This article discusses about the conceptual underpinnings of economic integration among sovereign states, countries’ motivations for seeking membership in economically integrated blocs, the necessity of economic integration, and the necessity of economic integration beyond the current and unprecedented attacks on its relevance by some countries.
Integration of the economies of sovereign states has been one of the leading aspirations of socio-economic policy since the end of World War II in 1945, such that the period between then and the first 18 years of the 21st century can be appropriately described as having been an era of economic integration. Feld and Jordan (1988) have portrayed this unprecedented proliferation of integration of national economies in the following words: “The number of IGOs [inter-governmental organisations] ... has grown tremendously since World War II.”
In the industrialised world, for example, the desire for economic integration is reflected in the formation of such inter-governmental organisations (IGOs) as the European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA) bloc of countries, and the European Union (EU), among many others.
In the developing world, an interest in economic integration has been even more widespread; in Latin America, for example, it has given rise to such IGOs as the Andean Common Market (or the Andean Community), the Southern Common Market (or Mercosur), the Organisation of American States, and the South American Community of Nations.
And in Asia, the desire for economic integration has resulted in the creation of the Arab Common Market and the Association of Southeast Asian Nations (ASEAN), while in Africa it is expressed in the formation of economic groupings like the Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), and the nascent Continental Free Trade Area (CFTA).
This article is, thus, devoted to a discussion of the following themes: (a) conceptual underpinnings relating to economic integration among sovereign states; (b) motivations for seeking membership in (or working hand in hand with other countries in creating) economically integrated blocs; (c) the necessity of economic integration; (d) a comment on Brexit; and (e) a brief assessment of the longevity and enduring necessity of economic integration beyond the current and unprecedented smear on its relevance to any given country’s quest for sustained socioeconomic development conjured by the United Kingdom and the United States of America.
2. Conceptual underpinnings
In this section, let us briefly consider the important concepts upon which the integration of national economies worldwide is predicated. Specifically, the following themes are discussed in the section: (a) the various forms and stages of economic integration; (b) the potential effects associated with the integration of national economies; (c) preconditions for viable and beneficial integration of national economies; and (d) the “Theory of the Second Best.”
2.1. Forms of integration
Essentially, the term “economic integration” is used in this article to refer to the formation of an inter-governmental organisation (IGO) by three or more countries to create a larger and more open economy expected to benefit member countries. Theoretically, the process of economic integration may take any of the following forms, each of which may represent a different stage of integration if member countries have a desire to pursue the integration of their national economies to its logical conclusion:
1) Preferential trade arrangements, which represent the form of loose economic integration whereby participating sovereign states scale down trade barriers to the movement of goods in their trade with each other;
2) A free trade area, which basically entails the complete removal of trade barriers among member countries, while each member country maintains separate trade policies with non-members;
3) A customs union, whereby member countries venture beyond the removal of trade barriers among them and adopt a common external trade policy with all non-members;
4) A common market, whose nature involves the removal of all barriers to the movement of factors of production (particularly labour and capital) among member countries in addition to the requirements of a customs union cited above;
5) An economic union, which essentially requires member countries to go beyond the requirements of a common market by unifying the economic institutions of the member countries, and the coordination of their economic policies;
6) A monetary union, whereby the member countries, in addition to satisfying the requirements of an economic union, adopt a common currency, as well as create and use a common, supranational central bank; and
7) A political union, whereby cooperating countries in a monetary union eventually create a regional bloc that is akin to a nation-state or federal government by creating centralised political institutions, including a regional parliament.
The first four stages or forms of integration represent what Gerber (1999, 210-211 and 223-231) has referred to as “shallow integration,” while the last three represent what he has designated as “deep integration.” Essentially, the term “shallow integration” refers to any form or stage of economic integration whose scope is limited to border-related issues—that is, tariffs and non-tariff trade barriers (NTBs).
“Deep integration,” on the other hand, goes beyond border-related issues; among other things, it entails harmonisation of member countries’ important economic institutions, as well as legal, product-safety, labelling, environmental, and technical standards.
2.2. Effects of integration
There are generally four potential effects associated with economic integration; they are as follows: (a) static effects; (b) dynamic effects (c) trade deflection; and (d) counterfeit labelling. A brief survey of these four effects constitutes the subject matter of the remainder of this sub-section, the primary sources of which include Appleyard and Field (1995, 324-332), Salvatore (1990, 288-296) and Gerber (1999, 221-222).
1) The static effects. Essentially, the “static effects” associated with the process of economic integration emanate from shifts (induced by the integration of any three or more national economies) in the production of certain export products from one member-country to another member-country, or from a non-member country to one of the member countries.
More specifically, static effects can result either in a shift in product origin from a high-cost member country producer to a low-cost member country producer, referred to as trade creation, or in a shift in product origin from a low-cost non-member country producer to a high-cost member country producer, referred to as trade diversion.
While the first form of static effects—that is, trade creation—can improve member countries’ welfare (since such a shift would represent a movement in the direction of the free-trade allocation of a country’s resources), trade diversion—the second effect—can, according to Appleyard and Field (1995, 324), reduce member countries’ welfare because it represents a movement away from the free-trade allocation of resources.
Accordingly, economic integration, as Sunny and others (2001, 2) have espoused, can enhance the socioeconomic welfare of people in an integrated region “provided that trade creation exceeds trade diversion.” However, countries in an economically integrated region, according to Sunny and others (2001), “must not expect benefits to begin to accrue almost overnight ... [because welfare gains] from such experiments are long-term in nature.”
(For graphical and theoretical illustrations of both trade creation and trade diversion, see Kyambalesa and Houngnikpo (2016, 3-6).)
In addition to the positive welfare effects of trade creation, there are other beneficial static effects of economic integration; they include the following:
(a) Administrative savings, which member countries may realise from doing away with some of the functions of the customs departments of their national governments. However, member countries cannot completely eliminate their customs departments when they become members of an economic bloc as such departments would still be needed to perform the following functions, among others: (i) assessment of customs duties on goods imported from non-member countries; (ii) verification of adherence of imported goods to the economic bloc’s rules of origin; (iii) keeping track of import and export volumes; and/or for countries which have a value-added system of taxation, (iv) assessment of value-added tax on imports.
(b) An improvement in member countries’ collective terms of trade(TOT), which may occur when member countries’ demand for imports from non-member countries plummets in the case of trade diverting integration due to a reduction in their aggregate welfare. (Note: In the case of trade creating integration, the improved welfare associated with it can induce greater demand for imports from non-member countries and, ceteris paribus, lead to a deterioration of the collective TOT of member-countries.) And
(c) Greater bargaining power, which countries collectively gain by being constituents of a viable economic bloc.
2) The dynamic effects. Basically, the “dynamic effects” of economic integration come about as a result of changes in member countries’ economic performance and/or structures occasioned by a country’s membership in an inter-governmental organisation (IGO). There are several dynamic effects associated with economic integration that are worthwhile for member countries, one of which pertains to economies of scaleand economies of scope.
Economic integration is, among other things, a means of doing away with the disadvantages of small size, and of making possible the attainment of member countries’ desired levels of socioeconomic development; it can enable member countries to exploit both economies of scale and economies of scope, and to capitalise on differences in comparative advantage among member countries in the production of commodities.
Also, there are important gains from economic integration that are associated with the opportunities for specialisation made possible by the integration of markets; for example, economies of scale may be realised not only from the manufacturing industry, but also from the potential large-scale dispensation of public services and utilities like water and electricity.
For certain public services, there may also be economies to be derived from operation over a wider geographical area. In the case of air and rail transport, for instance, there is a very strong case for operating on a large enough scale to make full use of both specialised abilities and any available machines of large capacity.
Another of the dynamic effects of integration relates to the emergence of competition. The reduction or removal of trade barriers brings about a more competitive market environment and eventually reduces the degree of monopoly power that might have been present prior to the integration of national economies.
The third effect concerns foreign investment. The larger consumer and industrial markets created through the integration of national economies can make it possible for member countries to attract the foreign investment capital they need for boosting business activity and, among other things, increasing the level of employment.
Other equally important dynamic effects include those that may culminate from the eventual creation of a monetary union and/or an optimum currency area. As some pundits, including Grauwe (1992, 67), have observed, a monetary union can facilitate the creation of a larger, more stable financial market since it can, among a host of other things, eliminate exchange rate variability in an economically integrated region.
Also, the attainment of greater exchange rate stability and certainty facilitated by a common currency can result in more stable and soundly based economic growth for an integrated region as a whole.
Moreover, it can be reasoned that elimination of currency fluctuations within an economically integrated region can increase trade among member countries, since such fluctuations inhibit business enterprises from expanding their operations in other member countries. This seems all too obvious considering the fact that fluctuations in exchange rates can more than wipe out the normal profits from any given business organisation’s sales.
Further, it may be assumed that a monetary union can eliminate the need for member countries that may experience a decline in the aggregate demand for their export products to consider currency devaluations—which are now proved to be both ineffective in correcting a country’s economic shocks and more likely to generate high levels of inflation—as a means of making their products competitive in other member-countries.
Besides, economic integration can lead to intra-industry specialisation such that all member countries produce and sell similar products, making them more alike and eventually reducing the chances of any one member country becoming a victim of an economic shock.
With respect to the creation of a monetary union—such as the “Euroland,” or any other single currency zone or region as a matter of fact—there are enormous benefits that can accrue to cross-border travellers, buyers and business operators in such an economic bloc.
Apart from creating a larger and readily accessible market for goods and services, the Euroland, for example, is advantageous to cross-border business operators in the region in the following ways, among others:
(a) It has greatly facilitated and expedited cross-border transactions in financial assets—such as bonds, shares of stock and treasury bills—within the European Union;
(b) It has increased competition in the banking industry, and has generally resulted in lower interest rates—thereby making it less costly for business entities in the region to finance their operations through borrowed funds;
(c) The use of a single currency in the region has eliminated the exchange rate risk to which cross-border business operators and consumers were hitherto subjected;
(d) The absence of barriers to the movement of people across the region has made cross-border traveling by consumers and business operators easier;
(e) Time and money which would otherwise be spent on currency exchanges across national borders are no longer a source of concern for cross-border travellers, buyers and business operators; and
(f) Monetary union has made it much easier for consumers and business operators to compare costs and prices of goods and services across the region, since the costs and prices are now quoted in the same currency—the euro.
(Note: Currently, the “Euroland” includes the following EU countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands (Holland), Portugal, and Spain. Three EU members—that is, Denmark, and Sweden—are still considering the prospect of adopting the euro. Adoption of the single currency, the euro, was formalised on 1 January 1999. Euro notes and coins were introduced in the Euroland on 1 January 2002; by March of the same year, members of the monetary union ceased to recognise their national currencies as legal tender.)
3) Trade deflection. The third potential effect of the process of economic integration is “trade deflection”—that is, the entry of imports from the rest of the world into a low-tariff member country of a free trade area in a deliberate effort by either importers or exporters to avoid higher tariffs that may be levied by other member countries.
In a free trade area, therefore, high tariff member countries can lose much of their potential revenue from import duties to low tariff member countries through trade deflection. The only rational way in which this problem can be circumvented is for member countries to consider the prospect of creating a customs union, or any of the other higher forms of economic integration cited earlier in this article.
4) Counterfeit labelling. Traders involved in trade deflection may attempt to dupe authorities in a low tariff member country of any given economic bloc by designating the imports involved as local manufactures in order to obtain the bloc’s certificates of origin, which they can use to freely export the foreign goods from the low tariff member country to other member countries. For lack of an orthodox concept designed to function as a designation of this phenomenon, let us refer to it as “counterfeit labelling.”
2.3. Conditions for success
As Viner (1950, 51-52), Leistner (1997, 122), Lipsey (1970, 56), Rooyen (1998,130), and Salvatore (1990, 293-294), among numerous other notable economists, have maintained, several conditions need to be met in order for any form of integration among the national economies of cooperating countries to be viable. Such conditions include the following:
1) Peace and stability: Sustained peace and stability in all cooperating countries, and transparency and popular participation in the generation of important IGO related decisions, protocols and treaties in each of the cooperating countries.
2) Sustained political will: A genuine desire among leaders of each and every cooperating country to create a successful economic bloc, and willingness to compromise on sensitive issues and matters relating to national sovereignty. In this regard, as Mistry (2000, 565) has observed, leaders of cooperating countries need to “close the gap between political rhetoric in making treaty commitments” and efforts aimed at fulfilling such commitments.
3) Competitive economies: The economies of cooperating countries need to be initially competitive rather than complementary in order to provide for a competitive business environment in the regional economy, which may eventually be created. In other words, each member country’s economy should initially have the capacity to compete in cross-border trade by itself with little or no dependence on other countries’ economies to complement its competitive position.
4) Similar stage of development: The national economies of cooperating countries also need to be generally at similar stages of industrial development in order to circumvent problems emanating from the following: (a) mass emigration of people from low income to high income member countries; (b) dominance by one or a few member countries in the supply of manufactured goods or industrial inputs; and/or (c) differences in labour, environmental and product safety standards.
5) Geographical proximity: There is a need for geographical proximity among cooperating countries to make it possible for them to create a well developed and efficient transportation system for distributing industrial inputs and finished products within the regional economy that is to be created.
6) Pre-integration trade ties: Strong pre-integration trade ties (which would reflect the existence of specialisation by cooperating countries in the production of divergent commodities), harmonious and protracted political relations, and similarity of economic systems between and among cooperating countries.
7) High pre-integration trade barriers: High pre-integration tariffs and arduous non-tariff trade barriers between and among cooperating countries, so that the eventual scaling down or complete removal of trade barriers can result in very low prices of tradable products in the regional economy that is to be created and ultimately lead to “trade creation.”
8) Low post-integration trade barriers: Low tariffs and less formidable non-tariff trade barriers on the integrated region’s imports from non member countries so that trade with such countries is sustained in order to promote the generation of tariff revenues by member countries.
9) Large number of countries: Involvement of a large number of countries in the creation of an IGO in order to broaden the potential for inclusion of many countries which have low cost industries in the IGO, and to create a larger economic region in terms of both market size and investment opportunities.
10) Preferential treatment: An inclination by each and every member country to import relatively more commodities from cooperating countries than from non-members.
11) Sharing of gains and losses: Presence of an acceptable mechanism for assessing both qualitative and quantitative costs associated with cooperating countries’ membership in an IGO, and ensuring that the benefits of integration—including revenues generated from tariffs levied on imports from non-member countries—are distributed both fairly and efficiently among member countries. And
12) Fair distribution of IGO institutions: Evenly and fairly dispersed commercial, industrial, administrative, educational, training, healthcare, and other essential and communal facilities and institutions in the economic bloc’s member countries.
The unceremonious disintegration of the East African Community (EAC) in June 1977 (barely a decade after its inception by Kenya, Tanzania and Uganda in December 1967), for example, could be directly attributed to the non-fulfilment of some of these conditions. The following are, by and large, the specific conditions, which were not met:
(a) Peace and stability: Idi Amin’s ousting of Prime Minister Milton Obote from power in January 1971 triggered off a chain of destabilising events in the EAC. Among other things, it caused a great deal of turmoil and political instability within Uganda, and strained the country’s political and economic relations with the other two member countries—particularly with Tanzania, whose president, the late Julius Nyerere, was not willing to work with General Idi Amin.
Nyerere’s decision to grant political asylum to Obote also contributed to the severing of the hitherto sound relations between Uganda and Tanzania.
(b) Industrial development: Comparatively, Kenya was more industrialised than Uganda and Tanzania. This difference in the level of industrialisation caused Tanzania and Uganda to incur large trade deficits with Kenya due to their huge import bills mainly resulting from importation of industrial inputs and manufactures from the country. The relatively more developed industrial sector in Kenya also made the country more preferable as a location for new business enterprises.
(c) Pre-integration trade: Prior to the creation of the EAC, both Uganda and Tanzania were highly dependent on trade with industrialised countries or, according to Karoi (2001), “the club of leisure-intensive nations”—which involved the exportation of primary commodities to such countries and importation of manufactured goods from them.
This apparent lack of pre-integration trade ties, which generally emanated from the similarity of the two countries’ export products—that is, primary (or semi-processed) commodities—rather than from high trade barriers, could not be overcome easily during the post-integration era. Eventual membership in the EAC by Uganda and Tanzania, therefore, could not create meaningful trade between the two countries.
(d) Economic systems: Using the “Uhuru na Ujamaa” (that is, “Freedom and Independence”) philosophy, Tanzania’s Julius Nyerere was in the process of creating a socialist state. Thus, Tanzania despised Kenya’s free enterprise orientation. Besides, Kenya’s free enterprise orientation made the country a more preferred destination for foreign direct investment (FDI)—which contributed greatly to the country’s relatively more developed industrial sector.
Ideological differences and the divergent socioeconomic systems which such differences occasioned, therefore, did not augur well for the long-term success and survival of the EAC, as Ching’ambo (1992, 25) has noted in the following words: “The impact of ideological differences greatly affected trade relations and the general programs on investment and industrial policies ... [and] their individual foreign policies towards other countries, ultimately affecting their relations with each other.”
(e) Number of countries: Since it was constituted by only three countries (that is, Kenya, Tanzania and Uganda), the EAC could not benefit fully from the greater potential for trade creation associated with inclusion of as many countries with low cost industries in an IGO as possible.
(f) Costs and gains: There were perceptions of uneven distribution of the costs and benefits emanating from membership in the EAC. Such perceptions culminated from the following, among a host of other things: (i) huge trade deficits incurred by Uganda and Tanzania in their trade with Kenya; (ii) a greater number of foreign investors and new private companies were located in Kenya; (iii) the Kenyan economy grew more rapidly than the Ugandan and Tanzanian economies; and (iv) there was disproportionate distribution of funds by the East African Development Bank in favour of Kenya.
Prospects for the long-term viability of a revived East African Common Market by the three neighbouring countries may be determined in a similar manner, according to The Post(1999). Although the three countries’ economic systems are more alike today than they were during the life span of the defunct EAC, and given the remoteness of political instability in any of the three countries, some of the other conditions are likely to be inimical to the long-term success and survival of a new EAC if they are not fulfilled. Examples of such conditions include the need for:
(a) The economies of cooperating countries to be initially competitive rather than complementary;
(b) High pre-integration tariffs and non-tariff trade barriers between and among cooperating countries; and
(c) A large number of cooperating sovereign states in order to broaden the potential for inclusion of as many countries which have low cost industries as possible in the integrated region, as well as create a larger economic bloc or region in terms of both market size and investment opportunities.
(Note: The East African Community was founded in 1967 by Kenya, Tanzania and Uganda through the Treaty for East African Cooperation, which created the East African Common Market. Among other things, the Treaty provided for coordination of development planning, a common tariff with non-members, free trade among the three member-countries, harmonisation of monetary and fiscal policies, and fixed exchange rates.)
2.4. Theory of the Second Best
According to international trade theory, free trade among all nations of the world would optimise the allocation of the world’s resources and ultimately maximise global output, as well as improve welfare worldwide. Creation of regional trading blocs would, therefore, not lead to such a scenario, since it would not precipitate into complete liberalisation of global trade.
In other words, a global economy that is composed of regional trading blocs would still have tariffs and non-tariff trade barriers and would, therefore, not generate maximum welfare gains.
The complete removal of trade barriers among cooperating countries would, of course, represent a movement toward freer trade and would, therefore, make a positive contribution to the maximisation of socioeconomic welfare worldwide—particularly if cooperating countries maintain low trade barriers against non-members.
With respect to member countries, their collective and general welfare would be enhanced in the case of trade creating integration regardless of whether they impose low or high trade barriers on imports from non-member countries. In Meade’s (1980, 115) words, “any move towards economic union covering a large number of countries would undoubtedly serve to raise standards of living.”
However, not even an unprecedented proliferation of regional trading blocs can, according to the “theory of the second best,” yield welfare gains that are “second best” in comparison to those which would accrue from free trade among all nations of the world.
Salvatore (1990, 293) has paraphrased the general theory of the second best, of which the theory pertaining to economic integration is a special case, as follows: “If all the conditions required to maximise welfare ... cannot be satisfied, trying to satisfy as many of these conditions as possible does not necessarily or usually lead to the second-best position.”
The term “Theory of the Second Best,” therefore, refers to the notion or concept of international trade theory that is based on the assumption that only free trade among all nations of the world can optimise the allocation of the world’s resources and ultimately maximise global output, as well as improve welfare worldwide, and that any efforts aimed at trying to satisfy as many conditions required to maximise welfare among trading nation states cannot lead to the second best position.
3. Motivations for integration
The primary rationale for economic integration derives not only from economic considerations; rather, it emanates from social, security, technological, and political factors as well. At the political level, for example, the basic motivation for integration, or at least economic cooperation, springs from the assumption that the process of socio-economic development requires some form of international cooperation or interdependence.
At the technological level, a country may, as insinuated in the SAPEM (1992, 29) journal, decide to integrate with others in order to gain unrestrained and protracted access to a larger market for any forms of advanced technology which may be conceived and/or developed in the country, as well as to benefit from joint scientific and technological development efforts and programmes.
In the 21st century, African governments particularly should not expect to make any headway in their quest for enhanced socio-economic development if they cannot briskly integrate their countries’ national economies. The enormity of development hurdles facing much of the continent—including limited domestic markets, inaccessible foreign markets, lack of investment capital, and unfavourable terms of trade with industrialised nations—certainly call for what may be referred to as “South-South” economic cooperation if they are to rid their countries of what Clinton (2000) characterised as the “astonishing poverty” currently facing the continent before the end of his two-term tenure as US president in 2001.
In short, meaningful socioeconomic development in Africa is, as African heads of state and government have unanimously concluded (OAU, 2000), “contingent upon the integration of [the continent’s national] ... economies.”
Let us now turn to savant Mistry (2000, 570-571) for an observation that provides a general rationale for African countries particularly to relentlessly seek stronger and permanent membership in regional economic blocs, and simultaneously work towards consolidating the operations of the “African Union”—proclaimed in Libya in March 2001, assented to by member-countries in Ethiopia in May 2001, created in Zambia in July 2001, and formally launched in South Africa in July 2002—to replace the Organisation of African Unity (OAU):
“African countries no longer have the luxury of avoiding the imperatives [associated with] … integration, which is inescapable for most of them if they are to … [succeed in their socioeconomic pursuits and endeavours]. On their own, they will not be able to arrest and reverse the slide toward marginalisation in the global economy ... and to realise their potential to become more efficient and competitive economies.”
4. Necessity of integration
In this section, let us consider the reasons why economic integration is an indispensable element in African countries’ quest for pronounced and sustained socioeconomic development in the 21st century—that is, the need to gain a competitive edge, circumvent the disadvantages associated with small size, and, among other rationales, improve their collective terms of trade (TOT). A bird’s-eye view of the debt burden and north-south (N-S) relations will serve as a backdrop to the themes explored in the section.
4.1. Debt and N-S relations
African leaders need to realise that their countries’ real future does not hinge on seeking the compassion of, or excessive and protracted reliance on, industrialised nations in matters of socioeconomic development, such as by calling for a new international economic order (NIEO), or by overly relying on efforts to “spread the wealth” worldwide spawned at the summit of G-7 leaders and Boris Yeltsin, former Russian President, held in Denver in June 1997; they need to take full responsibility for finding viable solutions to their countries’ socio-economic ills.
The NIEO was called for in June 1974 by the United Nations (UN) General Assembly as a means of redressing the persistent poverty in less developing countries (LDCs), the current unfavourable terms of trade (TOT), and what is generally perceived as the unfair working of the global economy. Essentially, the NIEO is a set of several demands on industrialised nations by LDCs, most of which had been made prior to 1974 through various UNCTAD—that is, United Nations Conference on Trade and Development—meetings.
These demands include the following: (a) greater access to markets for manufactured goods in industrialised nations; (b) expediting the transfer of advanced forms of technology to the developing world; (c) scaling down trade barriers on agricultural products from LDCs; (d) greater relief on outstanding bilateral debt and interest payments; (e) negotiation of commodity agreements aimed at improving and stabilising the prices of LDCs’ exports; (f) greater and sustained flows of foreign aid to the developing world; and (g) greater role by LDCs in decision making concerning global issues.
According to Amin (1994/95, 34), most of these demands have, however, not been readily embraced and/or seriously addressed by industrialised countries, due to several apparent reasons. Firstly, developing countries’ manufactures do not generally meet industrialised nations’ quality and safety standards. Secondly, industrialised countries’ governments are generally reluctant to encourage the transfer of new and advanced forms of technology to LDCs in order to enable their own local inventors and innovators to recover the costs initially incurred in generating forms of technology which eventually become obsolete by selling the obsolete technologies to the LDCs and, in the process, foster innovation and creativity locally.
Thirdly, the issue concerning agricultural products has been a contentious one for a number of reasons, including serious concerns regarding such products’ potential to transmit diseases from one country to another (Kyambalesa, 2000, 59-60), and overwhelming agricultural interests in industrialised countries. Moreover, industrialised countries’ interference in the determination of commodity prices through international commodity agreements is unpopular because its potential to suppress the market forces of supply and demand can culminate in gross inefficiency in cross-border trade in primary commodities.
It is, however, important to acknowledge the evolving and seemingly favourable developments pertaining to LDCs’ external debt problems and the nature of bilateral relations between industrialised and developing countries. A brief discourse on these developments follows.
1) External debt relief. During the second half of the 1990s, huge amounts of the debts owed to creditor banks were reduced through such traditional debt relief approaches as debt buybacks, debt-equity swaps, and debt-for-development swaps. Besides, debt rescheduling agreements designed to convert short-term debts to long-term debts at interest rates ranging from 2 to 4 percent provided some degree of relief to many financially distressed debtor nations.
In late 1995, the World Bank and the International Monetary Fund (IMF) conceded that the excessive debts owed to them by some poor countries needed to be written off in order to save the economies of such countries from further decay and backwardness. The following year, they initiated what is referred to as the HIPC (Heavily or Highly Indebted Poor Countries) Debt Initiative. Essentially, the HIPC Debt Initiative is designed to provide a framework for international support to adjustment and reform efforts in the world’s poorest and most indebted countries to ensure that their debt is reduced to sustainable levels.
All multilateral creditors are expected to participate in the HIPC Debt Initiative. The IMF, for example, is expected to participate through its ESAF (Enhanced Structural Adjustment Facility) operations. The World Bank has, in this endeavour, already established an HIPC Trust Fund and allocated an initial contribution of US $500 million for the purpose. Creditor nations, which constitute the Paris Club of official creditors, have also agreed to participate fully in the initiative.
They have pledged to exceed debt relief levels provided for in Naples Terms by offering debt reductions of up to 80 percent. (Note: The term “Naples Terms” refers to the type of debt relief designed for HIPCs that was introduced by the Paris Club in 1995, and which provides for the present value of payments to be made by debtor-countries to be reduced by up to two-thirds.)
2) North-South Relations. In the 1990s, a host of national and local governments in industrialised nations tended to be more responsive to the needs of the South. The following summits convened by local and national governments in industrialised countries reflect the North’s greater enthusiasm to participate more actively in redressing the socioeconomic ills facing much of contemporary Africa:
(a) The first Tokyo International Conference on African Development, or TICAD I held in October 1993 and its runner-up (TICAD II) held in October 1998. (See Nwagboko 1998, 842-848.)
(b) The summit of leaders of G-7 countries and Russia’s Boris Yeltsin held in Denver in June 1997 to discuss the prospect of “spreading the wealth” worldwide, among other things.
(c) The G-8 countries’ annual summit (including Russia) held in Cologne, Germany, in June 1999 to initiate a plan for providing greater and swifter debt relief to poor countries, among a host of other things.
(d) Summits convened in several cities in the United States of America during 1999 by the US National Summit on Africa organisation to generate strategies for working with African governments in their quest to improve the quality of life on the economically beleaguered continent. (Many different themes were explored at these summits. The Mountain / Southwest Regional Summit on Africa held in Denver, for example, included the following themes: (i) economic development, trade, investment, and job creation; (ii) democracy and human rights; (iii) sustainable development, the quality of life and the environment; (iv) peace and security; and (v) education and culture.)
(e) The United Nations Millennium Summit (which was attended by leaders of over 150 countries) held in September 2000 in New York to discuss ways and means of reducing poverty, facilitating democratic governance, and forestalling conflicts worldwide.With respect to poverty, the leaders in attendance pledged to “spare no effort” in freeing humanity “from the abject and dehumanising conditions of extreme poverty.”
(f) The British-sponsored “Commission for Africa,” whose first meeting (chaired by Prime Minister Tony Blair) outside the United Kingdom was held in October 2004 in Addis Ababa, Ethiopia. The Commission was set up to reverse the chronic misfortunes of a continent that “has grown poorer in the last 40 years,” according to the UN Office for the Coordination of Humanitarian Affairs (2005).
There are a few other positive developments in N-S relations which are worth mentioning at this juncture; first, a UNIDO (United Nations Industrial Development Organisation) conference—organised in collaboration with the Alliance for Africa’s Industrialisation, the African Development Bank, the Economic Commission for Africa, and the former Organisation of African Unity (OAU), —held in Dakar, Senegal, in October 1999 to deliberate on such issues as EU-Africa cooperation, private sector capacity-building, and promotion of entrepreneurship, is certainly one of the important harbingers of mutually beneficial N-S relations in the 21st century.
Second, the African Growth and Opportunity Act (AGOA)—an initiative recently mandated by the United States government, whose purpose is to foster mutually beneficial trade between the United States and countries in sub-Saharan Africa, among other things—augurs well for favourable N-S relations.
And, between 23 March and 2 April 1998, Bill Clinton went on record as having been the first incumbent American president to visit Africa on a noble mission in two decades. Although he visited only six of Africa’s fifty-four countries—that is, Ghana, Uganda, Rwanda, Republic of South Africa, Botswana, and Senegal—his message, as quoted by Ankomah (1998, 8), cast a gleam of hope over the entire continent: “My dream for this trip is that together we might [accomplish great] ... things so that a hundred years from now, your grandchildren and mine will look back and say this was the beginning of a new African renaissance.”
Clearly, African leaders and governments will do well to take advantage of the current altruism among industrialised nations and foster mutually beneficial North-South (N-S) relations in the 21st century. Let us now turn to a survey of rationales for African countries to create, or seek strong and permanent membership in, regional economic groupings—that is, the need to enhance their national economies’ competitive edge, gain greater access to cooperating countries’ markets, and, among other rationales, improve their collective terms of trade (TOT).
4.2. A competitive edge
There is a pressing need for African countries to create, or seek strong and permanent membership in, inter-governmental organisations (IGOs) in order to become more competitive and be in a better position to venture in the modern global economic system that is characterised by such powerful regional economic blocs as the European Free Trade Association (EFTA), the European Union (EU), and the North American Free Trade Agreement (NAFTA) bloc of countries.
The successful conclusion of the Uruguay Round in December 1993 should particularly prompt African governments to move briskly in seeking membership in, and/or creating, viable regional groupings. If they dilly-dally in taking up this challenge, they should not expect economic units in their countries to gain the necessary technological and industrial competence they need to be able to become sturdy participants in the potentially competitive global economy of the 21st century.
In the longer run, the continent’s leaders should not be surprised when their national economies turn into permanent retail outlets for commodities produced in various economic blocs around the world.
The trade negotiations of the former General Agreement on Tariffs and Trade (GATT) which fell under the “Uruguay Round” rubric were started in September 1986 in Punta del Este, Uruguay, and concluded in December 1993. Important elements of the Uruguay Round pact include the following: the GATT protocol, rules of origin, agreement on export subsidies, agreement on technical barriers to trade, the anti-dumping code, import-licensing procedures, agreement on trade-related aspects of investment measures (TRIMS), agreement on agriculture, agreement on trade-related aspects of intellectual property (TRIP), and agreement on trade in services.
According to Golt (1988, 2), the GATT protocol re-affirmed the original and general objective of the GATT (hereinafter referred to as the World Trade Organisation, or WTO, the new name it assumed on 1 January 1995)—that is, to create an open, liberal and competitive international trading system and thereby contribute to global economic growth and development, as well as enhance prosperity and welfare worldwide. A cursory description of each of the other elements cited in the foregoing paragraph follows; it is, by and large, adapted from Mhone (1994, 34-40).
(a) Harmonisation of rules of origin so that WTO member-countries cannot use them either to promote their national trade objectives or to deliberately imperil international trade;
(b) Streamlining of import-licensing procedures that are likely to have a negative effect on the flow of commodities into a country due to their being cumbersome and time-consuming to importers;
(c) Removal of any and all export subsidies, which are intended, or are by design likely, to disadvantage other trading nations;
(d) Redressing technical trade barriers(including health and safety regulations, labelling requirements, government procurement policies, international agreements which are likely to lead to the emergence of international cartels, multiple exchange rates, and border taxes), taking into account the special needs of developing nations;
(e) Preclusion of the use of dumping as a trade strategy by any of the WTO member-countries;
(f) Elimination of measures aimed at promoting investments that restrict or distort international trade (such as domestic purchase requirements, limits on imports and multiple exchange rates (MERs), and promotion of unrestrained cross-border movement of investment capital;
(g) Progressive reduction of governmental support for, and protection of, agricultural activities in order to enhance market access as well as competitiveness internationally, having regard for member countries’ quest for enhanced food security and environmental protection;
(h) Effective and adequate protection of intellectual property rights, while ensuring that measures and procedures designed to protect such rights do not themselves become barriers to trade; and
(i) Enhancement of transparency in, and progressive liberalisation of, trade in services(including financial services, telecommunications, air transport services, and the like), not excepting the free movement of service providers, but with regard for measures designed to maintain national security, public safety, public order, and public morals.
(Note: It is also important to note that the WTO requires countries which are signatories to the Uruguay Round accord to ensure that foreign companies are not subjected to any covert trade rules, regulations and practices which are likely to place them at a competitive disadvantage against domestic companies.)
In passing, it is perhaps important to note that integration schemes are much more likely to lead to greater competitiveness among economic units in cooperating countries if they are used as means of promoting the production of tradable goods (that is, export products) to compete in world markets rather than as “means of developing import-substituting industries behind tariff walls,” as Lyakurwa and others (1997,172) have concluded.
4.3. Market limitations
A large population is an important element in a country’s quest for enhanced socioeconomic development. Many development economists have recognised this fact, arguing that a large overall population can, among other things, increase the potential size of a country’s domestic market to a level that is economically favourable to an expansion in both local and foreign investment. A good example is pundit Todaro (1994, 100-1003); in his contention, a large overall population can increase the potential size of a country’s domestic market. And, as Kasun (1988, 56) has maintained, population growth can encourage producers to specialise and use more efficient, large-scale modes of production.
For the typical developing country, this should be obvious considering the fact that ready access to foreign markets is thwarted by the numerous and insurmountable export problems pinpointed elsewhere in this piece of work. After all, it should be common sense that growing markets generally stimulate invention, rather than invention coming first and creating a market, as a university study of 900 key inventions in the 20th century cited by Davis and Blomstrom (1975, 115-116) has revealed.
And, besides, larger markets in developing countries would make such countries more worthy trading partners to the rest of the world in an era of freer global trade invoked by the passage of the Uruguay Round pact.
The issue concerning the size of a country’s market may also be discerned in terms of “population density.” In Timberlake’s (1986, 39) contention, low population density can make the nationwide provision of health care, educational facilities and training in a country difficult, as well as inhibit agricultural development by complicating the distribution of essential tools, fertilisers and pesticides.
And Retel-Laurentin, quoted by Timberlake (1986), could not have asked a more apt question in this regard: “How can the soil be cultivated with ... [very few] inhabitants per square kilometre [how] … can roads be maintained, how can the economy and trading be properly developed?”
The Malthusian view that population growth needs to be stemmed in order to prevent the misery, hunger and pestilence that can follow if the population exceeds the carrying capacity of a given physical environment (Malthus, 1914) does not, therefore, apply to sparsely populated, resource-rich African countries. As such, global population control efforts need to be appropriately directed at countries whose population densities are well in excess of 100 persons per square mile, particularly the following: Belgium, Germany, India, Japan, the Netherlands, the Philippines, Singapore, and the United Kingdom.
In this regard, advocates of population control need to acknowledge the fact that African countries cannot benefit from economies of scale that are usually associated with large-scale production mainly due to the limited potential markets for their outputs. There are basically two market-related problems attributable to this state of affairs; these are: (a) inadequate domestic markets, and (b) the generally inaccessible external markets. A brief survey of each of these problems follows in the next two sub-sections.
1) Domestic Markets. According to Sibanda (1993, 46-48) has maintained, most African countries—and generally all less-developed countries, as a matter of fact—cannot achieve economies of scale in production due to their small populations and can, as such, benefit from large-scale production only through openness and regional integration. Katz (1987, 24-25) has demonstrated further that the typical developing nation has a small potential domestic market, which cannot support the introduction of advanced production techniques and their outputs.
The following population sizes and densities of a sample of sub-Saharan countries excerpted from The World Almanac(2018, 745-852) should corroborate the point made in this regard: (a) Botswana: 2,214,858 people, 3.9 people per square kilometre; (b) Cabo Verde / Cape Verde: 560,899 people, 139.1 people per square kilometre; (c) Central African Republic: 5,625,118 people, 9 people per square kilometre; (d) Equatorial Guinea: 778,358 people, 27.7 people per square kilometre; (e) Eritrea: 5,918,919 people, 58.6 people per square kilometre; (f) Guinea-Bissau: 1,792,338 people, 63.7 people per square kilometre; (g) Mauritania: 3,758,571 people, 3.6 people per square kilometre; (h) Namibia: 2,484,780 people, 3 people per square kilometre; and (i) Seychelles: 93,920 people, 206.4 people per square kilometre.
Commercial and industrial organisations in sparsely populated African countries have, thus, generally found it uneconomic to develop and/or acquire new, mass-production technologies whose excess output cannot find a ready market locally. In this regard, Rodney (1982, 109) has summed up the problem facing African countries in particular, and the developing world in general, in the following words: “It has now become common knowledge that one of the principal reasons why genuine industrialisation cannot easily be realised in Africa today is that the market for manufactured goods in any single African country is too small, and there is no integration of the markets across large areas of ... [the continent].”
In short, Africa’s most urgent need, as Ndongko (1985, 50) has maintained, is an internal market that is large enough to absorb African economies’ outputs of both agriculture and industrialisation—and economic integration seems to be the most, if not the only, feasible way in which such an internal market can be created within a few years or so if African leaders are keen on pursuing the endeavour!
One would, therefore, lament over Seychelles’ decision to pull out of the SADC in July 2004, and the exit of Namibia and Tanzania from COMESA in May 2004 and October 2000, respectively. Such an apparent lack of foresight, and disregard for the potential long-term benefits of membership in economic blocs, will, unfortunately, impose costs on COMESA and the SADC when future government leaders in these three countries decide to re-establish their membership.
2) Foreign Markets. In general, developing countries with small domestic markets cannot depend on foreign markets as a “vent for surplus” due to the inaccessibility of such markets. As Muuka (1996) has pointed out, such countries face a host of very serious hurdles in their export drive; besides excessive red tape in governments and inadequate export financing and insurance schemes, there are a host of other serious export problems facing them.
For sub-Saharan countries, these problems include the following (see Muuka, 1996): (a) unfavourable country-of-origin image; (b) dependence on exportation of primary products; (c) the excessive external debt burden; (d) inadequate transport infrastructure; and (e) lack of knowledge and information about export markets.
With respect to the inaccessibility of foreign markets, Bond (2002) has advised African leaders to be mindful of what he believes are industrialised countries’ machinations: “NEPAD’s authors present NEPAD [the New Partnership for Africa’s Development] as Africa’s ‘partnership’ with world leaders ... leaders who preach to Africa about the virtues of free trade while preserving the enormous protections they give to their industrial and agricultural corporations, in open contempt of the WTO [the World Trade Organisation], which is supposed to regulate and enforce fair play.”
4.4. Terms of trade
Essentially, the term “terms of trade” (TOT), alternately referred to as “commodity TOT,” refers to the ratio of the price index of any given country’s exports (Px) to the price index of the country’s imports (Pm) expressed as a percentage as follows: Px÷ Pm x 100.
A country’s commodity TOT may be said to be favourable when the price index of its exports is higher than the price index of its imports, and it is assumed to be unfavourable when the price index of its exports is lower than the price index of its imports. If a country’s price index of its exports is equal to the price index of its imports, it may, for lack of an esoteric or orthodox term, be said to have an “even TOT.”
By and large, African countries face unfavourable TOT in their trade with industrialised nations; the price indices of their export products—that is, primary commodities—are generally lower than the price indices of the manufactured goods, which they import from industrialised nations. The greater trade among African countries which is likely to culminate from economic integration can, on the other hand, lead to “even TOT,” since their economies are generally at similar stages of industrialisation.
4.5. Other considerations
As stated elsewhere in this article, economic integration can greatly benefit member-countries if it results in trade creation; also, it can benefit them in terms of administrative savings which they may realise from a reduction in the functions of the customs units of their governments, and, among other things, greater bargaining power which they can collectively gain by being constituent members of an economic bloc.
Other benefits discussed elsewhere in this article include greater economies of scale, a more competitive business environment, and larger financial as well as goods markets.
Besides, African countries which are reluctant to engage seriously in economic integration because they currently have beneficial trade relations with industrialised nations are likely to regret sooner or later when such relations get disrupted by a change in the priorities of trading partners. In October 2000, for example, Bush (2000) signalled a potential change in the strong US-Africa relations developed during the Clinton-Gore administration when he openly portrayed his indifference to Africa’s plight; when asked the question “why not Africa?” by Jim Lehrer.
He responded tersely as follows: “There’s got to be priorities. And the Middle East is a priority for a lot of reasons. And so is Europe, and the Far East, and our own hemisphere. Those are my four priorities should I become president.”
Clinton (2001), his predecessor, had a different and perhaps more encompassing disposition, particularly with respect to humanity’s socioeconomic welfare: “The expansion of trade hasn’t fully closed the gap between those of us who live on the cutting edge of the global economy and billions around the world who live on a knife edge for survival. This global gap requires more than compassion; it requires action.”
Regular changes in industrialised countries’ trade policies and economic aid programs are perhaps to be expected considering the fact that the different political parties which, and/or the presidents who, assume power every four or five years in such countries often have dissimilar foreign policy agendas.
African countries whose leaders are incapable of discerning the potential implications of such a state of affairs, therefore, face the prospect of finding themselves abandoned at a time when they are least prepared to cope with a sudden disruption in economic aid and/or their imports and exports.
To digress somewhat, one would expect the African continent to be among regions, which genuinely and invariably deserve a great deal of compassion, generosity and attention from the United States for the following reasons, among others:
(a) It is the ancestral home of at least 13 percent of the country’s population—the African Americans, if not the entire human race;
(b) It is a region that is least developed and most debt-burdened, poverty-stricken and conflict-festered;
(c) It is a valuable source of industrial inputs, and a potential market for manufactures; and
(d) It is the next great investment frontier.
In all fairness, though, it is important to note that Bush showed that his government could seriously get involved in African affairs; the marathon visit to Africa in May 2001 by his former Secretary of State, General Colin Powell, and his own belated public proclamations about the need for his country’s involvement in Africa, testified to this possibility.
In this connection, one may also cite an agreement by him and Britain’s Tony Blair to push for 100 percent relief of poor countries’ external debts (by G-8 nations, the World Bank, the International Monetary Bank, and the African Development Bank) at a G-8 meeting in Scotland in July 2005.
However, Bush’s apparent change of heart should not cause Africans and their leaders to celebrate until the compassion (by him and/or his successors) is ultimately translated into concrete action. Meanwhile, and as observed by Thurow (2005), “the continent [that] is barely hanging on to the fringe of the global economy” would do well not to celebrate as the commitment proclaimed by Bush and Blair may eventually turn out to be mere “drive-by diplomacy” at best.
In retrospect, developing countries need to create, or seek strong and permanent membership in, regional economic groupings in order to enhance their national economies’ competitive edge, gain greater access to other member countries’ markets, as well as reap the economic benefits associated with the “static” and “dynamic” effects of integration discussed elsewhere in this article.
If they relentlessly pursue this endeavour, they will greatly enhance the attainment of their national goals and aspirations.
The heart-throbbing African tunes—churned out by the likes of Koffi Olomidé (who nicknamed himself “Benedict XVI” upon the election of Cardinal Joseph Ratzinger to the Papacy as Pope Benedict XVI in 2005), Miriam Makeba, the Mulemena Boys, the Masasu Band, Stella Chiweshe, King Sunny Ade, Emeneya, Cesaria Evora, Oliver Mtukudzi, and numerous other maestros—will be available to spice and liven up the celebration of their accomplishments, and the enjoyment of the fruits of their labour.
5. A Comment on Brexit
“Brexit” is an acronym derived from “Britain” and “exit.” Essentially, it refers to the referendum held in the United Kingdom (UK) of Great Britain and Northern Ireland on 23 June 2016 to determine whether the bloc should withdraw its membership in the European Union (EU). Citizens of the bloc consisting of the countries of England, Scotland, Wales, and Northern Ireland voted in favour of the withdrawal. (Note: The countries of England, Scotland and Wales constitute what is referred to as “Great Britain.”)
The motivations for Brexit
The referendum to determine whether the UK should withdraw its membership in the EU was held for the following reasons adapted from Cameron (2015), Kupchan (2017) and McBride (2017): (a) to preserve the federation’s sovereignty and self-governance; (b) to have complete control over the federation’s immigration policies and regulations; (c) to have total control over the generation of the federation’s financial and economic policies and regulations; and (d) to make it possible for the federation to devise its own strategy for enhancing the performance and competitiveness of its economy.
Given the multitude of positive and beneficial welfare effects, which accrue to member-countries of economically integrated regions discussed in the preceding sections, the reasons for the UK’s withdrawal from the EU are perhaps not persuasive enough.
Perhaps the answer to the argument relating to national sovereignty, for example, can best be found in the following words by Fouloy (2016): “Practically every nation has already been forced by the pressures of the modern world to abandon large areas of sovereignty and to realise that all nations are now interdependent. No country today can pursue purely independent policies in defence, foreign affairs, or the economic sphere.”
With respect to immigration, it can be reasoned that the unprecedented increase in immigrants from countries like Poland, Bulgaria and Romania was, by and large, offset by the emigration of UK citizens to other EU member countries and the rest of the world. And, by way, will immigrants to the UK prior to Brexit have to be deported back to their countries of origin?
Moreover, Brexit does not absolve the UK from complying with the dictates of the WTO, particularly with respect to issues relating to rules of origin, import-licensing procedures, export subsidies, technical trade barriers, dumping, promotion of private investment, agricultural subsidies, intellectual property rights, and trade in services.
A “Hard” or “Soft” exit?
A Sims (2016) has noted, the withdrawal would be accomplished through one of two options or arrangements—that is, “Hard Brexit” or “Soft Brexit.” A “Hard Brexit” would mean a withdrawal designed to give up full access to the EU’s single marketand customs union, enable the UK to assume full control over its borders, and make it possible for it to initiate new trade deals with the EU and countries and/or economic regions outside the EU.
The “Soft Brexit” arrangement would provide for the UK to withdraw its membership in the EU as well as lose its seat in the European Council. However, it would remain in the EU’s customs union and, as such, circumvent bureaucratic checks on its export goods passing through EU ports and airports. It would also withdraw its members of the European Parliament.
It would, however, maintain its trade relations with EU-member countries on a tariff-free basis—in other words, it would continue to have unfettered access to the European single market.
6. Is economic integration passé?
The first quarter of the 21st century has witnessed the evolvement of a naïve and ancient nationalistic approach to international relations championed by the United Kingdom and the United States, as portrayed by the following news headlines:
1) Cassidy and Scott (2016/2017): “Britain Leaves the EU” and “Britain Has Voted to Leave the EU.”
2) Miller (2017): “Donald Trump Pulls [the US] Out of the Trans-Pacific Partnership.”
3) McRae (2017): “Donald Trump May Be about to End NAFTA.”
Apparently, the nationalistic and out-dated approach to international relations preferred by the United Kingdom and the United States of America militates against the inevitable and inescapable worldwide tide of free trade, free enterprise and globalisation. Such an approach should ideally not be construed as the “death knell” for “economic integration” and its potency as one of the essential tools in the arsenal of any given country’s strategy for attaining desired levels of both economic growth and economic development.
7. A summing up
In this appendix, we have discussed the following themes: (a) conceptual underpinnings relating economic integration among sovereign states; (b) motivations for seeking membership in economically integrated blocs; (c) the necessity of economic integration; (d) a comment on Brexit; and (e) a brief assessment of the longevity and enduring necessity of economic integration beyond the current and unprecedented smear on its relevance to any given country’s quest for sustained socioeconomic development conjured by the United Kingdom and the United States of America.
In conclusion, developed and developing countries in general, and African countries in particular, need to seriously consider the prospect of permanently integrating their national economies with the national economies of other countries in their regions if they are to succeed in their socioeconomic pursuits and endeavours because, on their own, as Mistry (2000, 570-571) has advised, they will not be able to realise their potential to become more efficient and competitive economies, and, ultimately, they will also not be able to uplift the masses of their people from want, misery and abject poverty.
*Professor Henry Kyambalesa is a retired Zambian academic currently living (temporarily) in the City and County of Denver, Colorado, in the United States of America.
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