Regional trade arrangements are an increasingly important element of the global trade environment. Indeed, it is estimated that between 50 and 60 per cent of global trade now benefits from regional preferences (WTO, 2000b). Developing countries are active participants in the formation of RTAs and an increasing number of these are being formed on a North-South basis.
RTAs for the purpose of this study include both free trade areas and customs unions. RTAs have become more complex and comprehensive over time, both in terms of their sectoral and instrument coverage. Often limited to trade in manufactures in the past, RTAs increasingly include coverage of agricultural trade as well as services. RTAs also provide for deeper integration than simply the removal of tariff barriers on intra-area trade or, in the case of CUs, the harmonization of external tariffs. RTAs increasingly address issues of regulatory coordination, investment, intellectual property, competition policy, government procurement, and labor and environmental standards.
There are differing viewpoints on the desirability and on the efficient design of regional integration, especially involving developing countries. Furthermore, the past record of such arrangements, again especially among developing countries, has been disappointing. Thus the first objective of this paper is to review the regional integration debate for those involved in the preparation of food security strategies as part of regional integration programs among developing countries. It aims to provide a better understanding of the motivations, processes and constraints to regional integration and cooperation. The paper concentrates primarily on the economic arguments while acknowledging that political motivations may often be the primary driving force behind RTAs.
The second objective of the paper is to identify the potential role which regional trade arrangements might make to promoting food security among their members. Given the growing propensity of developing countries to enter into RTAs both with each other and with industrialized countries, it is pertinent to ask what impact this might have on their food security, and how these regional groupings might be able to contribute to promoting food security. Can poverty and hunger (as cause and consequence of food insecurity) be alleviated by regional integration? What are the possible opportunities for regional integration to promote food security? Special attention is paid in the paper to the potential and constraints to regional co-operation in sub-Saharan Africa given the severity of food insecurity in that region and its ambitious objectives for regional integration.
The growing interest in regionalism at a time when tariff barriers are becoming less and less important in world trade (despite well-known peaks in agriculture and textiles) is a paradox. Why do countries go to the trouble of constructing elaborate institutional arrangements to remove tariff barriers between themselves when empirical analyses suggest that the static welfare gains from regional integration are relatively modest? There are multiple answers to this question. One is that the motives for regional integration may not be primarily economic but largely political and security ones. Another is that the growth of domestic regulation has raised the importance of non-tariff and behind the border barriers in segmenting markets. Regional integration allows countries frustrated at the slow progress of multilateral negotiations on these issues to move ahead faster with a group of like-minded partners. A third argument relies on the dynamic of regional integration arrangements: that as more countries enter into such arrangements, the costs of remaining outside (in terms of the trade diversion effects) increase. Also, the fact that regional integration is taking place in a low-tariff environment contributes to the sustainability of RTAs because it lowers the potential for trade diversion costs and adverse redistributional transfers arising from regional integration.
The past experience of developing countries with regional integration schemes is not a happy one. The reasons for this can be illuminated with the aid of the simple theory of customs unions. Preferential trade arrangements give rise both to trade creation and trade diversion effects, as well as to transfers between the member countries. The design of RTAs among developing countries in the past tended to maximize the costs of trade diversion (because of high external tariffs) and also encouraged regressive transfers from poorer to better-off members of such arrangements.
The recent more favorable assessment of regional integration arrangements involving developing countries is based on the following considerations. Regionalism will lead to net trade creation as long as it is coupled with a significant degree of trade liberalization and where emphasis is put on reducing cost-creating trade barriers which simply waste resources. Regional economic integration may be a precondition for, rather than an obstacle to, integrating developing countries into the world economy by minimizing the costs of market fragmentation.
North-South RTAs have been seen as more likely to result in gains to developing countries as compared to South-South RTAs, on the grounds that they minimize trade diversion costs and maximize the gains from policy credibility. Closer examination of these arguments, however, suggest that the assumptions on which they are based may not always stand up. Positive economic outcomes will depend on the deliberate design of these agreements, and cannot simply be assumed.
The growing propensity of RTAs to include aspects of policy integration also poses a challenge for developing countries. Although these aspects are most common in RTAs involving high-income countries, a growing number of North-South agreements now have broad integration objectives. The removal of non-tariff barriers which act to segment markets can be potentially beneficial, but whether this turns out to be the case in practice will depend on the nature of the policy integration. The same set of regulations and standards is not optimal in all countries; differences in standards may well be justified on efficiency grounds. For example, environmental standards tend to be higher in high-income economies because of the high value placed by the public on environmental improvements in these countries. Lower standards may be appropriate in other countries in order to avoid the diversion of resources away from policies with a greater potential to improve citizens welfare. Harmonizing standards (upwards) in this situation would impose additional costs on developing countries. The costs to developing countries of harmonizing inappropriate policy regulations may exceed the benefits of encouraging greater market access.
There are a number of institutional issues in the design of RTAs which may affect their capacity to act effectively. Most RTAs between developing countries are intergovernmental with little evidence that countries are prepared to cede authority to supranational bodies. As a result, the commitment institutions which underpin the sustainability of these arrangements are likely to be weak.
Flexibility in setting integration ambitions can be valuable, including making allowance for variable speed and variable geometry formulations for developing country economic groupings with overlapping memberships and different integration objectives.
There is a useful distinction to be made between regional integration based on the exchange of trade preferences and policy coordination, where the objectives are to promote a more efficient allocation of resources, to intensify competition and to underpin political credibility vis-à-vis private investment, and regional cooperation where the primary objective is to ensure the supply of regional public goods. A successful RTA may have positive spin-offs in improving the supply of regional public goods.
The subsidiarity principle can be used to organize discussion on the appropriate role and competences of regional authorities vis a vis national and local ones. This is a good starting point to think about the role of regions in promoting food security. It is precisely those food security activities which add value to country efforts through stabilization or redistribution, or where there are strong efficiency arguments for a regional approach, which should be encouraged at the regional level.
RTAs represent an exception to the most general WTO principle of non-discrimination contained in GATT Article I. This has led to an active debate over whether RTAs are a building block or a stumbling block in creating an open and sustainable multilateral trading system. The legal cover for RTAs within the WTO is an item for discussion in the Doha Development Round. Among the issues for clarification are the interpretation of the substantial trade requirement and how to measure the neutrality of trade policy before and after integration occurs, particularly in the case of non-tariff barriers. For developing countries, the issues concern the scope for flexibility and asymmetry in future RTAs concluded with industrialized countries under the cover of Article XXIV.
It would also be helpful if the agricultural negotiations were to clarify the treatment of agricultural commitments in the Agreement on Agriculture in the context of regional integration. In particular, the methodologies which should be used in aggregating market access, export subsidy and domestic support commitments when forming a customs union need to be more clearly spelled out.
Developing countries have a number of interests in any revision of WTO rules on RTAs. As beneficiaries of a rules-based multilateral trading system, they will want to ensure that regionalism contributes to its strengthening and not its fragmentation. Under this heading, clarification of the rules regarding the required trade coverage, tightening of the requirement for trade neutrality, and ensuring that rules created under regional arrangements are compatible with the multilateral system and are transparent, will be important objectives.
Because regional integration among developing countries in the past was mainly concerned with encouraging industrial development, there is relatively little literature on its impact on agricultural development and food security. There are two main aspects to the interface between regionalism and food security: (a) the consequences of regional integration (and, especially, regional trade integration) for food security, and (b) the opportunities which exist to address food security issues within a regional framework.
To the extent that regionalism promotes increased intra-regional trade which fosters economic growth and increases employment prospects and the income-earning capacities of the poor, it will enhance food security. Whether regional integration promotes overall economic growth or not will depend on the design of the agreement, and whether it succeeds in promoting more trade creation rather than trade diversion.
However, the consequences of regional trade integration need country-specific and region-specific evaluations of market integration on the overall status of food insecure households. Potential beneficiaries of regional integration among low-income farm households may be unable to take advantage of increased market access opportunities in the presence of supply-side constraints. There will also be those households in both rural and urban areas who either fall behind or lose out in this process. Where supply constraints are identified, regional integration strategies should include investment and training interventions to address these constraints. Where negative impacts are identified, then a regional integration strategy which is food-security aware should be accompanied by flanking measures to address these negative impacts.
A Food Security Financial Instrument is proposed to finance initiatives both to protect vulnerable groups from any adverse consequences from, and to assist them to take advantage of, regional integration initiatives.
Incorporating agriculture into RTAs will lead to pressure to harmonize agricultural policies either by transferring responsibility to the supranational, regional level or by coordinating national policies. Key issues which will need to be addressed in this process include the level of the common external tariff, rules on domestic subsidies to farmers, the priority to be given to tackling different kinds of market-fragmenting barriers, and the need for financial mechanisms to address any adverse inter-country distributional effects of supporting farm prices within the union.
It will also make sense to pursue a strategy of policy coordination to reduce barriers to intra-regional agricultural trade. Many measures to facilitate intra-regional trade are not specifically agricultural, for example, improved transport, communications and payments links and the elimination of border obstacles. Specific food and agricultural measures to facilitate trade might include:
support for measures to improve the quality of SPS controls and to harmonize standards within the region both to eliminate SPS barriers to intra-regional trade and to ensure unimpeded access to extra-regional markets;
support for commodity development programs where similar export commodities are produced in a number of countries in the region;
support for regional market information services to enhance awareness among producers and traders of market opportunities in neighboring countries;
support for studies to identify the potential for increased intra-regional agricultural and food trade;
support for improved statistical information on agricultural trade flows as a prerequisite to monitor the impact of market integration on the evolution of intra-regional trade flows compared to extra-regional flows. Improved trade statistics are also crucial to a fair and acceptable division of customs duties in a customs union;
assistance to enhance the capacity of countries to participate effectively and to coordinate their positions in future multilateral trade negotiations in agriculture;
budgetary support where reductions in import protection on agricultural products give rise to revenue problems for member governments.
Whatever the ambitions of regional groupings involving developing countries, it is likely that they will need considerable technical assistance support and training. This is particularly the case where developing countries are engaged in parallel series of trade negotiations covering increasingly complex areas of integration at the same time. This is an area where donor assistance can be useful. However, the difficulties of managing and coordinating regional institutions in the context of institutional weakness are exacerbated when countries are members of overlapping and possibly competing regional groupings. This problem appears particularly acute in Sub-Saharan Africa. For SSA countries, choosing a unique and appropriate regional arrangement is likely to be a prerequisite for success in the next period of regionalism.