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C. Gopinath

EAST Timor gained its independence on May 20 this year and became the newest member of the comity of nations. It also simultaneously achieved the dubious distinction of being Asia's poorest nation.

In today's globalised world, `freedom-fighters' have to wonder what political independence means if it does not translate into economic independence.

Small countries would increasingly be vulnerable at the global negotiating table. Is regional integration the answer? The European Union is way ahead of the game of regional integration. The euro was technically launched in 1999, and common currency began circulating in 11 of the 15 countries of the EU as of 2002.

Despite the dire predictions of the countries that are not a part of the common currency system, there has been no chaos. For months prior to the launch, as part of preparation, leaflets were printed, currency converter tables circulated, and trucks despatched all around the continent containing the new notes and coins.

Walking through the streets of Paris, you would see prices in stores and restaurants displayed in both the new euro and the old francs.

The EU has been a long time coming. 1957 saw the Treaty of Rome establishing the European Economic Community with just five members — Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. Internal tariffs were first reduced in 1959, and completely eliminated in 1968, when a common external tariff was imposed.

The European Monetary System was established in 1979, and all internal trade barriers were eliminated in 1992. From a conceptual point of view, countries go through four stages towards a goal of regional economic integration. At first, a 'free trade area' (like the North American Free Trade Area) is established to eliminate trade barriers among the members, though each country is free to follow its own trade policy towards non-members. Nafta, comprising the US, Canada and Mexico, is an instance.

At the second stage, a `Customs union' ensures the adoption of a common external trade policy. The Andean Pact, consisting of Bolivia, Colombia, Ecuador and Peru, is an example. The third stage leads to a `common market', where factors of production, such as labour and capital, are allowed to move freely between member-states. This is difficult, for although capital often moves easily, nations are reluctant to allow free migration. The Mercosur, among Brazil, Argentina, Paraguay and Uruguay, is hoping for this.

The last stage is the `economic union', where nations also have a common currency, and common monetary and fiscal policies. This is where the European Union is headed. The Maastricht Treaty of 1991 enjoins the members towards a common defence and foreign policy. The fact that it has been happening so systematically and slowly blinds us to the fact that the EU is a truly amazing event. It not only attests to the long-term view of the political leaders of the nations concerned but the maturity of their conflict resolution mechanisms that this integration has been possible.

It is not easy to make national sacrifices in pursuit of a promised trans-national economic goal, especially among countries that have fought several wars in the last couple of centuries. The fact that so few other free-trade areas have progressed much further is an indication of this.

The constant desire of small religious, ethnic, or tribal groups in many nations seeking independence shows that other factors (real or imagined), apart from economic progress, still grabs people.

It probably also shows that mature leaders are in short supply.

African integration

Although France has given up the franc, its former colonies have not. (Now you know why some remain subjects and others remain masters.) In 1945, the CFA franc was created as a colonial currency. As the colonies of France gained their independence, they retained the currency along with its peg to the French franc and a guarantee from the French government as to its convertibility. Two different economic zones were created — the West African Economic and Monetary Union and the Central African Economic and Monetary Union, each with its own central bank.

Now, with the franc having moved on, the CFA franc is pegged to the euro.

Though these zones have been in existence for a long time, there have been no commensurate moves to become common markets or economic unions. The experience of the EU suggests that it takes time before nations develop the confidence and the conviction of the benefits of a closer economic union. The leaders of the EU countries have worked hard at taking the people along with them.

This is no easy task as they have to work with democracies that are admittedly messy political systems. They have had to hold referendums along the way to get approval for major milestones, sceptics have held back and joined later as the intent of a common economic system moved forward as a herd of thundering turtles. It certainly helped that post-World War II, the countries of Europe have had a political stability that has helped their economies.

West and Central Africa have not been blessed with the stability or political maturity of Western Europe. But, unlike Europe, which began tentatively with a free trade area and finally arrived at a monetary union, Africa started with a monetary union of sorts and has remained there.

An African student of mine argued that a common currency is needed by the people as a tangible commodity, which they can touch and feel as they move towards closer economic integration. The supposed benefits of a common market and free trade are too abstract to grasp, she says. Thus, the efforts of the Economic Community of West African States (ECOWAS) are worthy of careful watch. Six of the 15 states that comprise this group — The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone — plan to set up a second common currency zone and monetary union in West Africa and eventually merge with the WAEMU. Research has shown that a monetary union increases trade by a factor of three. Countries that have significant trade links benefit from a monetary union, but will a monetary union be a driving force for trade links?

ECOWAS has facilitated factor mobility by eliminating visa requirements. Yet, complaints of discrimination and a backlash against migration show that the people are yet to be convinced. Any union, like a marriage, requires sacrifices and the behaviour of a majority of the African leaders in the past has not shown them to be particularly good at making sacrifices to ensure economic and political stability. As the European nations gave up their economic sovereignty to become one economic union, it helped that, for many of them, the borders were changing anyway over the period of history and world wars and, thus, the concept of a `nation-state' was not as emotionally charged as it was for Britain.

Britain has been lucky to stay with stable boundaries, thanks to its island state; ergo, it is a nation full of sceptics about the European integration process, and is reluctant to join the monetary union.

If this theory is true, then the African nations should find it easier to form an economic union as boundaries and nation-states makes less sense here. The lines were drawn by the European colonial masters on their own whims and often cut across tribal and ethnic lines, with the result that disaffected groups in one country always find sympathy and support from across the border. That only leaves good political leadership as a stumbling block to economic integration. But, isn't that where we started?

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. His Internet address is cgopinat@suffolk.edu)

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