How Countries Give-up their Sovereignty as Part of Regional Economic Integration

Case Studies

Dec 6, 2009 — Neil Boyle

In a certain part of the world, three principal regional economic communities (RECs) serve as secretariats to their respective member countries for the purpose of regional economic integration. The international community referred to as ICPs (International Cooperating Partners) by the RECs consists of bilateral donors, international finance institutions (IFIs such as the World Bank, European Investment Bank, IFC, MIGA, and others), multinational organizations (UNECA, UNDP), and numerous non-governmental organizations of many kinds. RECs lead the integration effort with the ICPs assisting on a demand basis. RECs report to a Committee of Ministers and Senior Officials comprised of senior representatives of their member states and which reports to a Summit Council comprised of the heads of state of the REC concerned. Ultimately Summit officials report to a Tripartite Summit Council comprised of the heads of state of all of the RECs combined. Each REC has a Director General who is elected to the post by its Committee of Ministers. In addition, each REC has a number of directorates, sub-directorates, and thematic units that work with the ICPs to prioritize areas of work, get agreements on the design and execution of action plans and monitor and assess them.

The region has been in the process of economic integration for the past three decades following a path similar to the integration process pioneered by the EU immediately after WW-II. Member countries contribute about 6 percent of  the operating budget for one of the regions mentioned above; the 94 percent is expected to come from the ICPs in the form of direct and/or indirect assistance. Assistance is mostly indirect as donors are reluctant to grant funds directly for badly needed internal administrative and organizational reforms for fear the funds will be misused, or won’t be disbursed because of lack of political will to enforce the conditionality that accompanies financial assistance. The REC is underfunded and under staffed and can’t hold good staff long enough to be sustainable.

What is ultimately at stake for each member country is relinquishing certain amounts of national sovereignty in exchange for greater economies of scale and scope and efficient governance of market economies. Sovereignty comes in many forms ranging from relinquishing the administrative business rules of a border post to relinquishing the monetary policy of the country to a central bank of an aspiring monetary union. Each country is aware that its economic, political, and social endowments differ from the other countries in its REC. They are also aware of the costs and benefits at stake in the process of integrating their economies. Given the game theoretic nature of their situations, each country positions itself to maximize its political and economic capital unaware of the hazards that are involved. In the autonomous bilateral trading that occurs among member countries, decisions are made under conditions of hazardous incentives where informed consent is compromised, disclosure is stifled, and maladaptation is common. 

The allocation of river water rights across sovereign borders is a case in point. Upstream dwellers tend to exercise their rights opportunistically by denying responsibility for inequitable supplies downstream when they advocate building a dam. Another example where gaming comes into play is membership in more than one REC. Each of the three principal RECs have several overlapping RECS in their regions bringing the total to 7 or 8. Countries can and often play off one REC against another when it suits their political and economic aims of the moment. A third example is the relative success obtained by member countries when achieving parts of the RECs Trade Protocol. For instance, the  Protocol involves the easy successes of yielding a relatively minor amount of sovereignty, e.g., central bank settlement and payment system harmonization compared to the difficulty of attaining success when large amounts of sovereignty must be yielded as in the convergence of macroeconomic policies among signatories of the Protocol. A fourth example is the breakaway issue of a customs union in the REC with the European Union which involves member countries in narrow win-lose diplomacy of maximizing singular interests with one member in particular and the European Union. Not surprisingly, harmonization activities have progressed smoothly and roughly according to plan, while macroeconomic convergence has not. And it is unlikely that progress on the latter will occur in the absence of economizing efforts to reduce the hazardous incentives that come with the gaming relations of member countries.  The gaming nature of regional integration calls for special attention paid to achieving credible commitment instead of the zero sum solutions of the past.

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