Source: EURLEX
Language: en
Format: md

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 16.06.1995
COM(95) 219 final

COMMUNICATION FROM THE COMMISSION

European Community support for regional economic integration efforts among
developing countries

**CONTENTS**

List of acronyms

Summary

Introduction and motivation

I. Conceptual framework

II. EC support to integration efforts throughout the

developing world

III. Lessons learnt to-date

1. Preconditions for successful regional integration

2. Design of regional integration

3. Implementation of regional integration

IV. Recommendations on external support for regional integration

1. Trade policy

2. Development cooperation policy

3. Donor coordination

Appendix A Overview of EC support for regional integration among

11

2

6

8

9

10

11

12

12

13

16

developing countries 17

Appendix B List of major economic cooperation and integration groupings and

their membership 25

       - i \. 

LIST OF ACRONYMS

ADB African Development Bank
AEC African Economic Community
ALADI Latin American Integration Association
AMU Arab Maghreb Union
APEC Asia Pacific Economic Cooperation
ASEAN Association of South East Asian Nations

BEAC Banque des Etats d'Afrique Centrale (Bank of Central African States)
CARICOM Caribbean Common Market

CBI Cross-Border Initiative (Eastern and Southern Africa)
CEAO Communaute Economique de l'Afrique de l'Ouest

(Economic Community of West Africa)

CEMAC Communaute Economique et Monetaire de l'Afrique Centrale

(Economic and Monetary Community of Central Africa)

CEPGL Communaute Economique des Pays des Grands Lacs

(Economic Community of the Great Lakes Countries)
CMA Common Monetary Area (Rand zone)
COME.SA Common Market for Eastern and Southern Africa

EAC East African Community
EC European Community
ECA Economic Commission for Africa

ECCAS Economic Community of Central African States
ECO Economic Cooperation Organisation
ECOW AS Economic Community of West African States
EU European Union
GCA Global Coalition for Africa

GCC Gulf Cooperation Council
IOC Indian Ocean Commission

JUNAC Junta del Acuerdo de Cartagena
MCCA Mercado Comun Centroamericano

MERCOSUR Mercado Comun del Sur

NAFT A North American Free Trade Area

OAU Organisation of African Unity
OECD Organisation for Economic Cooperation and Development
OECS Organisation of East Caribbean States
PT A Preferential Trade Area for· Eastern and Southern Africa

SAARC South Asian Association for Regional Cooperation
SACU Southern African Customs Union

SADC Southern African Development Community
SADCC Southern African Development Coordination Conference
SICA Sistema de Integraci6n Centroamericano
UDEAC Union Douaniere et Economique de l'Afrique Centrale

ADB

AEC

ALADI

AMU

APEC

ASEAN

BEAC

CARICOM

CBI

CEAO

CEMAC

CEPGL

UEMOA

UMOA

(Customs and Economic Union of Central Africa)
Union Economique et Monetaire Ouest Africaine
(Economic and Monetary Union of West Africa)
Union Monetaire Oues~ Africaine (West African Monetary Union)

                                       - 11                                        

**SUMMARY**

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

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

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

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

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

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

                           - iii                            

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

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

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

structure.

On the other hand, to promote effective regional integration, a development
cooperation policy should have the following broad components:

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

                        - I 

**INTRODUCTION AND MOTIVATION**

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

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

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

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

                         - 2 

I. **CONCEPTUAL FRAMEWORK**

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

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

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

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

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

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

Delimitation of the subject

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

                         - 3 

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

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

Even though there is no precise definition of regional cooperation and regional
integration, there is a broad agreement on what they mean in practice. Regional cooperation
is a general concept that refers to all efforts on the part of (usually) neighbouring countries
to address issues of common interest. These efforts or initiatives can be divided into two

broad groups: those whose objective is the elimination of policy-induced barriers to intragroup movement of goods, services and factors of production (usually referred to as "regional
integration"), and those aimed at reducing other barriers to the intra-group flows (such as the
facilitation of transport and communication infrastructures), as well as any other activities
leading to furthering the interdependence of the economies and to the better management of
common resources (usually referred to as "regional cooperation").

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

Regionalism among industrialized and developing countries

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

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

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

                         - 4 

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

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

Regionalism among developing countries

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

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

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

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

                         - 5 

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

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

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

International support for regional initiatives among developing countries

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

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

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

                         - 6 

Regional integration and multilateral trade liberalisation

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

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

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

Il. **EUROPEAN** **COMMUNITY** **SUPPORT** **TO** **INTEGRATION** **EFFORTS**

**THROUGHOUT THE DEVELOPING WORLD**

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

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

                         - 7 

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

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

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

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

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

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

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

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

                         - 8 

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

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

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

The details of EU support for the promotion of regional integration among developing
countries are given in Appendix A.

ID. **LESSONS LEARNT TO DATE**

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

                         - 9 

The lessons learnt can be subdivided into those related to the preconditions and
success factors, the design and the implementation of regional integration initiatives.

1. Preconditions and success factors for regional integration

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

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

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

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

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

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

                             - 10                             

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

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

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

c. Factors that facilitate the success of regional integration.

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

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

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

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

###### 2. Desian of regional inteKration

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

                             - 11                             

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

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

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

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

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

3. Implementation of regional integration

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

                       - 12 

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

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

**IV.** **RECOMMENDATIONS** **ON** **EXTERNAL** **SUPPORT** **FOR REGIONAL**

**INTEGRATION**

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

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

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

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

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

                              - 13                               

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

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

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

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

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

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

2. Development cooperation policy

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

a) Capacity Building and institutional strengthening

                             - 14                             

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

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

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

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

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

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

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

                             - 15                             

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

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

sectors.

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

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

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

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

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

                       - 16 

3. Donor coordination

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

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

Under a mandate from the Global Coalition for Africa the Commission initiated efforts

to formulate recommendations to rationalise and strengthen integration institutions in Africa.
It may be useful to carry out a similar exercise for other parts of the developing world.

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

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

**Appendix A**

                   - 17                    

**OVERVIEW OF EC SUPPORT** **FOR** **REGIONAL INTEGRATION**

**AMONG DEVELOPING COUNTRIES**

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

a. Latin America

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

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

In the area of trade, the EC granted the Central American Common Market in the mid1980s, the possibility of regional cumulation in the rules of origin, thus providing incentives
for intra-regional production and trade. Similar support for integration comes from the fact
that all of the members of SICA receive the same special preferential treatment within the
EC's GSP scheme.

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

                             - 18                              

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

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

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

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

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

b. Mediterranean Basin (including the Middle East)

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

                            - 19                             

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

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

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

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

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

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

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

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

                       - 20 

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

c. Asia

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

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

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

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

                           - 21                            

d. Sub-Saharan Africa (SSA)

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

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

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

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

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

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

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

                       - 22 

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

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

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

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

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

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

                             - 23                             

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

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

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

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

e. The Caribbean

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

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

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

                       - 24 

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

f. The South Pacific region

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

                       - 25 

**Appendix B**

**LIST OF MAJOR ECONOMIC INTEGRATION GROUPINGS**

**INVOLVING DEVELOPING COUNTRIES AND THEIR MEMBERSHIP**

A. AFRICA

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

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

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

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

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

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

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

B. ASIA AND THE PACIFIC

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

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

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

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

                            - 26                            

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

C. LATIN AMERICA AND THE CARIBBEAN

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

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

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

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

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

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

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

D. OTHER GROUPINGS

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

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

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

###### ISSN 0254-1475

### COM(95) 219 final

# **DOCUMENTS**

## EN 11

#### Catalogue number : CB-CO-95-246-EN-C ISBN 92-77-89330-3

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