Sovereignty and Regionalism

By Naon, Horacio A. Grigera | Law and Policy in International Business, Summer 1996 | Go to article overview
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Sovereignty and Regionalism

Naon, Horacio A. Grigera, Law and Policy in International Business


It has become a truism to say that globalization of the world economy poses daunting challenges for nations, prompting them to change their economic and legal structures and rethink their strategies vis-a-vis the rest of the world. Adaptation to these new demands is more difficult for less developed countries because of their weaker economies, their social, legal, and economic structures, and entrenched ideas or local interests that are not always sufficiently in tune with free trade, competition, and open market policies. Local economic and social conditions require a more gradualist, protectionist, or "dirigiste" approach and a more paused rhythm of implementation of liberalization policies.(1)

Finding adequate responses to the need for change has become tantamount to surviving. As a result, recent years have witnessed efforts by developing countries to adapt their legal and economic structures, as well as their internal and external policies, to the new realities. While these changes have indisputably been protagonized and implemented by national sovereigns, they have been induced by the new realities of globalization, largely fashioned by transnational corporations.

Thus it is no wonder that such sovereign-piloted changes have, to a large extent, sought to create a more permissive legal framework for the development of private business through "deregulating regulations" that reduce state intervention and permit free, competitive access to national markets. At the national level, these changes have been implemented through legislation limiting both the economic areas subject to state public ordering and the participation of the state as an operator in economic activities. Unilateral efforts undertaken by a number of developing states have included passing privatization laws and legislation favoring the creation and development of capital markets, facilitating access to foreign investment, reducing restrictions on foreign trade, creating incentives for free competition, and deterring and sanctioning unfair business practices. The practical outcome of these sovereign measures has been to create an adequate framework for the transfer of decision-making powers regarding a substantial number of micro-and macro-economic issues to private business, i.e., to private ordering. In this sense, sovereign measures have contributed to a significant reduction in sovereign power over economic decisions and have led to a privileging of private over public ordering.

At the international level, similar options present themselves to national sovereigns. If national sovereigns decide to implement different economic cooperation policies related to insertion of their nations in the world economy, inspired by the influence of private ordering over the adoption of economic decisions, the nature of this insertion and the degree of delegation or abdication of national sovereign powers it requires may vary substantially.

Developing countries thus have two approaches available for inserting themselves into the world economy (though these options seldom present themselves in their pure form): (1) unilateral insertion through participation in multilateral efforts aimed at the liberalization of trade, such as those administered or undertaken by the World Trade Organization (WTO),(2) accompanied by adoption of measures aimed at liberalizing individual national economies in accordance with global trends; or (2) insertion through participation in bilateral or minilateral economic cooperation efforts with other nations. This second strategy, often referred to as "open regionalism,"(3) accommodates the relatively weak local business sectors in developing countries, sectors which are not yet able to compete on a level basis in world markets.

Without increasing barriers to external trade or introducing new barriers that would in fact reduce the overall (or weighted average of(4)) barriers on external trade, countries participating in these types of bilateral or minilateral efforts jointly adopt measures favoring the development of private business within subregional or regional areas based on the comparative advantages available for private business development within such areas.

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