An Alternative Regional Integration Scheme to Integrate Middle and Low income countries: The Regional Cooperative Scheme Theoretical Framework (RC-Scheme) by Mario Arturo RUIZ ESTRADA, Faculty of Economics and Administration Department of Economics University of Malaya Kuala Lumpur 50603 [H/P] (60) 12-6850293 [E-mail]
[email protected] [Website] www.econonographication.com
Abstract This paper presents an alternative regional integration approach to join less developed countries and developing countries into a single trade bloc. According to our research the free trade is not enough to generate successful regional integration between less developed countries and developing countries according to our research. Therefore, we are interested to propose the regional cooperative scheme theoretical framework as an alternative regional integration scheme to implement among this type of countries. Keywords: Regional integration, free trade and economic cooperation. JEL: F15 1. Introduction The Regional Cooperative Scheme (RC-Scheme) is applicable to the study of regional integration between middle income and low income countries1. In proposing the application of the RC-Scheme, this study presents a three-part analysis: (i) introduction to RC-Scheme; (ii) the scenario of the pre-application of the RC-Scheme -- a diagnosis of the pros and cons that middle income countries and low income countries encounter in integrating into a single trading bloc; (iii) the effects generated by RC-Scheme in the regional integration process between MIC’s and LIC’s in the effort to create a stronger single trading bloc. The last part of the analysis aims to demonstrate that the basic condition to generate intra-regional (short run) and extraregional (medium run) trade-creating effects2, and thus, to integrate MIC’s and LIC’s is the regional cooperative scheme (RC-Scheme)3. 2. Regional Cooperative Scheme (RC-Scheme) The RC-Scheme is an equitable and harmonious regional economic development scheme. It is based on the interaction between a series of socioeconomic assistance programs and the Custom Union scheme concept. More precisely, the implementation of RC-Scheme involves the application and coordination of a series of programs with social and economic implications at different priorities respectively as well as the application of Custom Union for the integration among a group of MIC’s and LIC’s. Its application can be tailored to the needs of the region concerned.
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This said interaction is based on four programs (Ruiz Estrada, 2005): (i) education and technical training standardization cooperative module (M1); (ii) social and productive infrastructure cooperative module (M2); (iii) trade and tourism promotion cooperative module (M3) and (iv) public administration development cooperative module (M4). The coordination and systematic control of these modules can create favorable conditions for economic development at the regional level, and thereby enables counties in the region to compete in the international market. As indicated above, the RC-Scheme adapts its programs to the requirements and characteristics of any region. The general objective of the RC-Scheme is to increase the intra-regional trade and extra–regional trade through productivity, efficiency and competitiveness. The principles behind RC-Scheme are nondiscrimination, voluntarism, tolerance, respect and flexibility. There are seven specific objectives of the RC-Scheme theoretical framework: (i)
Through the combination of its four modules and the new focus on open regionalism, the RC-Scheme seeks to serve as a new approach (regional economic development model) suitable for integrating middle income countries with less developed countries.
(ii)
The RC-Scheme seeks to offer a basic mechanism to strengthen the weak areas of regional integration within regions of middle income and low income countries according to the social, economic, technological and political situations in these countries. It also takes into account the internal and external conditions of each region.
(iii)
With its emphasis on the new world order and international trade in the globalization process, as well as its adoption of multifunctional and flexible structure, the RC-Scheme presents a new focus for integrating middle income and low income countries into a single trading bloc.
(iv)
Taking education and training as the pillar of the formation of regional human capital, the RC-Scheme seeks to create an intra-regional information/education exchange network that is, through the promotion of information exchange and coordination of academic programs at elementary, high school, technical/vocational training, universities and research levels.
(v)
The RC-Scheme seeks to generate equal benefits to every country in a region. This is done by attaching much attention to: firstly, the building of a regional physical infrastructure to help in the mobility of goods and labor factor; secondly, the search for efficient financial resource allocation and employment in the same region based on bilateral and multilateral negotiations in different intra-regional projects.
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(vi)
The RC-Scheme places much emphasis on intra-regional trade, investment and tourism promotion issues. It seeks to sell a single region in the international market by encouraging active participation in international fairs and expositions, where all member countries of the region are grouped together in the same physical space and with the same patent. This helps easy identification of the region concerned in the international market. In addition, the costs of trade, investment and tourism promotion in the same region are reduced.
(vii) Through the standardization of training courses in different Government and public institutions in each participating country in the region, the RC-Scheme helps to identify solutions to problems in public administration and management, the legal system and in public institutions generally. 3. The Regional Cooperative Scheme (RC-Scheme) Modules 3.1.
Education and Technical Training Standardization Cooperation Module (M1)
The first program in the RC-Scheme is the education and technical training standardization cooperation module (M1). This program uses an action framework to create regional human capital based on the standardization of education at the regional level. In this program, an action framework is used to standardize education in the region and to concurrently create the conditions to produce highly qualified regional labor with high productivity and competitiveness. This pool of capable human capital in turn produces goods and services with high added value that compete well in the international market, as well as serving as the pull foreign direct investment (FDI) into the region. There are four principal intra-regional activities in this program, namely: (i) implementation of literacy campaign in certain countries to raise their basic education level; (ii) coordination and standardization of elementary and high school programs; (iii) development of technical training program; (iv) setting up of a university information network based on joint research and development projects capitalizing on these four activities. The general objective of this program is to lay a solid education foundation for the younger generation in the region so that they are able to compete internationally. At the tertiary level, the development of technical training program try to join academic programs in different scientific fields through the exchange of academic programs at the intra-regional level including the exchange of professors and experts and joint research and development (R&D) in different scientific fields. An exchange of foreign professors (and experts) in different fields (for short courses and seminars) at all levels should be implemented. This approach, accompanied by scholarships at the Master’s and Doctoral programs around the world, together with joint research and development (R&D) among universities in the same region is more likely to meet with success.
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This approach should be complemented with the offer of post-graduate scholarships among universities in the region. With regard to technical training, this program proposes a common strategy for the coordination and standardization of training in different sectors such as agriculture, industry and services to be put under the purview of technical institutes and engineering faculties of the universities in the region. Meanwhile, information technology should be considered as the basis of regional education development, given that it is instrumental to information exchange in the coordination and standardization effort of this education and technical training program. It has the responsibility to coordinate all programs using information exchange at different levels based on the education and technical training standardization program (See Program 1 and Diagram 1).
Program 1: Education and Technical Training Standardization Cooperation Module (M1) Literacy campaign Standardization of elementary and high school programs (especially in science, mathematics, and the English language) Tertiary level academic exchange and joint R & D network The standard program in different science subjects Intra-regional and foreign/inter-regional exchange of professors Intra-regional student (information and exchange) network Intra-regional scholarship information network Inter-universities/Intra-regional research and development (R&D) assistance Standardization of technical training in agriculture, industrial and services sectors Information technology cooperation & exchange Source: Designed by the author
Diagram 1 Regional Cooperative Scheme (RC-Scheme) Modules
Source: Designed by the Author
3.2. Social and Productive Infrastructure Cooperation Module (M2) This study takes into consideration two types of infrastructure in the economic development in developing and less developed countries. It is especially pertinent to pay attention to these two types of infrastructure in countries with limited budget for infrastructure. This is because inadequacy of infrastructures creates a constant poverty cycle in these countries and thereby inhibits production growth and human development within the region concerned (See Program 2 and Diagram 1). The general objective is to join infrastructure programs between middle income countries and low income countries is to solicit financial support from international technical and financial organizations. These organizations may help to develop better infrastructure in the region under bilateral or regional negotiations. In this regard, this program serves as a guide for developing intra-regional mega-project proposals to obtain credit from different international financial organizations. The social infrastructure aims to promote efforts relating to social well-being such as supplies of foods and nutrition, medical assistance in times of natural disasters or plagues, human rights, ethnic mediation, provision of education, as well as installation of sound immigration database for security issues. All these efforts can significantly serve as a base for economic development in any region concerned: the favorable social conditions resulting from the improvement of social infrastructures in middle income countries respectively to increase their bilateral trades. The other aspect of the module of the productive infrastructures refers to communication services, public transportation joint ventures, physical infrastructure cooperation (bridges, highways, railways, airports, and ports).
Program 2: Social and Productive Infrastructure Cooperation Module (M2) Productive Infrastructure: Intra-regional transportation system connection at border points (airports, ports, highways, railways), energy, communications Intra-regional control and management of natural resources Program (removable and non-removable) Social Infrastructure: Food and nutrition security cooperation Immigration and security information network exchange Medical assistance in cases of natural disasters and plagues Human rights and ethnic cooperation program Education infrastructure in rural areas program
Source: Designed by the author
3.2.
Trade and Tourism Promotion Cooperation Module (M3)
The third program of the RC-Scheme is the trade and tourism promotion cooperation module (M3). The general objective of this program is to concentrate efforts within the region to create a common module to promote trade, investment and tourism at an intra-regional level. More specifically, this module of the RC-Scheme seeks to expand the export potential of the region in different international markets based on productivity and competitiveness, as well as to attract into the region foreign direct investment (FDI) and tourists from different parts of the world. This module can also reduce the cost of marketing of intra-regional products promotion at the international level. All these contribute to the promotion of intraregional trades and tourism at the same time. The efforts adopted for the above objectives include: the search for platforms that enable each country in the region to sell its goods and services internationally, participation as a region and a single trade bloc in international fairs and seminars. By participating as a single trade bloc in international fairs and exhibitions, member countries of the region will be easily identified and recognized by the international community. This in turns enables them to compete under the same conditions in the international market. It also becomes easier for international sellers and buyers to locate and negotiate with this specific region. As a result of the above, all members who participate in this program have the same opportunity to participate based on opinions and the vote of each member. When organizing the stands, the members can rent the same physical space to compete under the same conditions with another member in the international market. Besides, the trade and tourism promotion cooperation (M3) has undergone an intensive training program with an emphasis on English and foreign languages, international marketing, international economics, management, design and organization of event management as well as information technology. For this reason, a training module is incorporated into this program (See Program 3 and Diagram 1).
Program 3: Trade and Tourism Promotion Cooperation Module (M3) TRADE The joint trade advisor network information center is based on a general database of the companies’ profiles from each country in the same region. Additionally, this center can help with export and import procedures, list of tariffs and trade regulations, logistic procedures, taxation, list of seminars, overseas fairs and expositions, production standards, trade and market research and development and country profile for each market in the same region. All these information is accessible through the Internet. This center will offer a complete list of magazines and directories from each country, after which the same information can be distributed by each embassy of these countries under the same promotion standard. The active and constant participation in international fairs, expositions, and seminars The regional standardization of quality controls of products and services Business facilitation program The competitiveness and productivity program The trade research and development program Diagnostic and tendencies of international markets research (business intelligence) Research and development of new products and services Research and development in branching, packing and marketing Research and development in transportation and logistic distribution channels Research and development of new technologies, production techniques and the environment The training of trade promotion and negotiation program The trade, investment and tourism promoters program The trade negotiations and mediation negotiators program The trade negotiation, mediation and conciliation program Origin Rulers Copy right and intellectual property Free trade areas negotiations FDI and IDI protection agreements INVESTMENT Joint stocks and exchanges regional markets program Foreign Direct Investment and Foreign Regional Investment promotion and protection under a general intra-regional legal framework foreign and regional investors advisor program Financial support and credit for small, medium enterprises and cooperatives Privatization based on leasing, free zones, and fiscal incentives programs TOURISM Joint tourism organizations in the same region Intra-regional tourism information center Intra-regional standardization tourism services program
Source: Design by the author
3.4. Public Administration Development Cooperation Module (M4) The public administration development cooperation module (M4) is the fourth module in the RC-Scheme. The central idea of this module is to look for a solution to different problems in the public administration of each country in the region. The focuses of this module are administrative procedures, legal framework and institutional organizations based on research and specialized training to the public sector workers at every level: high, middle and low. Additionally, it is proposed here that specialized R&D centers be set up to provide consultation and advice to common regional problems. At least four categories of R&D with their respective centers should be put in place: (i) economic information, (ii) public, legal and institutional information, (iii) technology information and (iv) social information. It is proposed that each of these centers is be further compartmentalized into various specialized sections as detailed in Program 4 and Diagram 1.
Program 4: Public Administration Development Cooperation Module (M4) ECONOMICS: The economic information, research and training center The rural economic and agrarian productive restructuring section The productive restructuring and economics modernization R&D section Monetary policy section (banking, stock market, finances and stock exchange studies) Fiscal policy section (taxation and national budget design) The management of internal and external debt section Foreign trade policy section: Negotiation of free trade areas and trade differences Economic and social planning section Technical and financial section Environmental and natural resources management section LEGAL: The public, legal and institutions information, research and training center Human rights and minorities section Judicial and fiscal framework section Constitutional sections Law and politics studies section Diplomatic studies section Strategic and security studies section TECHNOLOGY: The technology information, research and training center Training and systematization of offices section Management systems and R&D of new technologies section SOCIAL: The social information, research and training center Popular housing and urbanism section Public health preventive, food security and basic diet section Population and geography section Drugs, narcotics, violence, delinquency, and terrorism Source: Designed by the author
After the regional cooperative scheme (RC-Scheme) is implemented a constant feedback from the different countries from the same region is vital. The constant feedback can help rectify the failures and shortcomings of this model in the medium and long term. 4. Prior to Application of RC-Scheme For demonstration, this study presents two trade blocs, A and B and two goods, g1 (agricultural goods) and g2 (industrial goods) in the application of the RCScheme. Trade bloc A consists of one developing country (Aa) and two low income countries (Ab & Ac) with similar production structures in the last two countries. Trade bloc B is made up of developed countries, Ba, Bb and Bc. The three countries in trade bloc A are at different trade liberalization levels based on the application of different trade barriers and non-trade barriers structures applied by each member in the same region. Trade Bloc A It is postulated that the higher trade protection of small countries creates division, distrust, and loss of credibility in the intra-regional negotiations among countries in any region. In the case presented here, however, trade bloc A is trying to attempt the process of creating a Customs Union (CU) agreement among its members based on the common external tariffs applied to third parties (See Diagram 3). The three countries in trade bloc A produce the same type of export products, that is, agricultural products g1 in raw forms. As raw materials, g1 has low added value and thus commands low prices in the international market. Similarly, the industrial structure of trade bloc A is minimal and limited in number. In addition, industries in this trade bloc concentrate on the production of manufactured goods only. Although country Aa has a higher number of manufacturing firms compared to countries Ab and Ac, all Aa, Ab and Ac, it lacks heavy or technological industries. The deficit in the balance of trade shows the trade dependency level of capital goods and intermediate goods imported from developed countries or trade bloc B in this case. Therefore, trade bloc A would have to depend on the developed countries of trade bloc B for capital goods and intermediate goods. As a result, trade bloc A always has a higher deficit in its balance of trade in relation to trade bloc B. Thus, trade bloc A always has a high deficit in its balance of trade. Besides a high deficit in its balance of trade, trade bloc A also has a low per capital average income amongst all its member countries. Consequently, both the saving level (saving = investment) and the capital productive volume supply (or investment) are low. In the case of investment, it is divided into three types: domestic direct investment (DDI)4, intra-regional direct investment (IDI)5 and foreign direct investment (FDI)6. The DDI and IDI are expensive and difficult to obtain by the private sector at the domestic and regional levels, because the interest rate is higher for the limited productive capital volume supply.
The capital productive volume supply faces a series of obstacles in its attempt to increase domestic production. Therefore, the export supply is smaller. Additionally, the small export supply is also affected by poor trade promotion with minimal performance and scarce aggressive programs. The high cost of production stems from the higher capital productive cost. The high cost of production affects the market price directly. As a result, the internal rate of return (IRR) is lower; consequently the profit of the local and regional firms is lower. In addition, the foreign direct investment (FDI) in trade bloc A is smaller. In this case, FDI of trade bloc A comes from countries formed by trade bloc B. Our assumption as to why the FDI in trade bloc A is smaller is based on the fragile legal framework, political instability, corruption, complicated bureaucracy, limited information about the country and the region, limited highly qualified labor, scarce physical infrastructure, and lower income. However, on the exchange rate issue, trade bloc A has constant devaluations arising from speculative and black-market transactions. Countries in trade bloc A are faced with high rate of unemployment. This constitutes a large obstacle to the effort of uplifting the standard of education in these countries and the reason behind the low labor productivity at the regional level. The smaller human capital supply also creates a large obstacle to the introduction of research and development (R&D) and hence, the quest to produce new goods and services. In addition to the above shortcomings, trade bloc A has scarce physical infrastructure, high gross population rate, high level of poverty as well as imbalance wealth distribution (See Diagram 2). As regard politics, trade bloc A experiences an unstable political instability. This is due to fragile democracies with soft legal framework and lack of government institutions in each member country. The economic elites also have minimal interest to integrate within a single trade bloc. Last but not least, there are problems relating to the borders amongst some member countries in the trade bloc. Trade Bloc B Trade bloc B has a better scenario compared to trade bloc A. While trade bloc A has starting a Customs Union (CU), the three countries in this trade bloc (Ba, Bb and Bc) are in the process of signing a Free Trade Area (FTA) agreements among themselves. All countries from trade bloc A are excluded from this agreement. Compared to trade bloc A, trade bloc B shows a stronger trade and investment exchange between its members and higher level of income. The countries formed by trade bloc B base their economies on high technology industries and services, in this case the production of g2, or in other words, the production of industrial goods, g2. Countries in this trade bloc have a comparative advantage of producing g2 based on low cost of production. Hence, this trade bloc offers products with high value-added products to the international market. Meanwhile, based on g2 trade, a trade-creating effect is generated among the member countries in this trade bloc.
The customs union formed by the trade bloc B which stops to import g1 from trade bloc A and starts to produce more g1 in trade bloc B can generate trade-diverting effect, and at the same time, trade diversion between trade bloc A and trade bloc B. The crux of the problem comes about when, due to comparatively higher cost of producing g1 in trade bloc B due to higher labor cost, trade bloc B experiences a lower comparative advantage in the production of g1 in relation to trade bloc A. Nevertheless, as shown in Diagram 3, in the case of the model trade bloc A, the opposite situation is true (See Diagram 4). This is, in effect, the situation prior to the implementation of the RC-Scheme. The following section will explain how the situations within trade bloc A changes for the better after the RC-Scheme is implemented.
Diagram 2: The Common Problems Hindering Middle income and Low income countries from Integrating into a Single Trade Bloc ▼Foreign direct
▼Domestic Direct
▼Income
investment
Investment
▼Investment
▼Saving
▼Intra-regional Direct Investment
▲Interest Rate
▼Capital Productive Supply
▲Cost of Production ▼Internal Rare Return (IRR) =▼Profit
▼Human
▲Unemployment
Capital Supply
▼Production
▼Added Value
▼Trade Promotion
▲Trade Dependency
▼Export
▲Import
Agriculture goods
(-) Balance Trade
▼Exchange ▼Productivity
▼ R&D
▲ = Increase
▼ = Decrease
Rate
▲Industrial Goods Import
Source: Designed by the author
Diagram 3: Regional Cooperative Scheme (RC-Scheme) before its Implementation between Trade Bloc A and Trade Bloc B BEFORE:
A
B
CU Aa
g1 Ba
Bc
Ac
Ab
Bb g2
Source: Designed by the Author
5. After implementing the RC-Scheme Before the RC-Scheme is applied in any type of regional integration initiative around the world, it is recommended that an analysis of the following aspects of each member country of the region and the region as a whole be carried out: culture, history, stage of economic and social development, stage of regional integration process, political situation, legal framework, regional institutions available and the needs of each country. This thesis proposes the application of the modules priority mobility (MPM) concept to the analysis. The MPM is used a list of necessities and priorities that each member country in the same trade bloc present. The four modules of the RC-Scheme, as explained in the earlier part of this paper are: (i) education and technical training standardization cooperation module (M1); (ii) the social and productive infrastructure cooperation module (M2); (iii) intraregional trade and tourism promotion cooperation module (M3); and (iv) public administration development cooperation module (M4). (See Diagram 1) Additionally, each of the four modules of the RC-Scheme should be applied in conjunction with Custom Union Scheme or open regionalism approach (Garnaut, 1994 and Bergsten, 1997). Both the RC-Scheme and the Custom Union approach can promote trade liberalization7with other trade blocs (See Diagram 4).
6.
The RC-Scheme Modules Objectives
6.1.
Education and Technical Training Standardization Cooperation Module (M1) Objective
As indicated in this thesis, the general objective of the intra-regional education and technical training standardization cooperation module (M1) is to increase the supply of regional human capital or soft technology8 based on knowledge economy (K-economy). This leads to improvement in research and development (R&D), which not only enhances productivity, but also creates new goods and services with high added value for new niches in the international market. It is based on ideas, working group, innovation, strategies, and plans to create new goods and services for the international market. The production intra-regional education and technical training standardization cooperation module (M1) can generate new goods and services with high added value through the gross of the domestic direct investment (DDI) and intra-regional direct investment (IDI). The above development, in turn, brings about a rise in the income per capita and hence the saving rate of people in the region. The next positive result will then be an increase in the productive capital volume supply derived from the regional capital accumulation process. If the productive capital volume supply is higher then the interest rate, it pushes down the cost of production and thereby the market price. All the above benefits obtainable from the implementation of M1, if applied to trade bloc A will enable all goods and services from trade bloc A to compete in the international markets. The positive outcomes of the implementation of M1 also include improvement in the internal rate of return (IRR) and higher profits for domestic, regional and multi-national firms. This, coupled with the growth of purchasing power within the trade bloc, will readily attract foreign direct investment (FDI) into trade bloc A. The growth of regional production spurred by all the DDI, IDI and FDI will invariably lead to an increase in the export volume, followed by a decrease in the import volume. The ultimate benefit for trade bloc A will then be reduced trade dependency and an improvement in the balance of trade (See Diagram 5) 6.2.
Social and Productive Infrastructure Cooperation Module (M2) Objective
This module is meant to create the conditions for the formation of intraregional infrastructure for the mobility of goods and labor in the intra-regional and extra-regional trade (import & export). The social infrastructure can help reduce the difficulties in income inequality among the countries in the same region based on the implementation of our regional integration proposal for middle income countries. The (M2) Module can help the construction sector create employment at the regional level.
6.3.
Trade and Tourism Promotion Cooperation module (M3) Objective
In the light of new international image of trade bloc A following the developments achieved through M1 and M2, the promotional programs in M3 further strengthens these developments by generating from the international market and thereby create more business opportunities at the regional level. M3 is based on open consensus in both private and public sectors of each member country of the region or trade bloc. Such open atmosphere created in trade bloc A provides equal opportunity and equal conditions to all its member countries in all aspects of trade, investment and tourism. This is manifested in the design of common and equitable strategies for all the member countries, where the promotion and negotiation of free trade agreements, intra-regional export, FDI and tourism are done collectively and efficiently. In short, through M3, all countries in trade bloc A and the region as a whole will not only have an improved image, but a shared identity as a single market. Trade bloc A will then is easily identified by international sellers, buyers and investors in the international market. This program demands the collaboration and coordination of ministry of economy or trade, exporters union (traditional and non traditional products), chambers of trade, and ministry of foreign affairs in each country in the same region. 6.3.1. Public Administration Development Cooperation Module (M4) Objective The last module, the public administration development cooperation module (M4) (See Diagram 1 and 5), aims to look for a solution to different problems that the public administration faces while trying to increase productivity through intensive training programs and further research. This module will try to improve the administrative procedures, legal framework and institutional organizations. 7. Considerations in the Application of RC-Scheme The application of RC-Scheme is slightly varied for regional integration of middle income and low income countries. It is important to note that the basic step to take in the RC-Scheme for integrating middle income countries and low income countries (e.g. CACM and Andean group) is to foster an open cooperation (in the form of participation in socio-economic aid assistance) to solve the differences among members of the two regions. In the case of regional integration agreements between middle income countries and developed countries (e.g. ASEAN and NAFTA), it depends on the application of RC-Scheme being geared towards a high open trade level in addition to high open cooperation level (in the form of participation in socioeconomic aid assistance). This is the first step towards helping middle income countries that do not have sufficient trade volume to compete in the international market. The trade volume is the deciding factor for the priority step to take in the RC-Scheme. Countries and regions with a high trade volume in the international market is resulting from a large diversity of products and services with high added value. They need to seek free trade
agreements with another region that has the same condition. This is the case for regional integration between two regions of developed countries. An example of regions that have taken this step in their regional integration process is Europe Union –EU- and North American Free Trade Area –NAFTA-. On the other hand, for countries/regions whose trade volume in the international market is small, due to their small diversity of products and services with low added value, then their priority should be open cooperation rather than open trade (See Diagram 6 and 7). This is the step to be taken in the regional integration process of middle income countries and less developed countries, for example, between CACM and the Andean Community. Diagram 4: Regional Cooperative Scheme (RC-Scheme) Modules after its implementation
Custom Union Scheme
A
a c
b
INTRA-REGIONAL COOPERATION EFFECT CREATION
INTRA-REGIONAL TRADE-CREATING EFFECT
FTA
g1
a Regional Cooperative Scheme (RC-Scheme)
B
CU
c
g2 Y
b
Y
MULTILATERALISM
INTER-REGIONAL TRADE-CREATING EFFECT
Source: Designed by the Author
Diagram 5: Regional Cooperative Scheme (RC-Scheme) Modules Effects
Imagination & Knowledge Working Group
Ideas
Innovation
Promotion
Negotiation R&D
Strategy
FDI
Tourism
Trade
Plan
Soft technology
▲Add
Labor Mobility
Value
▲Competitiveness ▲Income
K-Economy
New products
M2
▲Productivity ▲Saving
Human Capital Supply
▲Investment
▼Interest rate ▲Production
M1
M3
Goods Mobility
M4 Direct domestic investment Intraregional direct Investment
▲Productivity ▲Construction ▼ Bureaucratic
▲Export ▼Import ▲Balance trade ▼Trade
▲ = Increase ▼ = Decrease Source: Designed by the author
dependency
Source: Designed by the Author
Intra &Extra Regional Level
Diagram 6: Priority between Open Cooperation and Open Trade in Different Regional Integration Schemes Based on Income Level
Middle Income Countries
Low Income Countries
OPEN COOPERATION
Middle Income Countries
High Income Countries
OPEN TRADE & COOPERATION
High Income Countries
High Income Countries
OPEN TRADE
Diagram 7
Source: Designed by the Author
Diagram 7: The Interaction between the Cooperation Effect Creation and Trade-Creating Effect
Multilateralism INTER-REGIONAL TRADE-CREATING EFFECT
Regionalism INTRA-REGIONAL TRADE-CREATING EFFECT
Regional Cooperative Scheme (RC-Scheme) depends on the global development cooperative advantage that each country in the same region shows.
Cooperation Creation Effect Source: Designed by the Author 7. References PRINTED SOURCES Bannock, G. (1998). Dictionary of Economics. 6th ed., New York: Penguin books. Bergsten, F. (1997). Open Regionalism. Journal of the Institute for International Economics, Vol. 97, no.3, pp. 1-24. Bhagwati, J; Krishna, P. and Panagariya, A. (1999). Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements. USA: MIT Press, pp.3-20. Garnaut, R. (1994). Open Regionalism: Its Analytic Basis and Relevance to the International System. Journal of Asian Economics, Vol. 5, No. 2. pp. 273-290. Ruiz Estrada, M.A. (2005). The Cooperation Effect Creation Effect Scheme (CECScheme). Asia-Pacific Development Journal. Vol. 12. No.1. pp. 31-51. Viner, J. (1950). The Economics of Custom Unions, in the Customs Union Issues, Chapter IV, New York: Carnegie Endowment for International Peace, pp.41-81.
ELECTRONIC SOURCES World-Bank (2009) http://www.worldbank.org/depweb/english/modules/basicdata/datanotbasic.html) 8. Endnotes 1
“Middle-income country is a country having an annual gross national product (GNP) per capita equivalent to more than $760 but less than $9,360 in 1998. The standard of living is higher than in low-income countries, and people have access to more goods and services, but many people still cannot meet their basic needs. In 2003, the cutoff for middle-income countries was adjusted to more than $745, but less than $9,206. At that time, there were about 65 middle-income countries with populations of one million or more. Their combined population was approximately 2.7 billion”. (World Bank, 2009). “The Low-income country is a country having an annual gross national product (GNP) per capita equivalent to $760 or less in 1998. The standard of living is lower in these countries; there are few goods and services; and many people cannot meet their basic needs. In 2003, the cutoff for low-income countries was adjusted to $745 or less. At that time, there were about 61 low-income countries with a combined population of about 2.5 billion people” (World Bank, 2009). 2
Viner (1950) distinguished between trade-diverting and trade-creating customs unions. He argued that the case for customs unions was a mixed bag, since tradediverting customs unions would worsen, and only trade-creating unions would improve world efficiency (welfare). Viner defined a trade-diverting union as one that would shift production from lower-cost nonmember country to a higher-cost member country, and a trade-creating union as one that would do the opposite (Bhagwati, Krishna and Panagariya, 1999). 3
The cooperation-creating effect is originated from the different levels of global development comparative advantage that each country in the same region presents. We assume that all members that present some stronger area or areas into its global development by area (politics, social, economics, and technology) are interested in information exchange between same members to design, implement and coordinate a set of modules that the intra-regional cooperative advantage (ICA) model offers. The global development comparative advantage is build through success reached in some specific economic or social area for a member, in the same region, that contributes in the socio-economic development of this country, and applying experiences bridged from other countries. 4
The DDI is the domestic capital formation in the local operations of domestic firms through acquisition of a local operation, establishment and expansion of operations in the same country. 5
The IDI consists of the mobility of investment from one member to another member in the same trade block.
6
The FDI is all investment in the foreign operations of a company through acquisition of a foreign operation, or establishment of a new site. It implies control and managerial and perhaps technical input and is generally preferred by the host country (Bannock, 1998). 7
International trade and exchange between more than two countries or regions without non discrimination trade barriers between those involved, in contrast to bilateralism. 8
We will define soft technology as all general knowledge, technical and theoretical learning, experiences, training, and adaptability to challenges. It includes cultural and environmental changes that the workers of a country present.
