The Future of South-South Economic Relations

The Future of South-South Economic Relations


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In recent years, it has become apparent that South-South economic relations are increasing, and will continue to do so. There will be more trade agreements and more trade, more economic alliances and more political alliances with economic goals, more investment flows and an increasing acknowledgement that the Global South has more to offer than it has in the past. These new economics relations have great potential, both for harm and for good. In the absence of directed policies and intentional actors, imbalances of power and growing gaps in development will persist. With the right policies in place, however, these relationships could forge a new global order with greater economic and political equality.

Covering a wide range of topics, including regional trade integration in Africa, the environmental impact of increased South-South trade, the changing patterns of South-South investment, and the effect of conflict on trade in South Asia, this ground-breaking volume presents an analysis of South-South economic relations, and how they might impact and be impacted by the rest of the world.

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Product Details

ISBN-13: 9781780323930
Publisher: Bloomsbury Academic
Publication date: 12/01/2012
Pages: 240
Product dimensions: 6.30(w) x 9.30(h) x 0.80(d)

About the Author

Adil Najam is the vice chancellor of the Lahore University of Management Sciences (LUMS), Pakistan. Until 2011 he was the Frederick S. Pardee professor of global public policy at Boston University and the director of the Pardee Center for the Study of the Longer-Range Future. Professor Najam was a lead author for the Third and Fourth Assessment Reports of the Intergovernmental Panel for Climate Change (IPCC), work for which the IPCC was awarded the 2007 Nobel Peace Prize. In 2009 he was selected by the United Nations secretary-general to serve on the UN Committee on Development (CDP). In 2010, he was awarded the Sitara-i-Imtiaz, one of Pakistan's highest civil awards, and in 2011 he was elected as a trustee of WWF-International.

Rachel Thrasher is a research fellow in the Frederick S. Pardee Center for the Study of the Longer-Range Future at Boston University.
Adil Najam is the vice chancellor of the Lahore University of Management Sciences (LUMS), Pakistan. Until 2011 he was the Frederick S. Pardee professor of global public policy at Boston University and the director of the Pardee Center for the Study of the Longer-Range Future. Professor Najam was a lead author for the Third and Fourth Assessment Reports of the Intergovernmental Panel for Climate Change (IPCC), work for which the IPCC was awarded the 2007 Nobel Peace Prize. In 2009 he was selected by the United Nations secretary-general to serve on the UN Committee on Development (CDP). In 2010, he was awarded the Sitara-i-Imtiaz, one of Pakistan's highest civil awards, and in 2011 he was elected as a trustee of WWF-International.

Rachel Thrasher is a research fellow in the Frederick S. Pardee Center for the Study of the Longer-Range Future at Boston University.

Read an Excerpt

The Future of Southâ"South Economic Relations

By Adil Najam, Rachel Thrasher

Zed Books Ltd

Copyright © 2012 Adil Najam and Rachel Thrasher
All rights reserved.
ISBN: 978-1-78032-395-4



Laura Gómez-Mera

The past three decades have witnessed a revival of regional economic cooperation in world politics. Nowhere has this resurgence of regional trade and economic agreements been as dynamic and vigorous as in the Western hemisphere. Since the 1990s, Latin American and Caribbean countries have pursued a multi-tier strategy of trade liberalization, resulting in a complex web of overlapping trade and economic agreements. Moreover, changes in the international economic and domestic political environments in the last decade have led to important transformations in the current landscape of trade relations in the Americas. The 'open regionalism' initiatives launched in the early 1990s now coexist with a mosaic of bilateral trade agreements signed with intra- and extra-regional partners. In addition, the last few years have seen the emergence of broader political and economic initiatives that go beyond commercial integration to include cooperation in money, finance, energy and infrastructure.

This chapter addresses two main questions. First, what explains the recent evolution of regional trade and economic cooperation initiatives in the Americas? Why have Latin American countries been so eager to participate in such diverse forms of economic and political collaboration? Secondly, what are the economic and political consequences of the proliferation of overlapping economic agreements in the region? Economists and policymakers have repeatedly cautioned about the potential economic costs of the emerging 'spaghetti bowl' of trade rules and arrangements in the Western hemisphere and beyond (e.g. Bhagwati 2008). Less attention has been paid to the international and domestic political impact of this increasing regime complexity characterizing regional economic relations in the Americas. In what ways has the increasing density of regional agreements affected the strategies and decision-making processes in Latin American countries? More importantly, have institutional proliferation and overlap worked to facilitate or to undermine regional unity and collaboration efforts?

The chapter is organized as follows. The next section briefly describes the evolution of regional economic cooperation attempts in the Americas since the early 1990s. I show that the current landscape of regional economic cooperation in the Western hemisphere is characterized by increasing complexity andoverlap of different types of trade and economic agreements. The following section seeks to account for this increasing regime complexity, considering the role of global economic pressures, power asymmetries and domestic political factors. In the fourth section, I focus on the consequences of the overlap of competing and complementary trade and economic commitments in the Americas. In the conclusion, I summarize the main arguments and discuss their implications for the longer-term evolution of South–South cooperation in the Americas.

The changing landscape of regional trade and economic cooperation in the Americas

Regionalism has a long history in the Americas. Indeed, as early as the 1820s, Latin American countries sought to strengthen regional ties through the creation of regional institutions. Building on the Bolivarian ideal of hemispheric unity, the Organization of American States was created in 1948. In the 1950s and 1960s, countries in the region pursued regional economic integration in support of the prevailing development strategy of import substitution (Devlin and Ffrench-Davis 1998). The Latin American Free Trade Association, the Andean Pact and the Caribbean Free Trade Association date from this period. Despite their ambitious objectives, these initiatives had limited results, falling short of the objective of promoting regional interdependence and economic growth.

The late 1980s and early 1990s witnessed a resurgence of efforts at regional economic integration triggered by a combination of security, domestic political and economic considerations. In the early and mid-1990s, countries in the region signed a series of preferential or 'economic complementation' agreements (ECAs) within the framework of the Latin American Integration Association (ALADI). Four aspiring common markets or economic communities were also created during this period: the Southern Cone Common Market (MERCOSUR), the Andean Community of Nations (ACN), the Central American Common Market (CACM) and the Caribbean Common Market (CARICOM). The creation of a customs union – a free trade area with a common external tariff vis-à-vis imports from third countries – was thus a necessary step in that direction. However, the four Latin American regional groupings established in the 1990s have made limited progress in this direction, and continue to be characterized by important imperfections and perforations in their common external tariffs.

The revival of regional cooperation in the 1990s was initially welcomed in policymaking and academic circles (IDB 2002). In particular, analysts emphasized the differences between this new wave of 'open' regionalism and the inward-oriented regional integration projects of the 1950s and 1960s (Devlin and Estevadeordal 2001). As a report by the Inter-American Development Bank put it, '[t]he new regionalism is an integral part of an overall, structural policy shift in Latin America toward more open, market-based economies operating in a democratic setting' (ibid.: 3). The strategy of regional trade liberalization, pursued in tandem with unilateral and multilateral opening, resulted in an unprecedented expansion in intra-regional trade levels. This initial success seemed to lend credence to the early optimistic assessments of the 'new regionalism'.

However, towards the end of the 1990s, the Latin American subregional trade blocs seemed to be running out of steam. Much like their predecessors, the new regional integration agreements confronted serious implementation and compliance problems. Moreover, the deterioration of international economic conditions in the late 1990s severely disrupted trade relations among Latin American countries. Domestic macroeconomic and political instability in several South American countries further depressed trade levels within MERCOSUR and the Andean Community (Rosales 2009). The early 2000s also witnessed gradual but progressive stagnation in the process of hemispheric trade cooperation, including the suspension and eventual termination of Free Trade Area of the Americas (FTAA) negotiations.

The collapse of the FTAA, when combined with the stalemate in multilateral trade negotiations and the growing disillusion with neoliberal reforms throughout Latin America, significantly affected patterns of regional economic cooperation in the Western hemisphere in the 2000s. In fact, these important changes at the international, regional and domestic levels contributed to the emergence of two distinct – but coexisting – new models of trade and economic agreements in the region: (i) the rise and proliferation of bilateral trade agreements with intra- and extra-regional partners; and (ii) the emergence of the broader projects of 'post-liberal' regionalism that seek to go beyond trade to include cooperation in monetary, financial, energy and other noncommercial issues (Da Motta Veiga and Rios 2007). These two new strategies of regionalism have evolved side by side with the customs unions and deeper integration agreements created in the 1990s, thus resulting in an increasingly complex mosaic of overlapping institutions.

Proliferation of overlapping preferential trade agreements Some Latin American countries – most notably Chile and Mexico – began relying on bilateral trade agreements with intra- and extra-regional partners in the second half of the 1990s. However, as Figure 1.1 illustrates, the number of bilateral preferential trade agreements (PTAs) signed by Latin American countries experienced a dramatic surge after 2003. Frustration with the slow pace and eventual breakdown of the FTAA negotiations in the early 2000s led the USA to negotiate separate agreements with 'can-do' countries, which were prepared to undertake regulatory reforms in exchange for preferential access to the US market (Shadlen 2008; Quiliconi and Wise 2009; Phillips 2010). Between 2004 and 2007, the USA concluded agreements with Chile, Central America and the Dominican Republic, Colombia, Ecuador, Peru and the Caribbean countries. Also during this period, Latin American countries expanded their web of bilateral links. An agreement between Chile and Central American countries came into effect in 2002. Most notably, after long and protracted negotiations, an 'economic complementarity agreement' was signed in 2004 between MERCOSUR and the Andean Community.

Another novel feature of the more recent landscape of trade agreements in the Western hemisphere is that the rise of intra-regional bilateral trade agreements has been complemented by an accelerating trend of South–South 'transcontinentalism' (Estevadeordal and Suominen 2009). Mexico and Chile are leaders in this respect, signing free trade agreements with developing and emerging countries all over the world. Since then, Chile has entered agreements with Korea (2004), China (2006), New Zealand, Singapore and Brunei (2006), Japan (2007) and Australia (2008). Mexico, in turn, has concluded negotiations with Israel (2000) and Japan (2004). Peru has also been active on this front, recently establishing regional trade arrangements (RTAs) with Thailand (2005), China (2009) and Singapore (2008). Although some of this activity was definitively North–South in character, South–South arrangements are also increasing. In 2004, MERCOSUR signed a preferential agreement with the Southern African Customs Union (SACU). The South American bloc also has agreements with India (2004) and Israel (2007).

The rapid spread of bilateral deals has undoubtedly increased the complexity of the spaghetti bowl of regional trade agreements in the Western hemisphere (see Figure 2.1). This growing institutional density has been exacerbated by the emergence of a new type of regional integration project, which has broadened the scope and nature of the commitments undertaken by Latin American countries.

'Post-liberal' regionalisms A second model of regional cooperation initiatives that has recently emerged in Latin America further adds to this complex landscape. As some scholars have noted, the emergence of these 'post-liberal' projects, such as the Bolivarian Alliance for the Americas (ALBA) and the Union of South American Nations (UNASUR), was partly a response to the perceived failure of the previous model of 'open' regionalism (Da Motta Veiga and Rios 2007). In fact, these new alternatives of regionalism were part of a broader process of backlash in Latin America against 'neoliberal' globalization and the policies associated with the so-called 'Washington Consensus'. The advent of left-wing governments in many countries in the region, including Chile, Brazil, Venezuela, Bolivia, Ecuador and Argentina, resulted in an increasing politicization of the economic agenda. The previous neoliberal model of development was replaced by a more interventionist economic strategy that paid greater attention to social and distributional objectives. The erosion of the 'liberal convergence' that was dominant in the 1990s left room for the adoption of heterogeneous and sometimes divergent strategies of international and regional insertion, such as UNASUR and ALBA (ibid.: 17).

These post-liberal regional projects thus differ from the 'new regionalism' blocs of the 1990s, as well as from the more recent bilateral PTAs, in two ways. First, they were attempts by governments in the region to advance the new, more 'developmentalist' and state-led development paradigm to intra-regional economic and political relations. This is perhaps clearer in ALBA, which emerged as a radical alternative to the neoliberal trade-based model of cooperation promoted by the USA in the 1990s. Created and led by Venezuelan president Hugo Chávez, ALBA emphasizes state-centred collaboration, public ownership and regional solidarity, seeking to advance 'a new vision of regional welfare and equity' at the regional level (Hart-Landsberg 2009). It promotes managed exchanges of goods and services that reflect each member's national strengths, so as to promote more sustainable and equitable national development. Examples of these planned exchanges include Venezuela providing Cuba with oil in exchange for Cuban doctors and teachers. Similarly, the two countries have signed an agreement with Bolivia, by which the latter provides them with natural gas and mining and agricultural products, in exchange for Cuban and Venezuelan support in the strengthening of Bolivia's education, health and infrastructure (ibid.).

Secondly, both UNASUR and ALBA reject the narrow focus on commercial interdependence of the free trade areas and customs unions of the liberal period and seek to broaden the scope of regional collaboration to other economic and non-economic areas, including energy, security and cultural issues. While one of UNASUR's central objectives is to establish a South American free trade area, members have insisted that commercial liberalization must be accompanied by industrial policy interventions and other mechanisms aimed at ensuring a more balanced distribution of gains from cooperation within and among member states. Particular emphasis has been placed on the Initiative for the Integration of Regional Infrastructure in South America (IIRSA), which promotes the development of transport, energy and telecommunications infrastructure with the aim of facilitating physical integration among South American countries. Other priorities on the UNASUR agenda include political dialogue, energy integration, telecommunications, environment and social cohesion.

UNASUR and ALBA have also paid significant attention to cooperation in financial and monetary issues. Several mechanisms have been proposed and put in place. In 2007, seven of the twelve UNASUR members agreed to the creation of the Bank of the South (Banco del Sur), with the stated goal of asserting their political and financial independence from the Washington-based international financial institutions (IFIs), particularly the International Monetary Fund (IMF) and the World Bank (Rosales 2010). Some members, especially Venezuela and Ecuador, initially favoured a stronger and more autonomous entity that could serve not only as a development bank but also as a lender of last resort and a stabilization fund. By contrast, Brazil has remained 'an unenthusiastic supporter of the Bank' (Hart-Landsberg 2009: 11), only endorsing its role as a development institution that focuses primarily on the financing of regional infrastructure projects (Rosales 2010).

After several months of negotiations, South American governments signed the Bank of the South's Constitutive Treaty in September 2009. According to this agreement, the Bank's main function is to 'finance development projects in key sectors of the economy, with the aim of promoting competitiveness, scientific and technological progress, infrastructure and maximizing the value added of raw materials produced in the region' (ibid.: 7). The Constitutive Treaty also stresses the institution's role in mitigating members' external vulnerability and strengthening their financial autonomy (Leon and Martin 2011).

Frustration with the slow progress in the establishment of the Bank of the South, and, in particular, with its moderate 'developmentalist' character, led the Venezuelan government to launch an alternative proposal for monetary and financial cooperation within ALBA. In April 2009, ALBA members signed the agreement for the creation of a Unified System for Regional Compensation (Sistema Unitario de Compensación Regional de Pagos, or SUCRE), thus establishing the foundations for a common regional currency (SELA 2009). The SUCRE was conceived as a medium of exchange to be used in all commercial transactions among ALBA members, with the ultimate goal of replacing reliance on the US dollar in regional exchanges and thus enhancing Latin American countries' sovereignty and autonomy. Apart from introducing a common unit of account (the SUCRE), the 2009 agreement created the Regional Monetary Council and the Trade Convergence and Reserves Fund, which have been viewed as a central element in the constitution of an alternative financial architecture in the region (Rosales 2010). In July 2010, Venezuela and Ecuador conducted the first bilateral trade deal using the SUCRE.


Excerpted from The Future of Southâ"South Economic Relations by Adil Najam, Rachel Thrasher. Copyright © 2012 Adil Najam and Rachel Thrasher. Excerpted by permission of Zed Books Ltd.
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Table of Contents

Introduction - Rachel Thrasher and Adil Najam
1 Latin American economic cooperation: causes and consequences of regime complexity -Laura Gómez-Mera
2 African trade and economic integration: longer-range prospects - Eric Kehinde Ogunleye
3 Financial crisis and regional economic cooperation in Asia-Pacific - Nagesh Kumar
4 Regional trade integration and conflict resolution: an institutional paradigm - Shaheen Rafi Khan
5 Developing countries at the WTO in a changing global order - Haroldo Ramanzini Jr and Manuela Trindade Viana
6 South-South foreign direct investment flows: wishful thinking or reality? - Mariana Rangel
7 Brazil: South-South economic relations and global governance - Alcides Costa Vaz
8 South-South trade and the environment - Kathryn Hochstetler
9 Latin America and China: trading short-term growth for (China's) long-run prosperity - Kevin P. Gallagher
10 Growing economic relations between the GCC and Chindia - Nader Habibi

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