On the typology of regional integration blocs

The widening array of regional integration arrangements across the global economy presents a variety of development models and structural features that may be amenable to broad characterization and classification. Some of the approaches in the past included the classification of regional blocs according to the level of economic integration reached – customs union, FTA or common market. Other approaches involved looking at regional blocs through the prism of how open they were to the outside world – hence the emergence of “open regionalism” as a platform whose liberalization impulses would be shared with the outside world. Structurally, however, there may be a case for differentiating between asymmetric regional blocs, where one sole economy plays a dominant role and more balanced regional platforms where economic weights are more evenly distributed among participants. Such a differentiated look at the evolving patterns of regionalism may provide insights into the past patterns of inter-regional interaction as well as clues on the possible future dynamics of accords that may be forged among regional integration arrangements.

One way to formulate a criterion for an asymmetric regional bloc would be to introduce a condition that the largest economy accounts for more than 50% of GDP of its total economic weight. Among such regional arrangements are MERCOSUR (Brazil accounts for more than 70% of the total[1]), Eurasian Economic Union (Russia accounts for nearly 90% of the total[2]) and USMCA (US accounts for nearly 88% of the total in 2023). At the other end of the spectrum are ASEAN (Indonesia accounts for close to 36% of the total)[3], African Union/African Continental Free Trade Area (Egypt, Nigeria and South Africa each accounting for 13-14% of the continental total) and the EU (Germany contributing close to 25% to the overall size of the EU’s economy). The Gulf Cooperation Council (GCC) is a borderline case as Saudi Arabia accounts for close to 50% of the GCC total.  

Thus far, the empirical evidence on whether asymmetric regional blocs are more constrained in forging alliances with other regions is mixed, though the more diversified blocs such as ASEAN and the EU are more active in forging alliances with other regional blocs and national economies. Among the developed economies one of the most active in building alliances with other regional blocks is EFTA (Switzerland, Norway, Lichtenstein and Iceland) – while Switzerland has more than 50% in the bloc’s GDP, the bloc was more diverse in the past with a significantly wider membership. The EFTA block has signed and implemented FTAs with the South African Customs Union (SACU) and the Gulf Cooperation Council (GCC), while also concluding FTAs with Central American States (Costa Rica, Guatemala and Panama) and creating a European Economic Area (EEA) with the EU. In the developing world several regional blocks concluded FTAs or other types of trade agreements with the peers from other regions, including such alliances as the MERCOSUR-SACU preferential trade agreement, the Economic partnership agreement between the EU and the SADC EPA Group, and the FTA between ASEAN and the Australia-New Zealand Free Trade Area. There is also a number of accords that are in the process of negotiation, in particular, the MERCOSUR-EU FTA accord as well as the EU-GCC FTA agreement[4]

In attempting to rationalize these empirical patterns it may be argued that in some cases asymmetric regional blocs may be more limited in concluding “region-to-region” agreements compared to the more balanced regional counterparts. This may be due to concerns from prospective regional partners about the dominance of one single economy in the counterpart regional bloc, resulting in country-to-country disagreements dominating over regional considerations (the lack of EU-EAEU connectivity in the past). Another possible constraint is the possibility of asymmetries within the RTA translating into perceived asymmetries/imbalances in terms of the distribution of costs/benefits of the trade alliance with other regional groupings.  

Given these limitations that may be encountered by asymmetric blocs in forging alliances, there may be benefits derived by such regional groups from forming mega-regional formations with other regional integration arrangements. The resulting mega-regional structures benefit from several factors:

  • Lower asymmetry associated with the dominant weight of any one single economy
  • Increase in the overall economic weight of the enlarged group and the stronger gravity pull exerted by mega-regional formations vis-à-vis other economies and regions
  • Greater geographical and sectoral diversification within the enlarged bloc – something that allows for greater dynamism in trade and investment

In light of the above, it should be noted that virtually all of the BRICS-5 economies are leaders in their respective regional integration blocs that are all asymmetric in terms of the economic weights of members. Apart from Russia’s and Brazil’s dominance in the EAEU and MERCOSUR respectively, there is a similar asymmetry in the case of South Africa in SACU (though none within the larger AfCFTA), India in the case of BIMSTEC or SAARC and China in the case of RCEP. This in turn points to the potential benefits to forming an enlarged platform for these BRICS-led regional integration arrangements to attenuate the sizeable asymmetries[5].

Overall, the typology of regional integration blocs according to the degree of asymmetry in the GDP distribution among members may provide insights into the possible dynamics of the “integration of integrations” stage of global development that is likely to be witnessed in the coming decades. It may well be possible that in view of the relatively limited number of regional heavy-weights there may be strong “first mover advantages” to forming the initial platform of “integration of integrations”. The first platforms may establish standards and rules (environmental, labor, digital, rules of origin) that may be difficult to readily replicate in subsequent alliances/platforms. The larger the initial mega-regional platform built, the lower the scope for the laggards to forge their own “region-to region” alliances. And within the possible race towards securing the “initial integration of integrations” mega-regional platform the less asymmetric blocs such as ASEAN and the EU appear to be in the lead. A less competitive scenario could be associated with an early/ex-ante formation of a horizontal platform for regional integration arrangements at the level of G20 (a regional 20 (R20) platform) – but thus far there does not appear to be sufficient appetite neither in the Global South nor in the EU to move towards this scenario.  

[1] https://data.worldbank.org/?locations=BR-AR-BO-UY-PY

[2] https://singapore.mid.ru/en/press_center/news/eaeu_in_2022/

[3] https://www.aseanstats.org/wp-content/uploads/2023/10/ASH-2023-v1.pdf

[4] https://valdaiclub.com/a/highlights/exploring-the-prevalence-of-the-integration/

[5] https://www.brics2018.org.za/shining-beams-brics/

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