006. In terms of regulatory and policy
framework, the major challenges to be addressed by COMESA in establishing a
Common Market are the setting up of a COMESA Common Investment Area and the
application of the principle of the Free Movement of People while at the same
time ensuring that all those measures actually benefit all the stakeholders,
and ultimately contribute to poverty eradication in the region. To this end
COMESA Mid Term Strategic Plan encompasses private sector development,
investment promotion and infrastructure development among other things.

The Eastern African Community (EAC[24]) has undergone a rapid
process of both widening and deepening since its
rebirth in 1999. EAC now has five member states. This membership obliges EAC
countries to maintain close and productive relationships with other regional
organizations to whom its members also belong while aiming for rationalisation
of membership where needed – the principal partners in this respect are COMESA,
IGAD and SADC. Like COMESA, EAC pursues a regional integration agenda and also
plays an active part in the agenda of the African Union and its institutions.

The key integration milestone in EAC’s
recent history was the agreement of the Customs Union protocol, which came into force in 2005. The principal
components of the customs union agreement are a Common External Tariff
on imports from third countries, duty-free trade between the EAC member states
and common customs procedures. The agreed external tariff follows the
tariff-escalation principle, with different rates. The removal of duties on
trade within the Customs Union has the effect of reducing protection against
competitors within the region, particularly creating greater openness of the
Tanzanian and Ugandan markets to imports from Kenya. Negotiations have now
started to establish a common market in EAC by 2012, and to evolve to a
monetary union according to a similar schedule. In addition, discussions have
been undertaken in the last three years on ‘fast tracking’ the final component
of the integration continuum, political federation.

The recurrent droughts, during the 1970s
and 1980s, led in 1986 to the creation of the Intergovernmental Authority on
Drought and Development (IGADD) by the General Assembly of the United Nations.
Its objective was to fight against water shortages, and aimed in the long term
at improving cooperation between the member States[25]. However its role
remained limited, due to a lack of financing and tensions between several
countries.

The 1996 Nairobi summit led to a deep
reform of the institution, which became the Intergovernmental Authority for
Development (IGAD). The main objectives of the organization are to work
at a regional economic integration, meaning a wide free trade agreement; to
reach and sustain food security; and to prevent conflicts within the region.

The main achievements of recent years were
focused on security issues, including mediation in Sudanese and Somali
conflicts. Four projects were actually developed: an ICT project involving EAC,
COMESA and IOC; the IGAD livestock policy initiative; a programme concerning
the development and economic integration of women; and the IGAD climate
prediction and application centre.

The Seychelles, Madagascar and Mauritius created the Indian Ocean
Commission (IOC) in 1984. For Réunion, France joined them in 1986, and
now contributes 40% of the organization's budget. The constitutional Agreement
of Victoria covers a wide variety of cooperation areas (diplomatic, economic
and commercial, agricultural and fishing, cultural, scientific, education and
justice).

Since its creation, IOC has been involved
in projects concerning natural resources and environment protection. The
challenge the deepening of economic integration faces is the high heterogeneity
in the levels of development (2 LDCs, 2 Intermediate Income Countries and an island
considered as developed).

Implementation of activities in the ESA
region is through the Inter-Regional Coordinating Committee – (IRCC), which was
established to ensure better coordination in the implementation of programmes
and contribute to the harmonization of policies in line with the
recommendations of the AU. Two delivery mechanisms are used to channel the
funds to the ESA IO region: Contribution Agreements and Financing Agreements.
Regional mechanisms such as the COMESA Fund and other equivalent mechanisms
under other RECs will be used as much as possible to channel funds.

4.         Southern Africa

Southern Africa has two regional economic
communities, the Southern African Development Community[26] (SADC) and the
Southern African Customs Union[27]
(SACU). The Southern Africa region is composed of a highly diverse set of
countries -in terms of size, level of development and economic specialisation-
and is marked by the prominent weight of South Africa. South Africa represents
more than 70% of the region's GDP (2007), accounts for 60% of intra-SADC trade
and is the first investor in the region. Since its democratization in 1994 the
country has exerted a growing influence in the region whilst at the same time
seeking to operate in consensus with its neighbours.

The Southern African Development
Community (SADC) is an intergovernmental organization that was founded in
1992 on the basis of the former Southern African Development Co-Ordination
Conference (SADCC). The SADC integration project has evolved along two parallel
tracks: a trade integration track (a market-driven economic project with an
emphasis on trade and investment) and a development integration track (a
politically-driven process that deals with political and security issues).

Most positive results have been achieved on
trade integration. The SADC FTA came into effect in January 2008. By the end of
the year, 85% of all product lines should be trading with zero tariffs, whereas
the remaining 15%, including sensitive products, will be duty-free by the end
of 2012. SADC's ambitions for deeper integration in the future are outlined in
the Regional Indicative Strategic Development Plan (RISP) that sees the FTA as
a first step towards the establishment of a customs union in 2010 and a common
market in 2015.

The Southern African Customs Union
(SACU) was created in 1910 and is considered the oldest functional customs
union in the world. The founding agreements were significantly revised in 2002
in order to deepen the engagement between South Africa and the four other
member States and set up a more democratic and ambitious integration project.
The main features of the revised agreement are a reform of SACU's decision
making bodies, the adoption of common policies and strategies, and the support
of more balanced development between member countries.

The biggest changes of the reform affected
SACU's governing institutions, particularly the SACU Council of Ministers where
decisions are taken by consensus. External trade negotiations are also to be
conducted by SACU as a single entity since 2002.

The revenue-sharing arrangement is another
central feature of SACU. The new formula consists of a customs component, an
excise component and a development component. Customs revenues are distributed
according to each country's imports but the compensation formula de facto
entails a sizeable subsidy by South Africa to the other members, for whom these
transfers represent between 30% and 60% of their public budgets.

Future work for SACU includes moving
towards completion of its internal market, including through the elimination of
existing non-tariff barriers and tackling the implications of rules of origin
agreements that some members have established with third countries. SACU's
internal agenda also comprises the adoption of common frameworks in areas like
fiscal harmonization, customs procedures or competition policy, although no
dates have been set for these objectives.

5.         Western Africa

Western Africa is probably one of the most
integrated regions within the ACP, with two organisations dominating the
regional landscape: the Economic Community of West
African States (ECOWAS) and the Economic and Monetary Union of West Africa
(UEMOA).

The Economic Community of West African
States (ECOWAS), created in 1975, is made up of fifteen States[28]. According to its
founding treaty, ECOWAS is the overall framework for integration in Western
Africa, with the UEMOA Treaty built into the objectives of ECOWAS. The initial
objectives of the Treaty were the implementation of an economic and monetary
union, settling a regional market for the whole West Africa, complete with free
movement of goods and people.

Four priorities form the political agenda
of ECOWAS: institutional strengthening; establishment of a common market, and
especially the creation of a free trade area and a customs union; harmonization
of economic and financial policies with a view to establishing a monetary
union; and conflict prevention and political dialogue.

From an institutional point of view, in addition
to the creation of a Court of Justice and a Parliament, the Secretariat was
reorganised and transformed into a Commission. Its powers were strengthened and
its operational procedures improved.

The ECOWAS treaty foresees the progressive
establishment of this common market between the member States, including the
free circulation of goods, services, capital and people. The Heads of States
Conference decided to implement the Free Trade Area by 2004 and the customs
union by 2007 but these decisions have not been fully implemented yet. Free
movement of people is regulated by a 1978 protocol. Whereas neither visas nor
residence permits are officially required anymore, controls and administrative
procedures remain.

ECOWAS also developed several sector programs,
concerning inter alia infrastructures, agricultural policy, energy,
telecommunications, and private sector development, in order to create the
common market. However, ECOWAS still suffers from a lack of human and financial
resources to effectively coordinate implementation.

Harmonization of economic and financial
policies constitutes an intermediate objective towards a fully-fledged monetary
union. In this context, the countries which are not members of the UEMOA
(except Cape Verde and Liberia) decided to establish a second monetary union,
which is then supposed to join the UEMOA zone, thereby creating a big ECOWAS
monetary union (the currency will be the ECO).

In the political area, ECOWAS is developing
a conflict prevention and management strategy, as well as a standby forces
approach. Through its peacekeeping interventions and mediations initiatives in the region, ECOWAS has
contributed to the stabilisation of the region and gained credibility for
conflict prevention.

The West African Economic and Monetary
Union (UEMOA) is an organisation of eight states[29] established in 1994
after the devaluation of the Franc CFA, with the objective of promoting
economic integration among member countries of ECOWAS that share the same
currency, the CFA Franc. UEMOA is a customs union, and a monetary union,
pegging the CFA franc to the Euro, which has several objectives:

–
Creating a common market: consolidating the customs union created in 2000 and eliminating
all non tariff barriers to the free movement of goods.

–
Greater economic competitiveness, through open and competitive markets, along with the standardization,
and harmonization of national legislation concerning public tenders,
intellectual property, fiscal policies, and consumers' policies. In addition
much progress has also been done in order to harmonise legislations with the
aim of ensuring the free circulation of persons, services and capital.

–
The convergence of macroeconomic policies:
member states signed in 1999 a Convergence and Stability Pact, which
aims to ensure convergence of macroeconomic policies on the basis of a number
of convergence criteria.

–
The coordination of sectoral policies,
for example in agriculture, environment, telecommunications, infrastructures,
industry. A number of these sectoral policies have been adopted and are in the
process of being implemented.

The Commission of the UEMOA has, through
increased donor support, developed important technical and administrative
capacities, and has thus been the driving impulsion in strengthening and further
deepening economic integration between its member states. A special solidarity
fund, the 'Fonds d'Aide à l'Intégration Régionale' was created in the UEMOA
treaty, in order to finance the balanced land settlement of the community
territory, and its interconnectivity, while reducing regional discrepancies.

UEMOA adopted a "Programme Economique
Régional" (PER) in 2006, in order to further deepen regional economic
integration, and to reinforce the regional growth strategy for the 2006-2010
period. It aims at implementing over 60 infrastructure projects, a common
market, macroeconomic convergence and business development, which will
ultimately improve the visibility and utility of regional integration.

The UEMOA has the exclusive power to
negotiate trade agreements on behalf of its members, and was mandated to
conduct EPA negotiations alongside ECOWAS.

UEMOA and ECOWAS have decided to implement
an "accelerated strategy of the integration process in West Africa",
which provides for a consultation and convergence process between both regional
organisations.

In order to ensure the harmonisation and
coordination of policies and programmes, the Presidents of both Commissions
meet twice a year to establish the common political and economic orientations
and a joint ECOWAS and UEMOA Technical Secretariat has been set up. As an
important result of this Committee, ECOWAS has adopted the UEMOA's common
external tariff (CET) in the framework of the customs union.

6.         Pacific

The Pacific region has a number of regional
organizations, covering a wide range of areas of cooperation between the
islands.

The Pacific
Islands Forum is the premier regional policy-making body of the
self-governing states in the Pacific. Established in 1971, its membership
includes 14 of the Pacific ACP countries[30]
together with Australia and New Zealand. As regards security, the Biketawa
Declaration of 2000 establishes a framework for Forum intra-state
security cooperation, which calls for Forum Foreign Affairs Ministers to meet
as part of an ad hoc crisis management mechanism for the region.

The Forum is
served by its Secretary-General, supported by the Forum Secretariat. The
Secretariat’s overall objective is to service the member states and to promote
Pacific regional cooperation, particularly on economic and trade matters. It
also acts as the Forum’s administrative arm, implementing its decisions,
including delivering development assistance to Member States. In the case of
trade-related assistance, it can also act as an implementing agency.

The Forum
Secretary-General is also the permanent Chair of the Council of Regional
Organisations in the Pacific (CROP), which brings together the Forum
Secretariat and nine other Pacific regional organisations: Pacific Forum
Fisheries Agency (FFA); Pacific Islands Development Programme (PIDP);
Secretariat for the Pacific Community (SPC); South Pacific Applied
Geoscience Commission (SOPAC); South Pacific Regional Environment
Programme (SPREP); South Pacific Tourism Organisation (SPTO);
University of the South Pacific (USP); South Pacific Board for
Educational Assessment (SPBEA); and Fiji School of Medicine (FSchM).

The October
2005 meeting of Forum Heads of State and Government made two important
decisions aimed at strengthening regional cooperation. Leaders approved an
agreement giving the forum legal personality under international law.
They also approved the Pacific Plan and a roadmap for its
implementation. This decision represents the culmination of a process started
in 2003, at the initiative of the New Zealand Forum Chair, aimed at
strengthening Pacific regionalism. The Plan, covering the years 2005-2015, has
been presented as a dynamic framework for strengthened regional cooperation and
integration. However, the effective realization of the Plan is taking longer
than it should.

Presently,
regional cooperation in the Pacific is neither broad nor deep. Reasons include the
geography of the region, the fact that many Pacific countries are still
relatively young as independent states and therefore particularly sensitive
about issues pertaining to sovereignty, as well as the asymmetry between
Australia and New Zealand on the one hand and the Pacific ACP countries on the
other.

The Pacific
Islands Countries Trade Agreement (PICTA) entered in force in April
2003. Eleven out of fourteen countries have ratified[31] it. Notification and
rules of origin requirements have been fulfilled. Six countries have made
formal announcements on their readiness to trade under PICTA. Some domestic
legislation is nonetheless still required for trade to begin in most countries.
An outright PICTA customs union is thought to be inappropriate by island
leaders. The Forum Trade Ministers have officially launched the negotiation of
a trade in services Agreement as an extension to PICTA in March 2008. The aim
is to conclude this Agreement by the end of the year 2008.

FTA
negotiations with Australia and New Zealand may begin this year under the
Pacific Agreement on Closer
Economic Relations (PACER, of which PICTA is the first stage). A key
feature of PACER is the ongoing Regional Trade Facilitation Program. To
date, eleven Forum countries, including Australia and New Zealand, have
ratified PACER.

The Melanesian
Spearhead Group[32]
(MSG) was founded in 1994 and revised in October 2005. The new approach
has shifted to a negative list of products (rather than the present positive
list) on which tariffs are scheduled to be phased out over a period of 1 to 8
years. A services annex has yet to be developed. The MSG brings together by far
the biggest ACP economies of the Pacific but is more of a political
counterweight to Australia and New Zealand in a Forum context than an effective
trade bloc.

Annex 2: Review of existing literature on
regional integration in ACP

The following is a
summary of a study commissioned to the Overseas Department Institute (ODI) by
the European Commission for the purpose of this Background Document, entitled
"Regional integration in ACP - A review of the literature". The report is available at http://ec.europa.eu/development/icenter/repository/Regional-Integration-Report-18-09-2008\_en.pdf

The literature review focuses on literature
on broader regional integration; not just the removal of barriers to trade, but
also policy co-ordination and functional co-operation.

The theoretical effects of the removal
of barriers to trade are well documented, and empirical evidence largely
backs them up. The removal of tariffs leads to increased trade, creating
favourable conditions for growth. However, if the potential for intra-regional
trade is low, tariff removal alone will not be as effective a tool. There are
several so-called "dynamic" effects from the removal of barriers to
trade. An increase in FDI flows is one of these effects, with FDI flows from
outside the region increasing in particular as a result of the removal of
barriers to trade. There is the risk that these FDI flows will be concentrated
on the larger markets in the region, or countries neighbouring these larger
markets. Other "dynamic" effects include increased competition,
knowledge spillovers from research and development, and eventual economies of
scale.

Removing barriers to trade therefore has an
indirect positive effect on growth through the mechanisms of trade, FDI and
technology transfer. However, it is not clear if regional integration alone
promotes convergence among members. A specific tool which can help the
convergence of members in an RTA is the special differential treatment of less
developed countries; SACU implements such a system with restrictions permitted
for some of the poorer members.

In the area of policy co-ordination,
theoretical effects are again well documented, though unfortunately ACP-specific
based evidence is more limited. Co-operation on investment rules boosts FDI, in
particular extra-regional FDI; this view further builds on the finding that the
removal of barriers to trade has a similar effect. There are some sceptical
views on investment rule co-operation in a regional context and these highlight
the need for countries to reach a certain level of development and governance for
the benefits to outweigh the possible costs.

Theoretically, the free movement of labour
is meant to lead to the equalisation of wages within a region. Empirical
evidence points to increased migration as a result of the free movement of
labour. Outside the Caribbean, there is, however, little progress in this
field.

Harmonised standards should have positive
long term effects by allowing firms to increase exports or enter value chains, although
in the short term effects could be negative for local firms having to comply
with standards, and consumer prices in the region. ACP countries have not yet
co-ordinated standards.

Functional economic co-operation, including regional public goods, is a broad area and can
often add more value to regional integration than trade liberalisation alone.

Financial market integration can contribute
to economic growth through addressing the lack of liquidity that many small
countries have, and also by increasing intra-regional capital flows. There are
plans to integrate the stock markets of Southern and Eastern Africa but no
experience in the ACP overall. Studies point that, due to the need of complex
regulation, integration in this area needs to occur at the right pace.

Monetary integration provides financial
stability and reduces transaction costs. There are already four monetary unions
within the ACP. Outside the existing monetary unions in the ACP, the required
convergence of macro-economic indicators for a monetary union appears not to
exist.

Businesses need to rise to the challenge of
the international trading environment. To meet this challenge, business
co-operation and R&D at regional level can help. There are an increasing
number of regional business associations in ACP countries.

Poor infrastructure is an important
impediment to intra-regional trade. Effective regional co-ordination would
reduce the time of transit and uncertainty for traders. Both theory and
examples from ACP countries show that the results of better regional
infrastructure are reduced transport costs. These reduced transport costs sow
the seeds for increased intra-regional trade. A lack of regional co-operation acts
as a constraint to growth. Co-operation in energy and water leads to economies
of scale; regional co-operation could be particularly effective in ACP
countries, where most individual markets are not big enough to benefit from
this effect. However, few regional ACP power grids are currently fully
functional.

Regional co-operation in the area of land,
fisheries and forests should both promote the sustainable use of resources and
combat illegal usage. Co-operation in the area of agriculture can help with the
issues of food sovereignty and food security. Four ACP regions are currently in
the process of implementing regional food and agricultural trade strategies but
effects are no measurable at his stage.

Increased migration poses challenges
related to the spread of communicable diseases in particular, and improved
regional disease management is likely to increase the growth prospects of
African countries. Migration itself also requires management; while healthy,
integrated migrants can be a valuable resource to the host country, many
African countries have difficulties to manage heavy migration flows.

Social cohesion policies have the advantage
of reducing disparities within a region, and preventing the "race to the
bottom" with labour wages. ACP regions are less advanced than rest of the
world regions in the field of social policies. Some ACP regions do use trade
measures to deal with social issues, and some progress has been made in the
institutionalisation of social dialogues.

Finally, there are several benefits of political
co-operation. Political integration may be a pre-requisite for economic
integration (e.g. the EU); it may accompany economic integration; or it may be
a result of economic integration. An example of the last is the case where
higher income from economic integration promotes the understanding between
countries.

A political advantage of entering a
regional integration agreement is the joining of interests into one stronger,
united voice for trade negotiations. A strong motivation for political
integration is that of peace and security. Peacekeeping operations can
kick-start an economy at a vital time. In the ACP regions, security components
are increasingly included in regional integration programmes, and several
organisations have emerged as conflict managers and peace keepers. It is worth
noting that "lead nations" such as South Africa and Nigeria have a
complicated role in the peace keeping process; on one hand, they have the
necessary resources to lead such missions, but on the other hand, weaker
countries can find the military power of such countries a threat.

Annex 3: Stocktaking of EPAs and regional
integration

At the end of
2007, the negotiations with the fifteen CARIFORUM countries were
successfully concluded. The Agreement comprises all ACP countries in the
Caribbean region and covers all subjects originally identified for
negotiations. This Agreement will promote integration in the Caribbean with
regard to trade in goods, services, investment and a wide range of trade
related areas.

The Caribbean
EPA follows the two principles applied by the region's own integration process,
namely, those of variable geometry and differentiation, which
allow taking into consideration the different levels of development and
integration existing in the region. Within the EPA the region has committed to
remove tariffs on 80% of EU imports over 15 years, while certain products are
excluded from liberalization and others are liberalised within a 20-25 years
timeframe. The Agreement includes commitments on customs and trade
facilitation, such as the introduction of a single administrative document in
Cariforum countries. In the area of sanitary and phytosanitary standards (SPS)
and technical barriers to trade (TBT) the Parties agreed to cooperate so as to
increase the capacity of the region to apply internationally recognised
standards.

The Caribbean
EPA also contains a comprehensive section on Investment and Services as well as
on specific rules on E-commerce. On both services and investment the Agreement
aims at fostering predictability and transparency. In the area of services,
liberalisation commitments focus on sectors that are expected to have a
positive development impact, areas in which CARIFORUM states are looking for
FDI or new technologies as well as sectors important to create economic
opportunities including in out-sourcing. Special reservations have been
maintained for small and medium sized enterprises and public services remain
excluded. In addition the EPA includes provisions aimed at fighting against
corrupt practices of investors, as well as binding provisions on non-lowering
of standards in the environmental and social fields and for cultural diversity
laws and regulations.

Finally the
Caribbean EPA contains also a comprehensive set of trade related rules e.g. on
intellectual property rights (IPRs), the protection of personal data,
government procurement (focusing on transparency), on competition policy, and
social and environmental aspects.

Further
extensive information on the contents of the Caribbean EPA and its expected
benefits can be found at the website of the Caribbean Regional Negotiation
Machinery: http://www.crnm.org.

Outside the Caribbean in all other ACP
regions, interim agreements were concluded that basically focus on trade
in goods and also contain to a varying degree certain trade related
rules while rendezvous clauses foresee the negotiation of the still missing
EPA elements relating to rules, services and investment, over coming months.
Except for the agreement with the East African Community (EAC) where all
members are part of the interim EPA, the interim agreements generally include
only certain but not all members in each region. Hence, they are still
incomplete and need to be turned into comprehensive EPAs over coming months in
order to release their full potential for regional integration. In this context
and in all regions, the commitment to do so by the end of 2008 (by mid 2009 in
the cases of EAC and West Africa) has been re-affirmed by the ACP and EU sides.

In addition it should be noted that in a
number of regions and partly in anticipation of full EPAs, discussions and
concrete steps towards deeper integration are already ongoing. In West
Africa for instance, a regional policy framework for competition was defined
and an external tariff set for countries of the West African Economic and
Monetary Union (WAEMU), while in the Pacific discussions about a regional
services agreement and the establishment of certain trade related rules are
progressing.

Rules of origin (RoO) are important for allowing cumulation between producers in
different ACP countries and hence they are important for the integration of
production processes within and between regions particular in Africa. The EPA
RoO are based on the Cotonou rules with certain substantial improvements in the
areas of agricultural products, fishery products and textiles. They were
designed such that a maximum of integration potential will be ensured within
and among the various regions.

In all regions, EPA related support
is key in helping with the EPA process, implementation of commitments and
regional integration. This important topic is covered separately in the
document.

The interim agreement with the East
African Community (EAC)[33]
focuses on an agreement on trade in goods but also contains a regional chapter
on fisheries and provisions on institutional arrangements. Despite the fact
that it is as yet only an interim agreement, it already develops a very high
degree of regional coherence since the agreement is concluded with all five EAC
members acting as a customs union. Thus liberalisation commitments towards the
EU are identical for all EAC countries and consolidate the internal cohesion
process of the grouping. Since EAC members have also linkages with the Eastern
and Southern African group (ESA) and the Southern African Development Community
(SADC), close coordination between the EAC, ESA and SADC processes is needed as
well as a variable and flexible approach to develop the integration aspects of
the wider region gradually and in harmony. Rendezvous clauses in the interim
agreement foresee negotiations towards a full EPA comprising all relevant EPA
elements by mid 2009.

In the Eastern and Southern African
grouping (ESA) group, six members[34]
have initialled the interim EPA which focuses on an agreement on trade in goods
but also contains a regional chapter on fisheries and institutions as well as
development cooperation. Rendezvous clauses foresee the negotiations towards a
full EPA containing all other EPA elements by the end of the year. Negotiations
on SPS/TBT, Trade facilitation and a Dispute Settlement Mechanism are already
far advanced, negotiations on services, investment, agriculture and development
are ongoing as are discussions on other important issues such as trade related
rules for example on sustainable development, transparency in public
procurement and competition law.

Five countries[35] in the Southern
African Development Community (SADC) group have concluded an interim
agreement which focuses on trade in goods. The agreement also contains regional
rules on SPS and TBT, trade facilitation, institutions and development
cooperation. Rendezvous clauses foresee the continuation and conclusion of
negotiations during 2008 to establish a full EPA containing all relevant
issues. Most members in the region are highly interested in particular in
progressing towards a services and investment agreement as part of the full
EPA.[36]
As regards the regional coverage and in addition to the five countries that
concluded the interim agreement, Angola has also actively engaged in the
negotiations. Finally South Africa is equally part of the SADC EPA negotiation
group but has not signed the interim agreement. Following a period of
consideration of its position, it has however recently re-opened negotiations
on trade in goods. To tap the full EPA potential to boost regional integration
and development, it is highly desirable that South Africa will be part of the
full EPA.

In Central Africa an interim EPA was
concluded with only one country in the region, i.e. Cameroon containing trade
in goods, trade facilitation, SPS and TBT clauses, institutional arrangements
and development cooperation. The region has recently indicated its eagerness to
move forward towards a full EPA containing all elements and comprising all
members of the region.

In West Africa interim agreements
were concluded with two countries in the region, Côte d'Ivoire and Ghana. The contents
comprise trade in goods, facilitation, SPS, TBT, institutions and development
co-operation. At Heads of States and Government level, the entire region has
decided to resume negotiations and aim at concluding a full EPA by mid 2009.

In the Pacific, an interim agreement
was concluded with the economically most important countries Papua New Guinea
and Fiji. The interim arrangement contains a trade in goods agreement, rules on
trade facilitation, SPS and TBT, institutional arrangements and a rendezvous
clause to conclude a full EPA in 2008. A slow and careful resumption of the negotiations
involving the whole region is currently ongoing. The region is particularly
interested in negotiating a services agreement within an EPA and in particular
in arrangements for the temporary movement of labour and is currently
considering its options. In parallel to negotiations with the EU, discussions
in the Pacific on the establishment of regional arrangements in services and
certain trade related rules are also ongoing.

Annex 4: EC financial
support for regional integration

Initial
commitments on projects with a regional focus in ACP countries for the 8th
and 9th EDF (covers multi-country, regional and national programmes
between 1996 and 2007) (million euros)

Region || Regional Integrated Markets || Business Development || Infrastructure || Sustainable Development || Regional Governance || TOTAL

Inter regional (sub-total) ||  134,35 ||  276,453 ||  119,45 ||  818,506 ||  29,723 ||  1378,482

West Africa (sub-total) ||  121,8 ||  2,485 ||  167,15 ||  86,873 ||  123,9 ||  502,208

Regional ||  121,8 || ||  34,7 ||  79, ||  123,9 ||  359,4

Guinée || || || ||  6,4 || ||  6,4

Mali || ||  2,485 ||  132,45 ||  1,473 || ||  136,408

Central Africa (sub-total) ||  28,5 ||  5,5 ||  196,24 ||  43,15 ||  13,1 ||  286,49

Regional ||  28,5 || || ||  38,15 ||  8,1 ||  74,75

Cameroun || ||  5,5 || || || ||  5,5

Cameroun - Tchad || || ||  138,24 || || ||  138,24

Great Lakes || || || || ||  5 ||  5

RCA || || ||  55 || || ||  55

ROC || || || ||  5 || ||  5

Rwanda/Regional || || ||  3 || || ||  3

ESA (sub-total) ||  122,6 ||  6,412 ||  210,496 ||  127,835 ||  3,532 ||  470,875

COMESA ||  122,6 || ||  21 ||  18 || ||  161,6

East Africa || || || ||  3 || ||  3

Ethiopia-Djibouti || || ||  50 || || ||  50

IGAD || || || || ||  1 ||  1

IOC || || || ||  35,5 || ||  35,5

Kenya ||   ||  6,412 ||  119,996 || ||  1,532 ||  127,94

Somalia, Ethiopia & Kenya || || || || 4 || || 4

Uganda || || ||  19,5 ||  67,335 ||  1 ||  87,835

SADC (sub-total) ||  19,09 ||  45,27 ||  39,2 ||  45,514 ||  7,95 ||  157,024

Regional ||  19,09 ||  45,27 ||  39,2 ||  45,514 ||  7,95 ||  157,024

Caribbean ||  63,5 ||  184,044 ||  45,005 ||  41,836 ||  5,73 ||  340,115

Regional ||  37 || || || ||  2,63 ||  39,63

CARIFORUM || || || ||  8,787 || ||  8,787

Barbados || ||  107,584 ||  13,755 ||  13,399 ||  3,1 ||  137,838

Dominican republic ||  5 ||  5 || || || ||  10

Dominica || || ||  0,55 || || ||  0,55

Guyana || || || ||  0,45 || ||  0,45

Haiti - Dominican Republic || ||  45 || || || ||  45

Jamaica ||  21,5 ||  26,46 || || || ||  47,96

Suriname || || ||  30,7 || || ||  30,7

Trinidad and Tobago || || || ||  19,2 || ||  19,2

Pacific ||  11,2 ||  4 ||  0 ||  70,276 ||  4,19 ||  89,666

Regional ||  11,2 ||  4 || ||  52,576 ||  4,19 ||  71,966

PALOP || || || ||  17,7 || ||  17,7

Entire ACP Total ||  501,04 ||  524,165 ||  777,541 ||  1233,99 ||  188,124 ||  3224,861

Source: European Commission

Annex 5: Overview of 9th EDF regional programmes (2002-2007)

1.         Eastern and Southern Africa

Main strategy: economic liberalisation
(trade and tax policy) and investment promotion in order to remove supply side
constraints.

There are three main areas of focus in the
RIP:

1. Economic integration and trade –
45 to 55% of the budget. The focus is on supply capacity, using public sector
tools. In particular, there are attempts to eliminate overlapping and
conflicting programmes and encourage the economic integration of states. Action
in the field of economic integration takes into account the need to prepare for
the negotiation and implementation of the EPA.

2. Transport – 15 to 25% of the
budget. Intervention in this area consists of a master-plan focussing on
investment opportunities and priorities.

3. Natural resources – 15 to 25% of
the budget. Natural resources are to be tackled at regional level. Sustainable
management plans for natural resources are to be developed.

No specific intervention for HIV/Aids is
planned although it was identified as a key hindering factor for the region.

2.         Southern Africa

Main strategy: export led growth and
economic liberalisation, plus the promotion of the supply side.

There are two main focuses in the RIP

1. Economic integration and trade –
35 to 45% of the budget. There is a specific focus on supply capacity and
public sector tools. The aim is to encourage foreign investment for export led
growth. The need to prepare for the EPA is taken into account.

2. Transport and infrastructure – 35
to 45% of the budget. The EU is to provide assistance from its experience with
trade facilitation. The NIPs contain considerable infrastructure investment,
and the RIP will attempt to co-ordinate this investment.

Non-state actors are also to be involved on
a regional level.

3.         West Africa

Main Strategy: UEOMA and ECOWAS are the key
partners. The aim is to assist the long term convergence of these two key
partner organisations. This includes assisting the harmonisation process in order
that goods and people can circulate freely through transport investment.

1. Economic integration – This
includes assisting the formation of the ECOWAS customs union and the free
circulation of goods in the West Africa area; in particular, there is help with
the continuous dialogue process. Assistance for private sector development is a
further element. Considerable help will be offered to improve institutional
capacity. Assistance with preparation for EPA negotiations will be offered.

2. Transport and infrastructure –
The target area is the harmonisation of national policies and a focus on the
facilitation of circulation (non-physical barriers, security, etc). The NIPs
focus on investment in the inter-regional sections of the transport network.

3. Experience sharing – particularly
on public health, further education and research.

4. Conflict prevention

4.         Central Africa

Main strategy: the consolidation of a
Central African regional space and the integration of this space in to the
world economy.

1. Economic integration – 25 to 30%
of the budget. The main aim is deeper regional integration to increase growth
and reduce poverty. Regional organisations should be made to work more
effectively. Assistance will be provided towards creating a customs union and common
market, and also in the convergence of economic policies. Private sector
assistance will be provided and non-state actors will be involved more.
Assistance will be provided to assist with transition and restructuring
required from the EPA.

2. Transport and telecommunications
– 35 to 40% of the budget. The aim is to improve land-based transport networks.
This includes the improvement of CEMAC's competence on transport, analysis of
obstacles in conjunction with the private sector, the definition of a regional
network and the development of an open and competitive telecommunications
market.

3. Sustainable management of natural
resources – 20 to 25% of the budget. The ECOFAC[37] programme will be continued.
RAPAC[38]
will be made autonomous and able to manage money. Assistance will be provided
to make the national conservations plans both regionally integrated and managed
by an existing regional organisation. Several environmental conventions should
be implemented (e.g. Kyoto).

5.         Pacific

1. Regional integration – 31% of the
budget. The key focus is the strengthening of capacities for regional
integration. This includes the strengthening of negotiating capacities in the
context of the WTO and EPA. Assistance is to be provided for the mutual removal
of tariffs. Help will be offered to private sector companies so that they can
fully benefit from new opportunities. Technical assistance will be given with
public financial administration and tax.

2. Human resource development – 28%
of the budget. Technical and Vocational Education and training is included in
the NIPs. The RIP is to assist both with basic education and TVET at regional
level.

3. Fisheries – 17% of the budget.
The focus is the strengthening of regional institutions for fisheries.

6.         Caribbean

The creation of a harmonised regional
economic space to improve competitiveness and integration to world economy will
use the majority (75 – 90%) of the budget. This general objective focuses more
specifically on regional economic integration, integration into the world
economy, and economic repositioning allowing the region to take advantage of
new opportunities (with a specific focus on SMEs). The preparation for
negotiation of EPAs also falls within this category.

Annex 6: Evaluation of EDF Programmes

1.         Evaluations of 9th
EDF Regional Strategies and Programmes

Four of the six RIPs under the 9th
EDF have been evaluated by external consultants. The following recurring themes
have been identified:

–
Regions are not clearly defined (multiple RTA
membership / delimitations of regions) hence there is a "choice of
partner" problem for the EC.

–
Transport intervention at a regional level is
not effective.

–
The RIPs and NIPs are often not coherent.

–
Poverty issues are not being tackled
satisfactorily at a regional level.

–
Capacity constraints to implement regional
policy exist due to weak institutions.

–
There is the need to involve non-governmental
actors on a regional level. However, in general terms, such actors tend to
think more on a local level.

More specifically, below are presented the
highlights of the evaluation reports for the concerned regions:

Caribbean

Source:
Evaluation of the Commission's Regional Strategy for the Caribbean. April 2005
- Evaluation of past and present intervention = chiefly 8th EDF
effectiveness and 9th EDF strategies.

–
No policy dialogue exists for a long-term vision
of regional integration. Institutions set up by the Commission are deemed not
sustainable and still require external assistance.

–
Regional intervention is effective in the areas
of trade, cultural identity, product identity, regional marketing, tertiary
education and crime prevention.

–
Poverty and gender issues are not being tackled
in a regional integration context.

–
Roles and responsibilities are not clearly
marked out for actors on the Caribbean and EC sides. CARIFORUM has helped, but
lacks the necessary capacity to ensure regional strategic objectives are
achieved.

–
The regional approach is being taken, but does
not pay enough attention to specificities of the Caribbean.

–
The RIP and NIP are considered not coherent.

SADC

Source:
Evaluation of the Commission's support to SADC: Regional Level. October 2007. -
An evaluation for the period 1996-2007, chiefly analysing 8th and 9th
EDF effectiveness. Some projects from 6th and 7th EDF
were still active.

–
Regional intervention does not tackle the
multiple membership problem, e.g. in relation the EPA.

–
There is a focus on capacity building activities
to help SADC, the aim being to make SADC capable of managing its own aid.
Currently SADC ownership of regional programmes is not strong and SADC member
states do not sufficiently support SADC national committees.

–
Transport intervention is working at a national
level but not at a regional level. The liberalisation reforms of SADC states
are limiting the effectiveness of transport intervention.

–
EC support is increasingly poverty orientated,
but does not appear to be effective.

HIV/AIDS
regional strategies are in place but appear not to be working.

There
is a need to look at the long term aspect of food security, and to look at it
on a regional, not a national level.

–
Non State Actors generally are not able to focus
on regional issues.

–
The NIP and RIP are considered as not always
coherent.

–
Delegations with regional responsibilities need
to consider more the regional aspects.

Central Africa

Source: Evaluation
de la Stratégie Régionale de la CE en Afrique Centrale. December 2006 - An analysis of the
effectiveness of past experience (8th EDF) and ongoing experience at the time
of writing (9th EDF).

–
NIP – RIP coherence is considered weak,
particularly for poverty reduction.

–
Central Africa is not clearly delimited as a
region. There is therefore the lack of a clear regional partner for the EU.

–
Transport intervention on a national level is
strong, but it is not having a significant effect on intra-regional exchanges.

–
Natural resource intervention has been
successful, but is not sustainable, and does not have enough support from
national governments.

–
Citizens do not recognise the region.

Pacific

Source:
Evaluation of the Commission's support to the ACP Pacific Region. September
2007 - An evaluation for the period 1997-2007 (implementation up to 2005
analysed) - 8th and 9th EDFs.

–
General assistance is seen as weak in the area
of poverty reduction; intervention specifically for poverty reduction has not
been programmed.

–
There is a lack of coherence between RIP and
NIP. Regional and national strategies have been designed separately.

–
Environmental and natural resource assistance is
considered not sufficient.

–
Commission’s intervention in regional
integration and trade is generally quite recent and therefore could not be
assessed at the time of writing the report.

2.         Issues
relevant for regional integration in thematic evaluations of support

Governance

Source:
Thematic Evaluation of EC Support to Good Governance. June 2006

–
Governance is included in regional level
co-operation agreements and RSPs at a policy level.

–
The EC is contributing to region specific
governance objectives, but the overall effect (on systemic change) is not clear,
nor is the sustainability of the contribution.

Private Sector Development

–
Source: EC Support for Private Sector
Development. December 2005.

- There is no methodical process for selecting
an area of intervention, which limits the effectiveness of interventions.

- Activities are not designed so as to improve the competitiveness of
the private sector in a sustainable manner.

- There is no systematic
attempt to maximise complementarities between areas of intervention or to
ensure coherence between private sector development and other sectors or other
EU policies.

Co-ordination, complementarity and
coherence. November 2007

–
No effects on policy at a regional level have
been identified.

Développement rural et agricole. June 2007

–
No effects on policy at a regional level have
been identified.

Co-ordination of trade building capacity
in partner countries. February 2006

–
No effects on policy at a regional level have
been identified.

Annex 7:
References

Africa-EU (2007), The Africa-EU Strategic
Partnership – A Joint EU-Africa Strategy, Lisbonne, 8-9 December 2007.

European Commission (1995), Economic
Community support for regional economic integration efforts among developing
countries, 16 June 1995, COM (1995) 219 final

European Commission (2003), European Community
co-operation with third countries: The Commission's approach to future support
for the development of the business sector, 19 May
2003, COM (2003) 267 final

European Commission (2004), A stronger
partnership for the outermost regions, 26 May 2004, COM (2004) 343 final

European Commission (2005), EU Strategy for
Africa: Towards a Euro-African pact to accelerate Africa’s development, 12 October 2005, COM (2005) 489 final

European Commission (2006a), An EU-Caribbean
partnership for growth, stability and development, 2
March 2006, COM (2006) 86 final

European Commission (2006b), EU relations
with the Pacific islands – A strategy for a strengthened partnership, 29 May
2006, COM (2006) 248 final

European Commission (2006c), Interconnecting
Africa: the EU-Africa partnership on infrastructure, 13 July 2007, COM (2006)
376 final

European Commission (2007a), Advancing
African Agriculture - Proposal for continental and
regional level cooperation on agricultural development in Africa, 24 July 2007, COM (2007) 440 final

European Commission (2007b), Strategy for the
Outermost Regions: Achievements and Future Prospects, 12
September 2007, COM (2007) 507 final

Ferroni, Marco (2001), Regional public goods
in official development assistance, Inter-American Development Bank, Occasional
paper 11, November 2001

Kanbur, Ravi (2001), Cross-Border
Externalities, International Public Goods and Their Implications for Aid
Agencies, March 2001. Revised version published in Lourdes Beneria and Savitri
Bisnath (editors), Global Tensions: Challenges and Opportunities in the World
Economy. Routledge, 2004.

Oversees Development Institute (2008),
Regional Integration in ACP – A Review of Literature, http://ec.europa.eu/development/icenter/repository/Regional-Integration-Report-18-09-2008\_en.pdf

PriceWaterhouseCoopers (2007), Sustainability
Impact Assessment of the EU-ACP Economic Partnership Agreements - Summary of
key findings, policy recommendations and lessons learned, www.sia-acp.org

Venables, Anthony J. (2000), Winners and
Losers from Regional Integration Agreements, CEPR.Discussion Paper N°2528,
August 2000

[1]               For all references to literature in this document,
see Annex 7 and http://ec.europa.eu/development/icenter/repository/Regional-Integration-Report-18-09-2008\_en.pdf

[2]               For a more complete definition of regional public
goods, see Ferroni (2001), P3 ff. and the original definition of international
public goods by Kanbur (2001).

[3]               Regional economic arrangements are often applied with
distortions.

[4]               REC integration plans are often changing. The
proposed integration listed here is based on the most recent, readily available
public information.

[5]               It is worth noting, however, that commodity-related
FDI inflows into some countries have increased in recent years.

[6]               Interconnecting Africa: the EU-Africa Partnership on
Infrastructure, 13 July 2006, COM(2006)376 final

[7]               Communication on European Community support for regional economic integration efforts
among developing countries, COM (1995) 219 final, 16.06.1995.

[8]               Commission Green Paper on Relations between the
European Union and ACP Countries on the eve of the 21st century –
Challenges and Options for a new Partnership, COM(1996)570 final, 20.11.1996

[9]               Article 133 of the Lomé II Convention already
established that "in the implementation of the financial and technical
cooperation, the Community shall provide effective assistance for attaining the
objectives which the ACP States set themselves in the context of regional and
inter-regional cooperation. This assistance shall aim to:       
a)            accelerate economic cooperation and development both within and
between the regions of the ACP States;          
b)            accelerate diversification of the economies of the ACP States;             
c)            reduce the economic dependence of the ACP States on imports by
maximizing output of those products for which the ACP States in question have
real potential;
d)            create sufficiently wide markets with the ACP States and
neighbouring States by removing the obstacles which hinder the development and
integration of those markets;        
e)            promote and expand trade between the ACP States and with
neighbouring third countries;
f)            maximize the use of resources and services in the ACP States;             
g)            strengthen organizations set up by the ACP States to promote
regional cooperation and integration;
h)            implement specific measures in favour of the land-locked and
island countries, notably in respect of transport and communications."

[10]             This approach is usually referred to in the academic
literature as "negative integration". This is a neutral phrase that is
used (often in an EU context, but not exclusively) to describe the form of
integration based mainly on the reduction / abolition of barriers, as opposed
to "positive integration", which implies the approximation or
harmonisation of laws and standards. These expressions being descriptive, they
do not convey any judgement on the merits of either form of integration.

[11]             "Cooperation shall, in the area of regional
economic integration, support:         
a. developing and strengthening the capacities of:    
- regional integration institutions and organisations set up by the ACP States
to promote regional cooperation and integration, and              
- national governments and parliaments in matters of regional integration;       
b. fostering participation of Least Developed Countries (LDC) ACP States in the
establishment of regional markets and sharing the benefits therefrom;    
c. implementation of sectoral reform policies at regional level;             
d. liberalisation of trade and payments;      
e. promoting cross-border investments both foreign and domestic, and other
regional or sub-regional economic integration initiatives; and   
f. taking account of the effects of net transitional costs of regional
integration on budget revenue and balance of payments."

[12]             As far as laws, regulations and standards are
concerned, this approach covers what is referred to in the academic literature
as "positive integration" (see footnote 10).

[13]             "1. Cooperation shall, in the area of regional
cooperation, support a wide variety of functional and thematic fields which
specifically address common problems and take advantage of economies of scale,
including:    
a. infrastructure particularly transport and communications and safety thereof
and services, including the development of regional opportunities in the area
of Information and Communication Technologies (ICT);
b. the environment; water resource management and energy;              
c. health, education and training;  
d. research and technological development;              
e. regional initiatives for disaster preparedness and mitigation; and     
f. other areas, including arms control, action against drugs, organised crimes,
money laundering, bribery and corruption."

[14]             "3. Cooperation shall help promote and develop a
regional political dialogue in areas of conflict prevention and resolution;
human rights and democratisation; exchange, networking, and promotion of
mobility between the different actors of development, in particular in civil
society."

[15]             See PriceWaterhouseCoopers (2007): Page 9 ff.

[16]             See Commission Staff Working Paper SEC(2008)2538 of
01.10.2008 for more details on the Regional Strategy Papers and the content of
the Regional Indicative Programmes.

[17]             Commission Communication on a Strategy for the Outermost Regions: Achievements and Future
Prospects, COM(2007)507 final, 12.09.2007

[18]             The CARICOM Member States are: Antigua/Barbuda,
Bahamas, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St.
Kitts/Nevis, Saint Lucia, St. Vincent/the Grenadines, Suriname and
Trinidad/Tobago. CARICOM’s Associated Members are: Anguilla
(1998) ; Bermuda (2003); British Virgin Islands (1991); Cayman Islands
(2002); Turks and Caicos Islands (1991

[19]             Antigua and Barbuda, Dominica, Grenada, Montserrat, St
Kitts and Nevis, St Lucia and St Vincent and the Grenadines. Anguilla and the
BVI are associate members.

[20]             CARIFORUM includes all the
Caribbean ACP States, namely all the CARICOM Member States except Montserrat
(which is an OCT) plus the Dominican Republic and Cuba.

[21]             Cameroon, Central African Republic, Republic of Congo, Equatorial
Guinea, Gabon, Chad

[22]             Angola, Burundi, Comoros,
Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya,
Madagascar, Malawi, Maurice, Uganda, Rwanda, Seychelles, Sudan, Swaziland,
Zimbabwe, Zambia.

[23]             Djibouti, Egypt, Kenya,
Madagascar, Malawi, Maurice, Sudan Zambia, Zimbabwe

[24]             Burundi, Kenya, Tanzania, Uganda, Rwanda.

[25]             Eritrea, Ethiopia, Djibouti, Kenya, Sudan, Somalia,
Uganda.

[26]             Angola, Botswana, the Democratic Republic of Congo,
Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa,
Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

[27]             Botswana , Lesotho, Namibia, Swaziland and South
Africa.

[28]             Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia,
Ghana, Guinea Conakry, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal,
Sierra Leone, Togo. Mauritania left the Community in 1999.

[29]             Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali,
Niger, Senegal, Togo.

[30]             Australia, Cook Islands, Federated States of
Micronesia, Fiji, Kiribati, Nauru, Niue, New Zealand, Palau, Papua New Guinea,
Samoa, Solomon Islands, Tonga, Republic of the Marshall Islands, Tuvalu and
Vanuatu.

[31]             Cook Islands, Fiji, Kiribati, Nauru, Niue, PNG, Samoa,
Solomon Islands, Tonga, Tuvalu, Vanuatu.

[32]             PNG, Fiji, Solomon Islands, Vanuatu

[33]             Kenya, Tanzania, Uganda, Rwanda, Burundi

[34]             Mauritius, Comores, Seychelles, Madagascar, Zimbabwe;
Zambia also initialled but does not take part in the goods agreement.

[35]             Botswana, Namibia, Lesotho, Swaziland, Mozambique.

[36]             All except Nambia.

[37]             Conservation et utilisation rationnelle des
ECOsystèmes Forestiers d'Afrique Centrale.

[38]             Réseau des Aires Protégées d'Afrique Centrale.

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