Other Regional Trade Agreements

This chapter examines a sample of regional trade agreements outside of Africa to verify the central argument of the entire book, namely the important role played by complementarity and industry mix in intraregional trade. The sample includes the European Union (EU), the Association of South East Asia (ASEAN), and Mercado Común del Sur; (MERCUSOR), (the Southern Common Market). It compares the composition and direction of trade, industry mix, and other factors that make for successful intraregional trade performance and their relevance to Africa’s case. The European Union (EU) consists of 27 countries, which take up about 38% of the total area of Europe, and in 2019 accounted for 59.9% of Europe’s population and 72.4% of its total GDP of Europe. For the period under consideration, 1995–2019, most of the EU’s trade was with itself and the rest of Europe—no less than 70% in export trade, and less than 60% in import trade. Manufactured goods dominate the composition of both export and import trade—no less than 70% of both export trade and import trade except in 2010 when import trade was 66.5%. The EU has been the most successful regional trade agreement and this has been attributed to many factors including lessons from World War II, dedicated leaders who saw the benefit of national interests within a united Europe, existence of a symmetry viable interdependent markets among the original six-member countries, and political stability and proximity of member countries. Two facts that stand out about the EU story is that the EU has the highest intraregional trade of any of the RTAs in the world. The second is manufactured goods instead of primary goods constitute a far greater proportion of EU’s trade. The question then is this: Is it a coincidence that an RTA which specializes in the production of manufactured goods will also have a high level of intraregional trade or is there a causal relationship between an RTA’s ability to produce more manufactured goods and the level of its intraregional trade? The 10-member Association of South East Asian Nations just makes up 9.9% of Asia’s total area, 14.4% of Asia’s population, and 14.7% of its total GDP. Formed in 1967, first for security purposes, it became a free trade area in 1992. In its initial years, ASEAN’s trade was still dominated by outsiders. However, intraregional trade within ASEAN began to grow. Intraregional export trade within Asia grew from 59% in 1995 to 66% in 2019. On the import side, it was from 63.6% in 1995 to 74.7% in 2019. Manufactured goods dominated both export and import trade of ASEAN during the period of consideration. The strong intraregional trade of the ASEAN has been attributed to several factors including the ability of the group to forge closer ties to their three neighbors who have stronger economies—China, Japan, and South Korea, and the fact that there is no one particular dominant country within the group. The higher content of manufactured goods in the economies in the region also makes them more externally competitive and internally complementary, which in turn boost intraregional trade within the group. MERCOSUR consists of only four countries but the four countries account for 65.4% of the total land area of South America, 62% of its population, and 67% of its GDP. MERCOSUR owes its origins to a tripartite agreement of cooperation that was signed by Argentina, Brazil, and Paraguay in 1979, but the Treaty of Asuncion that established it as a free trade area was signed in 1991. After initial increase, intraregional trade started to decline. In terms of export, it declined from 19% in 1995 to 10.6% in 2019. Similarly, intraregional import trade declined from a high of 20% in 2000 to 13.6% in 2019. The composition of MERCOSUR’s trade is similar to Africa’s RTAs. Primary goods dominate export trade while manufactured goods dominate the import trade. The disappointing performance of MERCOSUR has been discussed extensively. Among the sources that have been identified include the fact that the member states had stronger extra-regional trade partners than intraregional trade partners, the dominant position of Brazil and its desire to protect its national rather than regional interest, and lack of competitive economies to break such national interests.