encourage cooperation aimed at regional industrialization. Even if goals have been agreed upon it…

encourage cooperation aimed at regional industrialization. Even if goals have been agreed upon it may be hard to agree on the best way of reaching them. In order to reach the goals, the organization is often forced to disregard dissenters. They then demand some kind of compensation to satisfy the needs of those whose preferences have not been met.30 If economic cooperation is to lead to trade creation certain conditions must be fulfilled including that tariffs and NTBs of non-members are high prior to integration. Incentives for diverting trade will then be low. Gains from freer trade are lower if the trade barriers of members are initially lower and there are opportunities for trade diversion. Thus the most desirable situation is high tariff levels and NTBs prior to integration. It is also preferable that the amount of extra-regional trade is low prior to integration since there will be little trade to be diverted. The regional integration schemes will strengthen neutral trading patterns.31 Different levels of industrialization and income lead to a polarization in favor of the more advanced countries in the group. Static and dynamic trade effects will be smaller the less developed an economy is. Large variations among the members may inhibit the process of economic adjustment and, among other things, cause labor migration which might provoke political tensions in the group as well as inside the countries.32 An initial lack of capital and a low pre-union level of industrialization are obstacles to integration. Advanced countries will accumulate capital and attract labor. More developed countries will be viewed by the less developed ones as reaping most of the benefits of integration , while the more industrialized countries themselves will fear the lower-cost labor in the less developed members. The demands in the markets of the less advanced countries can in many cases be met by industries in the more developed states. This nourishes intra-regional trade imbalances in manufactures which, among other things, affects the revenues of the net-importing, less advanced countries in the regional grouping. If the cooperation leads to trade creation the tax base will diminish as the domestic production is replaced by imports from other member countries. In the case of trade diversion, when trade is diverted from non-members to partner countries, the states lose customs revenues. These effects will make net-importers resist a liberalization of the intra-regional trade since they are dependent on customs revenues and have a weak tax base.33 It should be noted that an expansion of intra-regional trade is not the only necessary condition for successful integration because it might be the result of both trade creation and diversion. The expansion of intra-regional trade is however an essential prerequisite for the realizing of trade gains.34 Different policies for promoting and planning regional industrialization might be a barrier to integration. Decisions on investments made in intergovernmental negotiations are not based on the same cost benefit analyses as are decisions taken by markets. This might make consensus more difficult to achieve.35 The issue of time is a decisive factor in the process of integration. Developing countries often have very limited experience with interrelations and a small economic base in the initial integration stage. The process of building up all the necessary planned webs of interaction is therefore time-consuming. The developing countries are immediately faced with the costs and constraints of integrating but have to wait a long time for the gains to arrive. Therefore it is important to select projects that will keep the fire of integration alive in anticipation of future benefits. The Andean Pact, for instance, chose to establish a common policy for the treatment of foreign investment, something that has become an important cohesive element for the group. 30ibid, p.547 31Blomqvist, 1992d, p.548 32Blomqvist, 1992b p.7 33Langhammer, 1990 p.15 f 34OECD, 1992. p.30 ff 35Langhammer & Hiemenz, 1990, p.16 ————— Theory ————— 14 Time has also implications for local leaders. They have to withstand the pressure coming from opposing political and economic agents. Their task is easier to manage if the integration projects implemented first have benefits that the grouping can enjoy as soon as possible or at least by some definable future date. It is of course preferable if the distribution of benefits is equal in order to avoid conflicts in the first sensitive stage.36 There are several non-economic benefits of regional integration. Cartelization can improve the LDCs collective bargaining power vis-à-vis the industrialized countries. Neighboring countries often produce the same agricultural commodities or minerals as a consequence of their countries being situated in the same climatic belts. But cartels only provide short-term income gains and are destructive for national welfare in the long-run. Politically, regional groupings may have a great advantage in voting power in international negotiations. Countries may be able to shift defense expenditures to third countries if the latter one consider regional unity to be an important national interest. When it comes to foreign aid and other external resources, donor countries may save time and money if they negotiate regionally instead of nationally.37 Geographic proximity is a relevant precondition for successful regional integration. Integration between countries location far away from each other is, of course, non-effective and gives rise to transportation as well as communication costs. Even though there are exceptions, it is probable that when close neighbors form an FTA they will divert little trade because they trade a lot with each other to begin with. Free trade agreements between distant countries, perhaps on different continents, will probably divert more trade than they create because they encourage unnatural trade relations. Although different languages evoke cultural, administrative, institutional and legal barriers, this is not insurmountable. The European integration process can serve as an example. Distortions caused by a country’s colonial past can be barriers to integration. Exports priced above world market prices, maybe due to tied aid, can be an instrument used by former colonial states to retain power . Over time the importance of colonial ties have diminished, perhaps more visibly in anglophone than francophone countries.38 Many LDCs are still engaged in the process of creating a national identity which can diminish the importance of racial and tribal societies in Africa and Asia. This can be a barrier to regional integration since borders are an important symbol of sovereignty and integration schemes require some of it. Conflicts may be provoked to strengthen national feeling and they tend to be more likely the less important the markets of neighboring nations are for national welfare.39 In many LDCs the economic order is a relic of the colonial past. In others economic policy has been implemented by policy makers who lack experience. When partners in an integration scheme have different economic systems, consensus is hard to establish as was true in the case of Tanzania and Kenya. Controversies on fundamental issues about the economic order are a political barrier.40 Tariffs provide important governments revenues which can be hard to give up. In addition, administrative requirements necessary to manage the process of tariff reductions may not be met in some LDCs. These two factors do not contribute to a smooth integration process.41 An incentive for the creation of regional groupings that is often ignored but needs to be stressed is security cooperation. In order to understand the situation of developing countries it is important to define the concept of security because it has different meanings for developed and developing countries. 3.2.4 Security as an Incentive for Regional Cooperation 36Vaitsos, 1978, p.750 37Langhammer & Hiemenz, 1990, p.9 f 38ibid, p.13 f 39Blomqvist, 1992b, p.7 40Langhammer & Hiemenz, 1990, p.14
f 41Blomqvist, 1992b, p