Nation-States Are Alive and Kicking

Before the time that free trade treaties began to proliferate, it was normal for neighboring countries to move in the direction of economic integration; this is how the European Economic Community, Mercosur, ASEAN — itself composed of 10 Asian countries — and the Andean Community, among others, came into existence.

The objective was clear: to grow markets in order to bring about economies of scale and facilitate greater trade. This mission both to integrate and supersede the nation-state reached its zenith with the coming of the European Union, a politico-economic union, which now faces a profound crisis. Before delving into that issue, however, let’s first look at how to such an objective could be achieved.

The most basic level of integration is that of the preferential agreement — that is to say, when a large country agrees that goods from smaller countries are able to be imported without their needing to pay tariffs. A quintessential example of this is the Andean Trade Promotion and Drug Eradication Act from the 2000s, in which the United States granted [a preferential agreement] to Bolivia, Colombia, Ecuador and Peru in order “to incentivize legal crops.” Unique to this act was that said beneficiaries were provisional and could be removed from the agreement by the United States whenever it chose to do so.

A more advanced level of integration is that of “free trade agreements,” such as that of the Andean Community where goods produced by member countries freely circulate within the region, unimpeded by tariffs, thereby growing the market.

Then there’s the “customs union” in which member countries have a common external tariff, whereby all goods — no matter where they are produced — circulate freely. Such a union was achieved by the European Community and, albeit less formally, by Mercosur.

Then comes the “common market” within which financial flows and people freely circulate. From this follows a “monetary union,” as occurred in 2000 with the euro; the United Kingdom, for its part, opposed such a measure and opted to keep the pound sterling [as its national currency]. A common constitution would be the final step [along this path toward greater integration], which, if adopted, would have made way for [a new, hypothetical political entity termed] the United States of Europe. Such a scenario might have come about if not for France and the Netherlands voting against the idea in 2005.

There is one special consideration that must be weighed when entering into these integration deals: Namely, there needs to be consensus on whether to cede important aspects of national sovereignty given that it would be necessary to create an authority superseding the [individual] nation-states.

It is important to note that integration is different from this century’s free trade agreements, which have arisen between countries that don’t share common borders; the interest has been, on the one hand, to expand trade by eliminating tariffs and, secondly, to include new areas — many of which arise from technological innovations of globalization — including services, intellectual property, labor standards, the environment and international arbitration for investor-state disputes, among others. The World Trade Organization would in theory be the central forum [to resolve such disputes], but it has been purposefully painted into a corner.

Let’s get back to the issue of integration. The consensus that the unification of nation-states is a positive thing, or a symbol of progress, has entered into crisis — something reflected in the rejection of the European constitution. The essential element has been the rejection of the “diktats” from Brussels in favor of globalization being led by large corporations, something that has diminished the interests of the vast majority of people and provoked an enormous increase in levels of inequality, [with wealth accumulating further] among the wealthiest 1 percent. This pattern was cemented in June with Brexit. Into this mix has been added the rejection of immigrants, whose arrival from countries to the east and from Africa has been sparked by increased unemployment and terrorism.

The nation-state thus couldn’t be supplanted; nor could multilateral governance be fomented with globalism being so caged by private interests that subjugate governments. These social tensions will always be present and lead to crisis. Something similar happened in the United States, where Trump manipulated the unemployed — those who’ve lost out due to free trade agreements — with the slogan “make America great again” and raised populist, protectionist and isolationist policies.

What this means is that, at a time when the United States has seen a relative — yes, relative — decline in its hegemony and witnessed the rise of other powers, the nation-state is still alive, kicking and vying for its strategic interests; it didn’t disappear with globalization, as neoliberals said it would.

All of this isn’t to say that we should put regional integration, whose star has faded in recent years, off to the side. Now that the U.S. is questioning free trade agreements and the Trans-Pacific Partnership, it’s time to rethink not only the Pacific Alliance and its ties with Mercosur but also our relations with the United States, China and the European Union — our main partners — taking into consideration these tectonic shifts in the global economy. While doing so, we must also remember that we remain dependent on raw materials, and that we’ve advanced little in terms of human capital, institutions and diversification of products.