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.