Regional Integration: Status, Developments, and Challenges
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transactions and raise costs for both enterprises and governments. Moreover, because regional trade agreements are inherently discriminatory, there is a risk that they cost the economy more in lost trade revenues than they earn in increased trade, depriving local producers and consumers of efficient, low-cost supplies from nonpartner countries. In dynamic regions, such as East Asia as well as parts of Eastern Europe and Latin America, increased intraregional transactions preceded rather than followed the conclusion of regional integration agreements (World Bank 2005). Low external trade barriers enticed producers to strengthen their competitiveness, and the emergence of global production networks in manufacturing favored specialization and cooperation with neighbors. These commercial relations were later solidified and confirmed through formal integration agreements. In contrast, there are relatively few economic links across the MENA region, and existing integration arrangements are not always effectively implemented. Moreover, because granting preferences to partner countries implies discriminating against outsiders, more dynamic regional integration activity in regions other than MENA has left MENA exporters at a disadvantage. Thus, the region’s policy makers have an incentive to push for more ambitious and effective integration within MENA and multilateral trade reform to “level the playing field.” In fact, regional integration and active participation in global markets do not present exclusive or opposing choices. Many successful countries have built their strategy around a paradigm of “open regionalism,” which implies negotiating reciprocal preferences with regional partners while opening up to international markets. Moreover, regional agreements can complement multilateral reforms. They can make a contribution toward harmonization of rule-making. Some arrangements contain provisions in areas such as investment protection or labor migration that go beyond current multilateral trade law in terms of their integrative ambition (so-called WTO-plus arrangements) (OECD 2003).
Reasons for the Failure of Past Integration Attempts MENA exhibits many economic, geographic, and cultural features that favor cross-country links and regional integration. Indeed, economic and political integration efforts have a long history in the region (box 10.1). The multitude of attempts to promote cross-regional links through institutional arrangements has left a veritable spaghetti bowl of intertwined relationships and overlapping associations (figure 10.2). Every MENA country is a