Evaluating SADC and NAFTA as regional development models.

• Author: Skidmore-Hess, Daniel
• Position: Southern African Development Community and North American Free Trade Area - Report

Introduction

This paper compares and contrasts two regional formations, the Southern African Development Community (SADC) and the North American Free Trade Area (NAFTA) as development models. SADC is composed entirely of lesser-developed member states, 15 in number, of which the Republic of South Africa constitutes the largest national economy. SADC was founded in 1980, as the Southern African Development Coordination Conference (SADCC), although current membership overlaps with a much older regional formation, the South African Customs Union (SACU). SACU is one of the world's oldest customs unions, formed in 1910, and is rooted in the politics and economics of colonialism. Yet today's SADC is a wholly African institution that dovetails with the political and economic developmental goals of the larger African Union. (1) NAFTA, by contrast, is a much newer and more focused entity. It grew out of a Canadian-United States free trade agreement ratified in 1988 and expanded to include Mexico in 1993. The goals of NAFTA, as with other regionalist efforts before and since, include the pursuit of the developmental gains to be drawn from the advantages of increased trade and the benefits of increased direct investment for participant developing countries (or single country, in the case of Mexico). (2) One question raised is whether, NAFTA for Mexico, and SADC, serve the developing states in the manner that liberalization worked for the People's Republic of China, bringing increased growth promoting foreign direct investment?

NAFTA and SADC are classic examples of "hub and spokes" systems. For each of the "spokes," the trade relationship with the largest economy in the regional group is predominant. South Africa and the U.S. are the primary external markets, while Mexico-Canada flows are of very limited scope, as is also true for the SADC "spokes." This paper explores the comparative effect of these two regional integration efforts. We examine post-integration trade and Foreign Direct Investment patterns as well as the comparative impact on Mexico and the SADC members. Central to the concerns of this paper are the institutional patterns of regionalism and how these patterns function as "development strategy and ideology" as defined in the next section of this paper. (3)

Regionalism and Development

NAFTA and SADC are examples of preferential trading arrangements based within specific geographic regions. The literature on preferential trading arrangements indicates that while such arrangements "liberalize" exchange between the parties in the arrangements, they may also function as "protectionist" for parties outside the arrangement. The classic example of European integration illustrates the point; exchange becomes open within the European bloc but not for Botswana beef exporters, which might even encounter new barriers as the EU moves toward regulatory integration. (4) It is beyond the scope of this paper to weigh in on the larger debates about free trade, as its focus is on development policy. The salient fact is that regional arrangements of both SADC and NAFTA provide liberalized access to neighboring markets for participating countries. These two regional arrangements are (or are part of) the development strategy of Mexico and the SADC countries neighboring South Africa. (5) While the regional levels of development in North America and Southern Africa are widely disparate, SADC and NAFTA are comparable in that liberalized access to larger neighboring markets is the key structural advantage and appeal for the lesser developed participants in each grouping.

As utilized here, the term "development strategy" denotes a policy method or approach intended to promote or at least encourage development. Development may be indicated by economic growth, although it should not be reduced to the simple measure of GDP growth, as "development" is a more broadly encompassing term, referring to advances in technology, human capital as well as broader social and political factors. One could say that economic growth is a necessary but not sufficient factor for development. In this study, trade and foreign direct investment (FDI) are treated as indicators of whether or not such regional strategies are indeed promoting development. The approach and understanding of "development strategy" taken here follows that of the studies found in The New Regional Politics of Development which discusses development strategies in eight different global regions. (6) In her discussion of the Americas, Nicola Phillips describes the historical shift from import-substituting industrialization (ISI) to "neoliberalism" which encompasses "liberalization strategies" of tariff and trade barrier reduction as well as encouragement of foreign investment. (7) In this account, Mexico exemplifies such a shift and that the initiative for NAFTA was significant coming from the Mexican government rather than an example of regional leadership by the United States' government. (8) In the case of SADC, the regional arrangement again has been described as a development strategy, but in this case the members are all pursuing development. As such SADC represents a case of "development cooperation" in which liberalized trade is the mode of cooperation and strategic goals include thereby making the region more attractive to foreign investment. (9)

As a development strategy and policy, regionalism may also be described as ideology in Geertz's two fold sense of the term; justification and compensation. (10) To the extent that trade liberalization is understood or even presumed to enhance and promote the welfare and "wealth of nations" in general, then the removal of trade barriers at a regional level may be justified in neoliberal terms; more trade means more jobs, more national income, and thereby development is supported by the regional strategy. Or and especially if the justification remains empirically indeterminate, then ideology becomes compensation for the lack of certainty. As noted above, regionalist arrangements like NAFTA and SADC might actually work in a protectionist manner when looked at in a broader global scale, yet advocates for such arrangements may continue to emphasize the greater openness and presumed benefits within and for the region, in effect compensating for any disjuncture between fact and ideology by relying upon the understood or presumed benefits of liberalized trade.

Further on, this paper ventures into the empirical analysis of SADC and NAFTA, noting that available evidence indicates that both regional arrangements appear to reinforce existing historical trade patterns and economic relationships. As such, it seems that these development strategies are less innovative than they might be seen or presented to be. Whether they are quantifiably effective is a determination best made by economists, here a political scientist and historian evaluate SADC and NAFTA in their historical context and with an eye toward available policy options for developmental states. Regardless of whether or not SADC and NAFTA effectively promote development, or even constitute trade liberalization, it remains the case that they are cases of regional neighboring states, with prior histories of close economic relationships (and more difficult political and diplomatic relationships), which have adopted policies that would be expected to further their economic ties, that is to say bring about increased economic, as well perhaps as political integration within the region. Therefore, we...