Home ADVANCED LEVEL TOPIC 17: ECONOMIC INTEGRATION AND COOPERATION ~ ECONOMICS FORM 6

TOPIC 17: ECONOMIC INTEGRATION AND COOPERATION ~ ECONOMICS FORM 6

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TOPIC 17: ECONOMIC INTEGRATION AND COOPERATION ~ ECONOMICS FORM 6

CONCEPT OF ECONOMIC INTEGRATION:

Economic integration is the union of countries which has common objectives and agreed to cooperate in order to create collective bargaining so as to enjoy social, political and economic advantages.
Economic integration is the union of countries/ group of countries which work together voluntarily to meet their common economic social and cultural needs through jointly owned and democratically controlled enterprises and individual activities.

Examples of economic integration are East African community (EAC), European Union (EU), Southern African Development Cooperation (SADC) etc.

FORMS OR TYPES OF ECONOMIC INTEGRATION

Economic integration pas through different stages of development before reaching at the highest/ final stage as follows:-

Preferential trade area (PTA)
Free trade area/ free trade
Custom union
Common market
Economic union.
1. PREFERENTIAL TRADE AREA (PTA)

This refer to the initials stage of economic integration where by member countries agreed to make gradual reductions of trade barriers (tariffs) among member countries as the way of reducing international cost of trading and enjoying international benefits. Example PTA OF COMESA

2. FREE TRADE

This is the second stage of economic integration where by member countries agreed to eliminate all trade barriers against movement of goods and services from one country to other countries. In the free trade area member countries agreed to create free movement of goods and services from one country to another but each countries form own banners and tariffs against non members.

3. CUSTOM UNION

This is the stage of economic integration which involves elimination of trade burners within a region to create free movement of goods and services (free trade) and member countries form common tariffs to non members.

4. COMMON MARKET

This is the stage of common integration where by member countries agreed to create free movement of goods and services (free trade) and form common trade barriers against non- members and free movement of factors of production such as labour, capital, entrepreneurs within a region/ member countries under common market people are free to work, to invest and own land within a member countries. Example of common market is East African Common Market.

5. ECONOMIC UNION

This is the highest form of economic integration where by member countries agreed to create free movement of goods and services, free movement of factors of production such as land labor, capital and entrepreneurs, formation of common tariffs against non members further more countries agreed to create common polices such as fiscal policies, monetary policy, trade policy and other economic policies within a region. While well developed economic union use same currency in transaction. Example of economic union is European Union which uses euro currency.

THE CONDITIONS NECESSARY FOR SUCCESSFULLY ECONOMIC INTEGRATION

Successfully economic integration is the one which achieve pre determined objectives within a specified period of time /at given on desired resources (cost). The following are necessary factors for successful formation of economic integration.

Countries should be geographically close. This will facilitate transactions and reducing cost of transaction and interaction / meeting.
Production of different commodities facilitate people to sale what they produce and buy what they fail to produce and gain from Trade.
The use of different currencies of low variations in terms of value or similar currency. This will encourage trade and gain in international trade.
Political stability among member. This will encourage production activities and international transactions among member countries.
Countries should have equal level of development. Economic integration of developing countries should formed by countries with equal level of development (developing countries) while developed countries should create integration of developed countries but not mixture of developed and developing countries. This will create equal trade and equal gain.
Countries should have similar goals and determination. This will facilitate member countries to from common strategies and polices of achieving objectives.
Availability of improved economic infrastructure i.e. transports and communication system because improved infrastructure facilitate movement of commodities and people from one country to another.
Similar political and economic ideology i.e. countries should be in same economic system that use common polices and strategies of achieving regional objectives

GENERAL ADVANTAGES/ IMPORTANCE OF AN ECONOMIC INTEGRATION

All economic integration may have the following benefits in general.

To increase the volume/extent of market and volume of trade. Economic integration provides a chance for country to exchange within and outside countries boundaries this will increase gain in trade.
Increase in collective bargaining and rise in price of an exported commodities. Before economic integration each country bargain individual but after formation of economic integration countries will bargain together for their benefit against non members
Improvement in social and economic infrastructure. Economic integration has a tendency of creating common policies of improving social and economic infrastructures such as roads, railway, school, hospital, air way.
Improvement of technology within member countries. Economic integration allows free interaction and movement of people and goods from one country to another also they formulate common strategies of technological development hence all this help to transfer and development of technology.
Increase in level of employment. Since economic integration allow free movement from one country to another, Free investment in any country and free to work anywhere within a region, this will increase employment of the factor of production such as land, labor and capital.
Maintenance of peace and security (political stability) within a region it occurs because member countries agreed and formulate common strategies and policies of maintaining peace and securities within member countries.
Increase in supply and production of goods and services within a member countries due to the investment and free movement of goods and services this will increase consumers utility and choice.
Trade creation. This is the process of purchasing commodities at low price within a region compare to the cost of purchasing from non member.
Economic integration stimulate competition among firms of member countries competition increase due to the free interaction among people and commodities that lead to the increase in efficiency and qualities of commodity exchanged.
Economic integration promote social political and economic cooperation this will increase benefit to member countries.

DISADVANTAGES OF ECONOMIC INTEGRATION

Most of economic integration formed by developed countries has the following disadvantages in general.

Increase in import which lead to unfavorable balance of payment, this occurs to the countries which has weak economic base which increase demand for import.
Excessive competition among countries that leads to the decline in an infant domestic industries and unemployment problem to affected countries.
Loss / decline in government revenue since economic integration involve reduction and elimination of tariffs (tax) therefore it reduce government revenue collected from tax.
Increase in importation of low quality and harmful products, this cause country to be a dumping area.
Economic integration may cause occurrence of imported inflation, this inflation may occur due to the importation of commodities from the countries which are already affected by inflation.
Economic integration may cause unequal gain, this occurs due to the unequal industrial development and business of one direction.
Economic integration may cause cultural destruction. This occurs due to the interactions of people of different culture from different countries.
Trade diversion. This is the situation which occurs when people/ country purchase commodities at higher cost/ price within member countries due to geographical and organization barriers compare to the cost of purchasing commodities from non members.

GENERAL PROBLEM FACING MOST OF ECONOMIC INTEGRATION FORMED BY LDC’S

Most of economic integration in developing countries likes EAC, SADC, and ECO WAS, face the following problems:

Shortage of fund for running economic integration and economic activities within the region such as investment, this cause failure of most of economic integration to achieve predetermined goals.
Political instability. Political conflicts which arise within the region or outside the region / neighbor countries affect social and economic activities of economic integration.
Low development of technology. This hinders industrial development and limit efficiency in investment and production activities within the region.
Low development of economic infrastructure. In most developing countries there are poor roads, railways and communication networks which limit production and movement of people, goods and services from one place to another.
Lack of political commitment and bad leadership. Most of countries which form economic integration in LDC’S has bad governance and they are not committed for the development of integration but they are committed for individual country’s benefits this limits achievement of common objectives.
Low level of education and skills among people. Most of people in developing countries are not educated and skilled enough to conduct social and economic activities, this limit investment and other economic activities.
The storage of market and price fluctuation in the market since most countries produce agricultural products with similar type this limit availability of market because every country produce such kind of commodities and price of agricultural product fluctuate more that cause loss
Rapid population growth, this increase pressures on resources utilization, occurrence of environmental problems, communicable diseases, labor unemployment and other social economical effects.

REGIONAL ECONOMIC INTEGRATION (INTEGRATION BLOCKS)

Most of state worldwide decided to establish and join in the economic grouping for the purpose of enhancing economic cooperation among the member countries, some of grouping have risen and fallen while a number of them survive.

The regional economic integration discussed in these subtopics is:

East African community (EAC)
Southern African development community (SADC)
The common market for eastern and central African (COMESA)
European economic community(EEC/EU)
Economic Community of East African States(ECOWAS)

EAST AFRICAN COMMUNITY (EAC)

This is the cooperation/ union of east African countries which has common objectives and self commitment to increase/ Deeping cooperation among member of integration so as to enjoy mutual advantages socially, politically and economically.

East African community is the regional intergovernmental organization of Kenya, Tanzania, Uganda, Rwanda and Burundi.

East African community just like other economic integration aimed at increasing collective bargaining in economic, social and political issue and formation of common strategies and polices of achieving common objectives and benefits

BACK GROUND/ HISTORY OF EAST AFRICAN COMMUNITY

The east African community (EAC) is the community with long history, the genesis of east African community can be traced back to 1923 when east African governor’s conference formed, and then on 1st January 1948 the east African high commission replaced, the east African governor’s conference. Then after Tanganyika independent on 9th December 1961. The east African service organization (EACSO) was established. These create a foundation of former and current / new east African community.

FORMER EAST AFRICAN COMMUNITY

This was economic cooperation of east African countries namely Tanzania, Kenya and Uganda. The reality of establishing former east African community signed by president of three east African countries on 6th June 1967 in Kampala Uganda. But communities come into existence effectively on 1st December 1967 as a replacement of eastern African service organization and effective formation of east African common market(EACM), from that day most of function performed by EACSO and employees were taken by EAC. Also Arusha became headquarter of the EAC.

The former east African community were aimed at promoting free trade of commodities, to provide common services, creating free movement of people, increase in extent of market to deep cooperation, making common research and development.

FACTORS/ REASONS FOR DECLINE OF FORMER EAST AFRICAN COMMUNITY

The collapse of former east African community is due to the following reasons:

Difference in political and economic ideologies among member countries for example Tanzania was socialist country while Kenya was capitalist country.
Political misunderstanding/ conflict between Tanzania and Uganda, this cause late MWL JK NYERERE and IDD AMIN could not meet when east African community meet.
Failure of east African development bank to meet expected objectives.
Donors influence and the problem of neo colonialism. Some of member countries serve colonial interest that goes against interest of east African community.
Lack of clear and agreed pattern of industrial specification and each country work for their own goals and plans that cause unequal gain in east African community.

THE NEW EAST AFRICAN COMMUNITY

The new East African community is the economic integration of east African countries aimed at creating deep cooperation among East African countries economically, socially and politically. The formation of new East African community started in early 1980’s when member of former east African community meet for division of asset and liabilities of former east African community but the treaty for establishing East African community signed on 30th November 1999 but new East African community started to work effectively on 1st July 2000.

East African community has five member countries namely Tanzania, Kenya, Uganda, Burundi and Rwanda it his head quarter Arusha, Tanzania.

OBJECTIVES OF NEW EAST AFRICAN COMMUNITY

The currently formed East African community has the following objectives.

To create free movement of goods and factors of production within a member state by making gradual and reduction of the tariffs and other form of barriers (common market)
To strengthen and develop policies and programs aimed at winding and Deeping cooperation among partners in political, economic and social matters
To promote gender and enhancing the rule of woman economical, social, political and technological issue development
To promote sustainable utilization of resources and balance growth in development of partner state
To enhance and promote equitable economic development within the partner state and raise standard of living and quality of people life in member countries i.e. people centered development.
TO promote peaces security and stability within and good neighborhood among member countries
Enhancement and strengthen of partnership with the private sector and civil societies in order to achieve social economic development.

THE AREAS OF COOPERATION IN THE NEW EAST AFRICAN COMMUNITY/ COOPERATION

The current formed East African east cooperation covering the integration and cooperation in the following areas.

Cooperation in trade and development.

East African community agreed to create trade militarization where by member countries should reduce up to elimination of trade barrier to the custom union and common market in order to create free movement of goods and factors of production.

2. Cooperation in social and economic infrastructure

They agreed to harmonies and adopt policies and laws of improving social and economic infrastructure and joint use facilities in transport and communication for joint development

3. Monetary and fiscal cooperation (financial cooperation)

Member countries agreed to establish monetary and fiscal union means economic policies and elimination of obstacle against financial investment within member state like banking and convertibility of currencies and other strategies of achieving monetary union i.e. the use of one east African currency.

4. Cooperation in human resources, science and technological advancement.

Under this union member countries create union and cooperation in education, training, and jointly establishment of common policies and strategies of human resources mobilization, science and technology development.

5. Cooperation in agriculture and food security.

With the aim of adopting scheme of rationalization of agriculture production in order to promote complementary and specialization in order to increase food supply and having surplus food for security for food shortage.

6. Cooperation in tourism and wildlife management

Member countries agreed to have common, collective and coordinated policies and approaches of promoting and marketing quality tourism, conservation and utilization of wildlife and tourist center.

cooperation in environment and natural resources management
cooperation in investment and industrial development other are legal and justice, role of woman political matters and private sector

Note: the merits demerits and problems facing east African community are similar to those discussed in general in the previous page.

THE SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC)

The Southern African Development Community (SADC) is an association of Southern Central and some of Eastern African Countries agreed to deep cooperation in all matters relating with development.

SADC formed from experience of political cooperation gained by front line state such as Angola, Botswana, Lesotho, Mozambique, Tanzania, Zambia and Zimbabwe in supporting independence movements. SADC was formed to replace the former Southern African Coordination Conference (SADC) formed 1980 which aimed at helping Southern African countries to become developed and self reliant and reduces dependence on South African and other strong nations.

SADC come into existence on August 1992 with eleven member countries namely Angola, Botswana, Lesotho, Zambia and united Republic of South African.

OBJECTIVES OF SADC

To achieve a genuine and equitable economic growth and development, alleviate poverty, enhance standard of living and quality of people’s life of member state
To evolve common political value, system and institutions
To promote and defend peace and security in order to maintain political stability within a region.
To promote and maximize productive employment and utilization of resources and effective environmental protection
TO promote international cooperation and achieving a complementary between national and regional strategies policies and programmers

The ultimate objective of SADC, the community is therefore to build a regional cooperation in which there will be a high degree of harmonization and rationalism to enable the pooling of resources to achieve collective self reliance in order to improve the living standard of the people of the region.

PROBLEMS FACING SADC

However, under new restructuring exercise it has become clear that there are a number of problems that inhibit the effect and performance inefficient of the current structure includes:

Inadequate provision of resources and staffing by member state which has lead to inadequate distribution of responsibility and obligations
Different management and administrative procedures and rules, varying standard qualifications, and performance criteria for staff involved in the management of the regional programmer.
Rapid increase of sector and therefore create problem of priorities and activities dependent on limited resources which has lead to increase in an association costs.
Under the current structure and circumstances the secretariat has been unable to execute its mandate as provided for in the treaty especially that of under taking strategic planning and management
Lack of an institutional framework in which ministers responsible for foreign affairs in the SADC region could discus and adopt common positions on matter pertaining to the organization in various international forces.
Difference in level of development, this reduces cooperation, equal development in trade and lead to unequal gain.
SADC member give priority to their own national interest compare to the regional interest
Political instabilities existing within a member countries like Zimbabwe and Congo etc.

THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA)

COMESA is the Southern and Eastern African Common Market formed by countries from Southern and East part of African for the aim of creating free movement of goods services and factors of production from one country to another

COMESA started to work on December 1994 as a replacement of former PTA, COMESA has the following members; Angola, Tanzania, Malawi, Lesotho, Mozambique, Zambia, Mauritius, Kenya, Sudan, Comoros, Ethiopia etc.

THE GENESIS/ ORIGIN OF COMESA

The history of COMESA started 21st December 1981 when treaty of establishing preferential trade area (PTA) signed to form an organization of free independent sovereign states which have agreed to cooperate in developing their natural and human resources for the good of all people in member state. Then on 6th November 1993 member of COMESA signed treaty of establishing COMESA which then start to work 1994.

COMESA’S economic history and background. Its main focus on the formation of a large economic and trading unit

That is capable of overcoming some of barriers that are faced by the individual member state.

COMESA’S current strategy can this be summed up in phase economic prosperity through integration with 21st members state.

The COMESA states in implementing a free trade area are well on their way to achieving their large of removing all internal and external barriers and trade tariffs, an exercise which is to be completed by the year 2000. Within 4 years after that COMESA will have all third party trade and will have considerably simplified all procedures.

OBJECTIVES OF COMESA

-Trade liberalization and customs cooperation including the introduction of unified computerized customs networks access a region.

-Improving administration of transport and communication to easy movements of goods, services and people between the countries.

-Creating an enabling environment and legal framework which will lead or encourage the growth of private sectors, the establishment of secure investments environment and adopting common set of standards

-The harmonization of macro economic and monetary policies throughout the region.

-To increase agricultural development/productivity and food security.

-Greater industrial productivity and competitiveness among member state.

-To stimulate strong economic base for a member as steps toward independence of a region.

TANZANIA’S WITHDRAWAL FROM COMESA

Tanzania officially pulled out of COMESA on September 2000, where by Tanzania decision made known to all other members and stakeholder that Tanzania is no longer trade friend on COMESA.

However according to URT Tanzania would continue retaining its position in two region blocks namely PTA bank and reinsurance company (ZEP-RE) simply because this institutions cover even non COMESA member.

The reasons for Tanzania withdrawal from COMESA are followings;

-Failure to realize its goals that is strengthening, developing and positively maintaining social-economic relationship

-Lack of seriousness among members in implementing goals.

-Continuous reduction of tariffs which reduce government revenue.

-Protection of infant domestic production industries and Anti-dumping due to free entrance of cheap and harmful products.

-The problem of membership with other unions i.e. SADC, EAC.

THE EUROPEAN ECONOMIC COMMUNITY EUROPEAN UNION

European economic community/ European union is an economic integration formed by European countries that agreed to make gradual reduction of tariffs and other barriers and adopting common policies of increasing economic, social and political benefits to member countries.

The European union established in 1957 where by six European countries signed Rome treaty, This form European Economic Community(EEC) popularly known as European Common Market, the six countries signed the treaty include France, Italy, Belgium, the federal republic of Germany, Holland and Luxemburg. It actually comes into existence effectively in January 1958

From date of establishment this integration start to expand and cooperation has gradually been expanded, tariffs and other barriers are gradually re-educated eliminated new policies and strategies formulated while it adapted to new challenges according to what of majority Europeans agreed. Currently European Union has fifteen member state namely France, Italy, Holland, Belgium, West German, Luxemburg, England, Greece, Portugal, Spain, Ireland, Denmark, Australia, Sweden, Finland.

Although European Economic Community started as an economic zone/ community of European countries ( common markets) it adopt gradual improvement up to European union currently and regarded as a unique organization and more than any other international organization it has many committed member and characterized by democratic decision that help to reach at the highest level of economic integration known as economic union by passing through common market, custom union, and monetary union where by member countries agreed to use European currency as a medium of exchange also they formulated a common agricultural policies (CAP), European development bank and other economic and social development policies

OBJECTIVES OF THE EUROPEAN UNION (EU)

To harmonies the common policies for improving the living standard of the people in member countries.
To encourage and ensure coordination and cooperation in trade in other economic activities.
To increase industrial and agricultural development and increase in agricultural output, this done by establishing common agricultural and industrial development policies
To facilitate free flow of manpower within a member state.
To ensure national business policies do not harm the other member such as tariffs and other barriers of trade.
To faster development of infrastructures by establishing common policies of improving transport and communication system such as roads and inland water transport.

TANZANIA AND EUROPEAN UNION/ COMMON LINK BETWEEN EUROPEAN UNION DEVELOPING COUNTRIES (LOME CONVENTION)

Tanzania and some of developing countries has a close relation with the European Union through the lame convention.

The Lome convention is series of agreement in trade and economic cooperation between European Union and countries from African pacific and Caribbean (ACPS). Lame convention come into existence in 1975 when EU and 46 ACP’S countries meet and sign first contract of Lome convention affected on 1979 with emphasize on agricultural, energy and other natural resources development. 3rd agreement was signed on 1st April 1985 with emphasize on former agreement.

The 4thlome convention signed in 1990 in Kampala Uganda with emphasize on the increased cooperation between EU and ACP in trade, industries, agricultural.

Also fourth Lome convention emphasis on fighting against HIV/AIDS. However countries are still rigid to allow free trade especially in textiles. Lome convention made ACP countries a right of association status as an indirect member of EU. Through cooperation the ACP states benefited in a field of finance trade and industries.

BASIC PROVISIONS OF THE LOME CONVECTION

Lome conventions involve agreement and cooperation in the following ground.

Trade cooperation and development
protection of ACP’S industries
stabilization of export earnings (STABEX)
ACP’S country has chance and control over the EU development fund than formerly
A free decision of ACP’S country when they need to pull out of lame convection if the agreement is no longer satisfactory

ADVANTAGES OF THE LOME CONVECTION

The ACP’S countries including Tanzania may enjoy the following advantages

The ACP’s state can earn more stable income from their export of raw materials. They are now less affected to price fluctuation i.e. stabilization of export earnings.
Increase in assistance/access of grants and aids from European union i.e. EU development banks and funds
It does not promotes new colonialism because one of agreement and promise of EU is to fight against new colonialism
Improvement of ACP’S industries, Lome convention assist development of ACP’S industries due to the promise of imposing tariffs against EU products and getting g technical assistance from EU.

PROBLEMS/CHALLENGES FACING EUROPEAN UNION.

The problem of labor supply due to agreeing population in some countries as a result of strict population control policies.
Economic disparity among countries; thus limit decision power and gain in international trade.
Disagreement among countries member of EU are not agreed in some of common policies and implementation of policies for example some of countries like Britain Portuguese refers to use euro currency while some reflect implementation of agricultural and other policies.
The world economic crises, this imposes problem/ challenge in fighting with the result of reason or depression and other country fail to finance their requirement.
The problem of over production/ over supply which lead to the shortage of markets in European countries.
Unemployment problem, despite of effort and different strategies still there is unemployment problem
Disunity among European countries. This limit the implementation of some policies.

Note: The regional economic integration of developing countries like EAC, SADC, COMESA and ECOWAS has similar advantages and disadvantages to member countries and they face similar challenges (problems) as discussed in general in an introduction part of this topic.

ECONOMIC COOPERATION

Economic cooperation is the intergovernmental organization which involves many nations that provide platforms to discuss ways of improving development and promote trade and investment opportunities together with the creation of socio economic sustained within a member state.

Regional economic cooperation is an association of cooperation of countries with objectives of creating cooperation in different field socially, economically and politically most of economic cooperation has no deep union and interaction compare to the economic integration.

Regional/ international institution and bodies that unite all or most countries in the world to fulfill certain various functions concerned with international economic relations. These functions may include coordinating common economic policies or maintaining some international economic links.

International economic cooperation does not pre-suppose deep economic and political relationship between countries and their national economic. International organization which characterized international economic cooperation include UN’S specialized agencies and forms such as WTO, UNCTAD, IBRD, IMF and so on

It follows therefore that international economic integration and international economic organization/ cooperation are forms of cooperation they share same advantages that may be obtained through their forums.

However international economic – economic cooperation is more loose cooperation than international economic integration it does not have the disadvantage of the later such as the distribution cost and benefits among member countries and some forms of political and economic sacrifice being necessary for integration but not necessary for cooperation.

INTERNATIONAL BANK FOR RECONS TRACTION AND DEVELOPMENT (IBRD)/ WORLD BANK (WB)

The international bank for reconstruction and development (IBRD) is an international financial institution which offers loans to middle income developing countries, influencing economic activities and graduating poverty. IBRD provides commercial grade or concessional financial to sovereign state to find project, that seek to improve transportation and infrastructure, education, domestic policy, environment consciousness, energy, investment, healthcare, access to food and portable water and improved sanitation.

IBRD/ WB established 1944 following a Briton wood’s conference but began to work effectively 1946; IBRD has over 181 members (188 currently), it owned and governed by member state but has own executive leadership and staffs.

OBJECTIVES/ FUNCTIONS OF IBRD/WB

To reduce poverty in middle income and poor countries by promoting sustainable development through provision of loans
To provide an analytical and advisory services by providing experts of doing that
To promote transfer and development of technology especially from developed to developing countries
To finance development project such as infrastructures, water, agricultural project, environmental protection etc.
Provision of research consultancy and training i.e. World Bank provides plat form for research, consultancy and conduct training programs on development issue.
To support and initiate corruption movement in order to eradicate / combat corruption.
To promote long tern balanced growth of internal trade and maintenance of equilibrium in the balance of payment

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