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Trapped in regionalism How do the new legal strategies of disintegration work?

Brexit and the renegotiation of NAFTA heated debates about how regional agreements affect free trade and about determining the consequences of their disintegration.

In international trade, the conquest of markets is preliminarily measured in the quantity and volume of cross-border purchases by companies, always considering the dynamics of the free circulation of their businesses. When multinational companies see potential in a foreign market, they immediately seek to transfer their operations and invest in acquiring companies there. Today, for example, offshoring an entire automotive plant from China to Mexico takes only six months.

The regional development of the integration of these business structures is progressively stabilized through a regulatory framework for determining rules supposedly promoting economic cooperation and union. In many cases, unfortunately, the free circulation objective contained in these regional regulations is dismantled in the face of the challenge of the passage of time, novating or permanently extending obligations and commitments acquired by or imposed on the member states.

Calculating in detail the efforts and costs that member states intend to commit to assembling and navigating the regional boat is almost impossible. It is necessary to experience integration to understand its effects. The legal strategies of disintegration that function as escape valves for regionalism have lost their negative image to become true tools of the process.

Situations that generate disintegration. If a mechanism of expansion and conquest of markets is reversed, due to an economic crisis or an increase in taxation or simply because operating costs change, then the companies that invested and established themselves sell their assets to move to another country. . The rules for the recognition of professional titles facilitate the temporary circulation of technicians to avoid delays in training, training and preparation of the professionals necessary to carry out these constant changes in companies. They are new and interdisciplinary professions, dedicated to disintegrating and integrating globalized processes of development of business structures.

These economic and financial fluctuations also carry strong political components, but they show a singular dynamism of a global freedom of structural investment that countries often do not know how to control and over-regulate.

These types of oscillations are not isolated, but rather they operate and are reiterated within very diverse contexts of economic policy. Contrasted with these are the slowness of regional integration processes that fail to understand this modern dynamic of international trade. One would then have to be too patient with the promise of achieving stable or reasonably complete regional economic integration.

Trapped in the eternal promise of regional Integration. Political promises are always incomplete. Already in the era of global digital commerce, neither individuals nor companies have the will to bear the costs of such a task of regional coordination. They prefer to operate agilely within the global framework of their commercial freedoms. In international trade, agility is not synonymous with financial volatility but with programmed profitability. 

While regional integration constitutes a multidimensional process of legal, economic and political construction whose fundamental purpose is to deal with stabilizing these fluctuations in international trade to try to smooth out barriers and situations between generally neighbouring countries, trade actors want to take advantage of the situations and opportunities offered. by market openings without often thinking about integrating them.

The legal factor of regional integration is what ultimately does not accompany the real needs of economic integration. The mere promise of a legal process of economic and political coordination to eliminate trade barriers and tariffs, making political decisions that strengthen regional identity, supposedly guaranteeing stability and security, seems eternal compared to the unmissable chance of constantly creating new market niches. 

Negative deviations from integration.  Although there is also a more modern vision of the law of regional integration, which incorporates the traditional principles noted, the search for the maximization of benefits for all participants and the promotion of sustainable development, it does not generate sufficient confidence to ensure a regional construction of a market with equal use of its niches. Member states always compete and global trade actors prefer to assume that the regional blocs emerging from economic integration are not a guaranteed example of convergence.

In this context, legal deviations from the law of regional integration are created, incubated precisely by the preferential nature of its rules. For example, regional development is offset by the costs of not liberalizing trade with non-member states. Likewise, the inclusion of regional non-discriminatory measures such as those that regulate subsidies and competition policies creates a negative spillover of economic overregulation that affects extra-zone trade.        

Thus, a series of regional disintegration strategies emerge, with the objective of limiting or correcting the coordination process beyond its effectiveness simply because the promise of stable integration is not fulfilled in time.

Valid disintegration as a legal tool. We have highlighted that regional integration processes are imperfect because they are never concluded. Precisely from this premise arises disintegration as a legal strategy. Trade negotiations between countries are slow and complex, dynamism is not a very common characteristic in modern democracies. Therefore, negotiating internationally with non-democratic countries fascinates with mirages of political agility and decision-making power, certainly discounting the authoritarianism and suffering they cause.

Regionalism is committed to the happiness of its individuals. If regional integration requires paternal patience with a coordination process that does not mature as expected, instead playing on its legal disintegration implies administering a relevant dose of opportunism, with knowledge of neighbouring fragilities and taking advantage of the economic and legal differences that exist. commercial actors tend to exploit. In this way, disintegration also provides its counterweight of happiness.

The disparity in economic development of the member countries also tends to have a considerable influence. Their aspirations are very varied, including, for example, entering a customs union, leaving it, reforming unpragmatic structures, altering decision-making mechanisms, or disagreeing with regulations and dispute resolutions.

Legally disintegrating a structure of international coordination commitments does not mean rebelling against regionalism. This is a key strategy, often implemented in order to correctly advance multilateral negotiations, marking the limits to the eternal promise of regional integration.

Regionalism vs. multilateralism, an archived conflict. There is also an important deviation from regional integration agreements towards discrimination between economic sectors. In our opinion, multilateralism and regionalism are not opposing forces, but historically regionalism is a consequence of the deepening of multilateralism originally forged by the World Trade Organization (WTO). 

The progressive method of regionalism makes one believe in a need for integrationist normative proliferation. This proliferation reveals regulatory excesses, demonstrated by the lack of enforceability of these regulations, which end up discriminating against international trade actors.

Multilateralism, in turn, maintains an ecosystem of legal complexities to advance that regionalism attempts to resolve. In contrast, multilateral dispute settlement mechanisms such as the WTO also assist regionalization processes.

Satisfying this integrationist ambition generates large external regional barriers that interfere with the commercial freedom of the member countries with the extra zone. It even leads to expanding regionalism with political and non-commercial normative content, adopting regional standards, and touching on national security issues that end up imposing discriminatory principles that are difficult to solve. The discussion between multilateralism and regionalism has lost interest because the only thing that is important to analyze is the pendulum of legal strategies of integration and disintegration.

Three dimensions of legal disintegration for three levels of regionalism. The rupture or dissolution of legal structures, processes or systems represents a three-dimensional phenomenon with implications for governance, justice and international cooperation. The first may occur when they are no longer effective or have lost the relevance for which they were built due to a loss of confidence from member states. The second can generate significant judicial or political conflicts capable of challenging your principles and commitments. And the third appears when the members of said structures can challenge them head-on, impacting regional stability.

To analyze the legal mechanisms of disintegration, the level of integration committed is taken into consideration, basically represented in three levels of possible agreements. At a first basic level of integration, merchandise tariffs, agricultural tariffs, common export rates and customs simplification are considered. At a second level of commitment, a competition regime, state aid, anti-dumping, compensatory measures, specific intellectual property (TRIPS), state-owned companies, technical barriers, services, sanitary and phytosanitary measures and capital movement. At the third most complete level, community government procurement rules are added, regional intellectual property, investments, the environmental regime and investment liberalization measures are completed. Legal disintegration is applied functionally, deregulating by levels, depending on the deregulatory dimension intended or that is sought to be resolved.

The maxim that proclaims that the greater the legal depth of the regional agreement, the greater the volume of regional trade is achieved is not always verified. The regulatory depth of an agreement is also not measured in the number of rules but rather based on their enforceability, influenced by the variables of the commercial scope of the objectives, the execution time per country and the political intervals of (dis)trust in the agreement. integration.    

Impact of legal disintegration. Trade integration remains a valid form of regional growth supported by technological development and innovation. However, like all medicine, you have to learn how to dose it.

Economically, the positive effects of integrating asymmetrically developed states are ensured by sharing technology and innovation possibilities. Currently, this model is the most efficient for measuring asymmetries because it offers greater precision than calculating intra-regional trade volumes. It allows you to efficiently analyze the potential of each member state in a globalized and, in particular, digitalized market.

Statistically, the gravitational model is always used to calculate the impact of disintegration. It is a traditional tool from the early seventies founded on an empirical relationship between the economic size of a country and the volume of its foreign trade. The method considers trade flows in the face of external barriers compared to de-tariffed regional trade.

The study of some integration processes such as Mercosur for example, show that there is not a great difference in trade flows with or without the legal structure of a regional bloc. Likewise, the low number of preference agreements concluded with other blocks or third countries demonstrates regional integrationist legal rigidity.

Although many authors interpret it as a political problem, all the analytical deficiencies of the impact on these asymmetries fall into the regulatory sphere. Note that national political incompatibility is common in regionalism. The interesting thing here is to observe if the disintegration impacts generating opportunities or if it only threatens regional integration, to conclude on the strategic nature of managing the legal mechanisms of disintegration.

Utility of disintegration . Starting from the basis that it is clearly efficient to disintegrate what is not enforceable, it remains to discuss the effectiveness of what is enforceable to understand the usefulness of regional legal disintegration. In effect, what cannot be demanded among the member states, whether due to a lack of internalization of the states or simply due to a questioned regional regulatory excess or a mere political postponement of accepting it, deserves to be disintegrated to guarantee regulatory efficiency.

Regional regulatory inefficiency is not justified by economic inequalities between countries either. It is also wrong to charge regional regulatory deficiencies with asymmetries in economic development. Both economic arguments clash with the very concept of regional integration because the role of the right of integration is precisely to promote commercial union and development in economic diversity.

Legal disintegration, on the other hand, focuses on the conservation of poorly or unintegrated development asymmetries. In the same way that at the national level, provincial or federalized states defend specific interests that cannot be integrated nationally, member states in a regionalization process must protect certain areas from the deviations of integration, because they lose more than they gain by integrating them. This function is more complex than regulating integration.

However, what is clearly explained from an economic perspective does not always look the same from the law. Brexit demonstrated, for example, that the economic theory of European regional integration lacks a deep analysis of the mechanics of disintegration. This is because regional integration always had a positive image as if it were an irreversible process, while disintegration represented the undesirable, conceived as a legal deficiency instead of being analyzed as a series of strategies to streamline trade and mobilize investments.

The legal strategies of disintegration open up different scenarios both in terms of the degree of intra-zone regulatory liberalization – which we call deregulation with reintegration – and the new markets to be conquered with or without the support of regionalism.

The concept of legal neofunctionalism . Initially studied to promote the functionality of regional integration, it is based on the delegation of community regulations above national legislation. The synergy of this delegation leaves residue, placing certain commercial sectors directly under community regulatory control or creating pressures from regulatory authority on taxation, on salaries or exchange rates for example. The delegation of powers is also confused with a change of legislative loyalties, for the sovereign benefit of a new community institutional center.

Neofunctionalism responds this time by forging legal disintegration:

  • When the benefits of integration are not distributed equitably among the supposedly integrated societies;

  • Because it does not assign preponderance to integration experts, but instead values ​​the heterogeneity between member states vis-à-vis regional authorities;

  • If the regional integration process lacks gradualism and the member states do not respect its rules, its enforceability loses force by negotiating constant postponements;

  • Regional integration inevitably generates conflicts between member states that are resolved through community dispute settlement institutions. The disintegration of these mechanisms avoids these conflicts and allows the expression of a greater diversity of opinions and jurisdictions to resolve them.

Balancers of private international law The concept of international competitiveness is very frequently invoked although there are differences in defining it. If measured as an ability to grow GDP or improve objectives or standards of living for citizens, represented in the increase of their income, regional disintegration can cooperate as a mechanism to increase local production of goods that in one region would have been imported from another member state.

Legal disintegration has dynamic effects such as regulatory limits on the development of economies of scale of regionalism. It can correct the adverse effects of regional competition by imposing temporary tariffs to manage levels of competition in a market.

Legal disintegration corrects the flight of intra-zone investments without restricting it. Avoids financial power imbalances between strong states and weak states within a region. It also generates a deregulated regional framework that enables the partial or total exit of member states, reducing controversies between states and giving a greater international jurisdictional option to resolve future conflicts.

It is a legal system of safety valves designed to avoid eternal extensions of the injunctions to member states to comply with resolutions or community regulatory parameters that they objectively cannot comply with. These valves do not imply a leap into the void, but rather the conscientious application of private international law and the principles of multilateralism.

Finally, disintegration increases technological cooperation on more equal terms through the creation of contracts or agreements for the internationalization of companies applying traditional points of contact instead of resorting to the law of integration.

In short, if the myth of irreversible regionalism has not improved international competitiveness or quality of life as expected, it is time to legally study disintegration strategies not only as correctives of this process but as an autonomous counterbalancing mechanism capable of developing different models of multilateral relations. 

published in Spanish in Legal Today, Aranzadi, on April 23, 2024

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