Prospects of world economic integration

Prospects of world economic integration

By Ronald Nangoi

JAKARTA (JP): The continuous process of economic
liberalization and globalization is challenging regional
economics. Despite doubts about the prospect of world trade
liberalization due to its complexities and the Asian monetary
crisis, the rapid progress of information and communication
technologies is fostering world economic integration.

But do such moves really challenge economic regionalism? Like
regionalism, globalization constitutes an economic integration,
which is to create world-trading arrangements for a prosperous
world economy.

"Yes" would be the right answer, if regional economics is
considered a trading bloc. The creation of single market in
Europe and a free trade area in North America have been triggered
by the ascent of East Asian economies, particularly Japan. It's
quite obvious that, since the 1970s, European economics has been
in a declining state in the world economy.

To the West, Japan and the East Asian economies are quite
ambitious to develop their industries and advanced technologies
so as to maintain their competitive edge. As identified by
Barbara Marga Weiss of the International Studies Association
(1999), the success of the Japanese in having a leading edge in
various chip technologies in the 1980s was a major factor behind
the decision of the major European information technology firms
to push governments to create the single market and a European
high technology policy in the 1980s.

The European Community should be highlighted because it has
often been used as a model of economic integration. It has passed
through the stages of integration from a free trade area, a
customs union, a common market, an economic and monetary union,
to complete economic integration.

The economic integration has been mostly based on the common
interest of the member countries to protect their economies and
to lower internal barriers. Despite the enhancement of economies
of scale and production efficiency, the economic integration in
the European Union and the North American Trade Agreement (NAFTA)
has been perceived as forming trading blocs with their
accompanying trade diversion effects. Taking discriminatory
actions against developing countries has made it at times
difficult for them to sell products to those regions.

The other major factors behind the rising regional economic
arrangements is an uncertain liberalization of world trade and
worries about the cost of economic globalization. Protectionism
is still alive. The globalizing world economy has also been
perceived also as creating new instabilities, insecurities, and
inequalities as in the form of the current monetary crisis
(Ikenberg, 1998).

The answer to my original question would be "No" if
integration is viewed as part of global economic integration.
Regional economic integration may create free trade among its
member states with its trade creation effects. Thus, had the
global free trade push been a failure, they could still have
gained benefits from trade among member states. The intensifying
of regional economic integration in the 1980s and 1990s was
caused by the member states' doubt about the success of the
General Agreement on Trade and Tariffs (GATT) in setting up a
world economic and trade system, especially before the Uruguay
Round.

In view of the progress of market-led economies, no regional
bloc could close its economy. Therefore, being consistent with
GATT's principles, the Asia Pacific Economic Cooperation (APEC)
has introduced its "open regionalism" principle. It is as if the
regional groupings have played a role in controlling and pushing
each other to open their markets, as the United States and Europe
put pressure on Japan and other East Asian countries to open
their protected markets as they gained in competitiveness (H.W.
Arndt: 1998). Through trading blocs, the member states have a
bargaining position in pushing other states to open their
markets.

Though trading blocs have often been blamed for practicing
trade discrimination, they have contributed to the growth of
world trade. H.W. Arndt of the Australian National University
identified regional trading arrangements, mostly preferential
ones, such as the European Common Market, the European Free Trade
Area, NAFTA, the Association of Southeast Asian Nations (ASEAN)
Free Trade Area, and the Asia Pacific Economic Forum (APEC),
contributed to a rate of expansion of world trade twice as fast
as the growth of world GDP. That's why, the trading blocs are
likely to emerge as a stepping-stone toward increasing economic
integration, creating a real global economy.

The world economies are being integrated, both regionally and
globally. Yet the economic globalization is overriding
regionalism. John Ikenberg (1998) argued that driven by deep
currents of technology and modernization, globalization was a
much more powerful force than regionalism in shaping world order.
The increasingly global character of trade and capital markets,
and the internationalization of production are ultimately cutting
across and limiting regional groupings.

This could be justified in view of the continuous process of
world trading arrangements under the WTO in its effort to promote
truly free trade. On the other hand, one could argue that the
regional trade arrangements mostly spring from a liberal economic
orientation compatible to economic globalization.

Whether it is economic globalization or regionalism, everyone
agrees that interdependence and integration is a world economic
reality. And economic and market openness have been intensifying
regional and global competition.

Though benefiting consumers everywhere, this should be seen as
a real challenge for especially the developing countries, because
they are unprepared to strengthen their own individual economies
and to benefit world economic opportunities. If they had not made
adequate preparations, it might not be impossible for them to be
isolated from the processes of economic integration.

The writer is a lecturer at Tarumanagara University, Jakarta.