Economic blocs in theory and practice
The signing of the Tripartite Free Trade Area (TFTA) in Cairo on June 10 2015 is indeed as bold a step as the signing of the treaty of the Organisation of African Unity (OAU) in 1963. Twenty six African countries have shown that they have a vision. In the current globalisation, the nation State by itself is very weak in international economic relations.
Some people have received the news about the TFTA with optimism, some with pessimism, while others with bewilderment. The purpose of this article is to discuss various forms of economic blocs that lead to complete economic integration such as the European Union (EU). Equipped with such knowledge, we will be in a better position to foresee the benefits that are likely to accrue to our country through membership of each type of bloc.
The basic economic bloc is the free trade area such as the TFTA. Member countries of a free trade area agree to reduce or abolish tariffs between each other. But each country is free to negotiate with non-members of the free trade area and fix different tariffs.
With this arrangement, a non-member country upon finding the tariff in Malawi too high but fairly low in country which is a member of the TFTA could export its goods first to country where there are labeled as belonging to country and export them to Malawi to enjoy the free trade agreement that Malawi has signed with a country through TFTA. To avoid this trick, there must be strict systems as regards certificates of origin.
- Customs Union. A customs union is a step further than a free trade area. Besides members abolishing or reducing tariffs among themselves, they agree to the same tariff on imports from non-members of the customs union. This makes it impossible for non-members to use one country to penetrate the market of another in the manner we have indicated above.
Customs unions like free trade areas are merely concerned with trade. They do not deal with other economic activities.
- Common Market. A common market has all the features of a customs union. It goes further in allowing free mobility of labour and capital. Nationals of member countries may work anywhere within the common market without first obtaining a visa or permission to work. Besides, businesspeople can open branches anywhere in the common market.
- Complete economic integration. Apart from the free mobility of labour and capital, member countries create joint economic units such as central banks, development banks and common currencies. They adopt common economic policies with the result that each country’s sovereignty gets modified in favour of the common sovereignty. The greatest economic integration has been achieved through the European Union (EU), which started as a free trade area. A brief history of the EU is given here for our guidance in our future regional economic relations.
By the end of World War II, a good deal of destruction had taken place in Europe. With the help of the United States Marshall Plan, countries of Western Europe started rebuilding themselves through the Organisation for Economic Cooperation and Development (OECD). Some of these countries did not see this arrangement as enough. These were Belgium, Netherlands and Luxemburg, which formed an economic bloc called Benelux at the beginning of the 1950s.
In 1957, the Benelux group and three other countries France, Germany and Italy signed the European trade and steel community followed by the treaty of Rome which established the European Economic Community (ECC). In 1959, the first steps were taken in the progressive abolition of customs duties and quotas. In 1973, Denmark, Ireland and United Kingdom joined the ECC. Britain joined following the holding of a referendum. In 1998, Austria, Finland, Sweden, Spain and Portugal joined later.
The abolition of custom duties was followed by the establishment of the European Monetary Union, European Central Bank (ECB) culminating into establishing a single European currency called euro. By that time, the countries had established a European parliament whose members were elected by universal suffrage.
With these common institutions, what had started as the European Economic Community was transformed into the EU just a step behind a United State of Europe that Winston Churchill had advocated in 1946.
The EU is the largest and most comprehension regional economic bloc, starting with six members it has now more than 25 members. Its membership snowballed after the collapse of the communist bloc in Eastern Europe. What should be noted is that at each step, countries negotiated reduction of customs on some products only, not all. Each country had to decide what it was prepared to bargain away.
A journey of 1 000 miles, the Chinese proverb says, started with one step. The TFTA may one day become a common market or community. But the journey must be on foot. Any attempts to abolish duties on every import could have serious repercussions for some countries, even Malawi.
