ACKNOWLEDGEMENTS

My deepest gratitude goes to Prof. Dr. Dr. h.c. Reinhard Meyers of the University of Münster and Prof. Dr. Jaap de Wilde of the University of Twente. Without them, this thesis would not have been possible. In spite of their busy agenda, they were always ready to help me with my research, providing helpful remarks and valuable advice as well as encouragement especially during periods of uncertainty.

Without doubt, the backbone of this journey have been my family and friends who truly lived with me the ups and downs of this challenge. Their effort for encouragement was relentless.

TABLE OF CONTENTS

Chapter 1  Introduction  1

1.1  INTRODUCTION  1

1.2  PREVIOUS RESEARCH  2

1.3  METHODOLOGY  3

Chapter 2  Concepts, Explanations and Consequences of  

  Regional Integration and a Theorisation of the Treaty of  

  Cartagena  7

2.1  THEORIES OF REGIONAL INTEGRATION  7

2.1.1  Some Remarks about International Co-operation  7

2.1.2  Political Integration Theory  8

2.1.2.1  Intergovernmentalism  8

2.1.2.2  Neofunctionalism  10

2.1.3  Economic and Social Effects of Integration  14

2.1.3.1  Classical Trade Theory  14

2.1.3.2  Convergence or Divergence?  17

2.1.3.3  South-South Integration and Development  18

2.1.3.4  The Relation between Economic and Social Development  21

2.2  A THEORISATION OF THE CARTAGENA AGREEMENT  23

2.3  SUBCONCLUSION  25

Chapter 3  The Andean Community  27

3.1  THE REGION  27

3.2  HISTORY AND ACHIEVEMENTS OF ANDEAN INTEGRATION  30

3.3  THE INSTITUTIONAL STRUCTURE OF THE ANDEAN COMMUNITY  33

3.4  SUBCONCLUSION  37

Chapter 4  Integration and Economic Development in the  

  CAN  39

4.1.  CONDITIONS FOR EXPORT-ORIENTED ECONOMIC DEVELOPMENT IN  

  THE CAN  39

4.2.  THE REMAINING PROBLEMS  42

4.2.1  Economic barriers  42

4.2.2  Political Barriers  43

4.2.3  Physical Barriers  45

4.3  THE RESULTS: DEVELOPMENT OF CROSS-BORDER TRADE AND  

INVESTMENT  IN THE CAN  47

4.3.1  Integration and Trade  47

4.3.1.1  Static Effects  47

4.3.1.2  Dynamic Effects  51

4.3.2  Integration and Investment  54

4.4  POLITICAL PARTICIPATION OF THE PRIVATE SECTOR IN THE CAN  57

4.5  SUBCONCLUSION  60

Chapter 5  Integration and Social Development  62

5.1  THE SOCIO-ECONOMIC SITUATION IN THE ANDEAN STATES  62

5.2  THE SOCIAL EFFECTS OF INTEGRATION - CONVERGENCE OR  

  DIVERGENCE?  65

5.3  NATIONAL AND SUPRANATIONAL SOCIAL AND REGIONAL POLICY  70

5.3.1  Policies in the Member States  70

5.3.2  Supranational Policies  72

5.4  CIVIL SOCIETY AND THE CAN  77

5.5  SUBCONCLUSION  81

Chapter 6  Conclusion  82

TABLE OF  CHARTS  

  CHART 1 METHODOLOGICAL FRAMEWORK  5

  CHART 2 THEPORIES OF EUROPEAN INTEGRATION  9

  CHART 3 THEORISATION OF THE CARTAGENA AGREEMENT  24

  CHART 4 MAIN INDUSTRIES AND EXPORT GOODS OF CAN COUNTRIES  29

  CHART 5 LOGO OF THE ANDEAN COMMUNITY  32

  CHART 6 MAIN DECISION-MAKING ORGANS OF THE CAN  34

  CHART 7 CAN GROWTH RATES OF INTRA-REGIONAL AND EXTRA-REGIONAL EXPORTS  

1969-2002................................................................................................................................   47

  CHART 8 CAN: GROWTH RATES OF INTRA-REGIONAL AND EXTRA-REGIONAL IMPORTS  

1969-2002................................................................................................................................   48

  CHART 9 EXPORT PARTNERS OF THE CAN COUNTRIES 2004  49

  CHART 10 IMPORT PARTNERS OF THE CAN COUNTRIES IN 2004  49

  CHART 11 COMPOSITION OF INTRA-AND EXTRA-CAN TRADE BY SECTORS, 1991 2001  50

  CHART 12 GDP OF CAN MEMBER STATES, 1992 2000 , IN BILLION USD  53

  CHART 13 CAN: ANNUAL GROWTH RATES 1996 2004 , IN  53

  CHART 14 NET FDI INFLOWS INTO THE ANDEAN COMMUNITY BY DESTINATION,  1990

2004  , IN MILLION USD  55

  CHART 15 NET FDI INFLOWS INTO THE CAN BY SECTOR, IN 1995 2004 , MILLION USD  56

  CHART 16 POVERTY IN THE CAN, IN  63

  CHART 17 CAN: INCOME DISTRIBUTION, IN  64

  CHART 18 ECONOMICALLY ACTIVE REGIONS IN CAN TRADE  69

  CHART 19 THEORISATION OF CARTAGENA AGREEMENT: AN ASSESSMENT OF  

INTEGRATION.........................................................................................................................   84

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TABLE OF ABBREVIATIONS

AIS Andean Integration System (Sistema Andino de Integración) ANDI

CA Cartagena Agreement (Acuerdo de Cartagena) CAN Andean Community of Nations (Comunidad Andina de Naciones) CACM Central American Common Market (Mercado Común Centro Americano, MCCA) CARICOM Caribbean Community and Common Market (Comunidad del Caribe) CCEA Andean Labour Advisory Board (Consejo Consultivo Empresarial Andino) CCLA Andean Business Advisory Board (Consejo Consultivo Laboral Andino) EAC European Atomic Energy Community EC European Community ECLAC

ECSC European Coal and Steel Community EMA Andean Multinational Enterprise (Empresa Multinacional Andina) EU European Union FDI Foreign Direct Investment Fedecámaras

GDP Gross Domestic Product

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HD Human Development IADB

ILO International Labour Organisation IMF International Monetary Fund INTAL

LAFTA Latin American Free Trade Association

MERCOSUR

MS Member States NAFTA North American Free Trade Agreement/

PIDS

RCA Revealed Comparative Advantage SHD Sustainable Human Development SME Small and Medium-sized Enterprises UNDP United Nations Development Programme

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C H A P T E R 1 - I N T R O D U C T I O N

1.1 INTRODUCTION

The last decades have witnessed the rise of a series of regional integration processes, in Europe as well as in other regions of the world. The European Union (EU) can certainly be called the most advanced of these projects. It all began as a project of integration of major industries in order to overcome the division between the largest European states, France and Germany, prevent future wars and raise the living standards of the population through enhanced economic development. With the initial aid of the Marshall Plan, the European Union today is one of the three major players of the world economy besides the United States of America and East Asia. It has brought welfare and an exceptionally long-lasting period of peace to its peoples, who had once been divided by a number of devastating wars.

Shortly after the treaties founding the European Coal and Steel Community (ECSC), European Atomic Energy Community (EAC) and European Community (EC) were signed, there were efforts in other regions of the world as well to follow this example, notably in Latin America, where the Latin American Free Trade Association (Asociación Latinoamericana de Libre Comercio, LAFTA), the Central American Common Market (Mercado Común Centroamericano, CACM), the Caribbean Community and Common Market (Comunidad del Caribe; CARICOM) and the Andean Pact (now Andean Community or Comunidad Andina de Naciones, CAN) were established. The founding Treaty of the latter, the Cartagena Agreement (or Acuerdo de Cartagena, AC), was signed in 1969, when five nations, Bolivia, Colombia, Chile, Peru and Ecuador, decided to seek “a balanced and harmonious development” through integration and economic and political co-operation. Venezuela decided to join in 1976 and withdrew again in April 2006, whereas Chile withdrew membership as early as in 1976, after the accession to power of Augusto Pinochet. In order to achieve the aims laid down in the Treaty, a complex institutional framework was drawn up, modelled upon the European Community and featuring intergovernmental as well as supranational elements.

In contrast to that on European integration, however, most political and academic discourse on the Andean Community agrees upon the fact that this integration process has,

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up to now, not been very “successful”, and quite often it is called a complete failure. This thesis wants to contribute to the search of possible reasons for this. For this purpose, it is first of all necessary to define what is meant by the term “successful”. This concept is used here in a triple sense. First, it means success in achieving the aims established in the founding treaty of the Andean regional integration agreement - namely raising the living standards of its people through economic co-operation. Second, it refers to the speed of the integration process and the level and scope of supranational governance. The third dimension of the term “success” is the perception of the value of integration by the people concerned.

In order to explain the lack of “success” of Andean integration - especially in the period since the late 1980s - this thesis focuses on an element which, in most integration theories, is considered the most important prerequisite for regional integration: interdependence, and thus a demand for integration on the part of the region’s citizens. It is argued that in principle, integration can create or at least reinforce its own demand, but that this has only happened in the Andean case to a relatively small extent and limited to few sectors of the highly unequal societies in Bolivia, Colombia, Ecuador, Peru and Venezuela.

1.2 PREVIOUS RESEARCH

The Andean Community is probably one of the integration schemes in the world for which hardly any literature is available. Research about Latin American integration is mainly focused on the Mercosur and the North American Free Trade Agreement (Tratado de Libre Comercio de América del Norte, NAFTA), neglecting other schemes such as the CACM and CARICOM, and, of course, the Andean Community. Most articles about the Andean Community are confined to descriptive accounts of its history and institutional structure, giving possible reasons for its “failure” without referring to any kind of integration theory. The documents issued by the Interamerican Development Bank (IADB), the Institute for Integration in Latin America and the Carribean (Instituto para la Integración de América Latina y el Caribe, INTAL) and the Economic Comission for Latin America and the Carribean (ECLAC; or Comisión Económica para América Latina y el Caribe, CEPAL) as well as the working papers and seminar papers prepared for or by the CAN offer the most extensive accounts of what is happening in the CAN. There are, moreover, a number of journals issued by the Venezuelan Universidad de los Andes, notably Aldea Mundo and Nueva Sociedad, which contain articles about different aspects of Andean integration.

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Among the few authors who deal with Latin American integration from a theoretical point of view, three deserve to be explicitly mentioned. First of all, Ernst Haas - one of the early and most important theorists of European integration. In co-operation with Philippe Schmitter, he develops a theoretical framework for analysing integration in Latin America, based on his neofunctionalist theory (Economics and Differential Patterns of political Integration; Projections about Unity in Latin America, 1964). Second, Andrés Malamud, who mostly focuses on the Mercosur, but who has also published a number of articles in which he at least makes reference to the CAN (e.g. together with Luís de Sousa: Regional Parliaments in Europe and Latin America: between Empowerment and Irrelevance, 2004, and Regional Integration in Latin America. Comparative Theories and Institutions). Third, Walter Mattli, who has written a book about The Logic of Regional Integration - Europe and Beyond. (1999).

1.3 METHODOLOGY

This thesis wants to contribute to explaining the slowness of the integration process, applying - though not uncritically - one of the most important currents of integration theory: neofunctionalism and its more recent variants. These theories suggest that, if certain preconditions are fulfilled, economic co-operation leads to the formation of a political community. Political actors begin to shift their loyalties, expectations and political activity towards a new centre, assuming that they can better achieve their aims at the supranational than at the national level. In the CAN, apparently, this shift of loyalties, expectations and political activities has not taken place, showing that the CAN has not yet gone very far on the road to an economic or a political community and that the states themselves seem to be free to back out of the process whenever they feel that the CAN no longer serves their interest. This was demonstrated by Venezuela’s withdrawal in April this year.

The thesis uses the normative ideas of the Cartagena Agreement as a framework for analysis, proposing a theorisation of the Treaty and then applying it to the concrete situation of the CAN. The rationale of the Cartagena Agreement is to use integration as an instrument for achieving social development through economic development:

The objectives of this Agreement are to promote the balanced and harmonious development of the Member Countries under equitable conditions, through integration and economic and social cooperation; to accelerate their growth and the rate of creation of employment; and to facilitate their participation in the regional integration process, looking ahead toward the gradual formation of a Latin American Common Market.

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This Agreement also seeks to reduce external vulnerability and to improve the positioning of the Member Countries within the international economic context; to strengthen subregional solidarity, and to reduce existing differences in levels of development among the Member Countries.

These objectives are aimed at bringing about an enduring improvement in the standard of living of the subregion´s population. (Art 1, CA)

This thesis is especially concerned with the second part of Art 1 CA, thus the idea that integration leads to economic development which, in turn, stimulates human/social development. The thesis will analytically split up this normative assumption of the Cartagena Agreement into two steps: first, it will look at relation between economic integration and economic growth, searching for factors which hamper this process. The same will then be done with regard to the link between economic and social development.

The procedure adopted is visualised in chart 1. The rationale of the founding treaty is displayed vertically, in bold characters. The different steps of the Cartagena logic (integration - economic development, economic development - social development) are linked by double arrows, labelled with the type of integration theory (in italics) which will be used in the analysis. For example, economic integration theories like external trade and customs union theory explain how economic integration leads to economic development. Political science integration theory, displayed on the right hand side of the chart, explains why and how economic integration deepens and finally leads to the formation of a political community.

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CHART 1 METHODOLOGICAL FRAMEWORK

The main questions to be answered here are thus: What results has integration achieved so far for the people, and, in turn, what are the effects of these results on the potential deepening of integration?

The subsequent part presents the most important integration theories, which are then organised according to the normative ideas of the Cartagena Agreement. Here, a set of criteria is established which will be used as the framework for the actual analysis. Chapter 3 will introduce the regional integration process in the Andes, its origins, logic and institutional structure. Chapter 4 will examine the first of the two steps of the welfareenhancing effect of regional integration, namely the link between integration and economic growth. The conditions for the private sector to operate in the Andean zone are examined and remaining barriers to cross-national business activity are identified. Finally, the overall economic results of the integration process and its effects on supranational politics are analysed. Chapter 5 focuses on the causal link between economic growth and human

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development in the Andean countries, taking a closer look at the socio-economic situation

in the area and the social effects of integration as well as the national and supranational

efforts to improve the prevailing conditions. Chapter 6 concludes.

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C H A P T E R 2 - C O N C E P T S , E X P L A N A T I O N S A N D C O N S E Q U E N C E S O F R E G I O N A L I N T E G R A T I O N A N D A T H E O R I S A T I O N O F T H E T R E A T Y O F C A R T A G E N A

2.1 THEORIES OF REGIONAL INTEGRATION

2.1.1 Some Remarks about International Co-operation

This chapter will deal with the questions of how and why countries pursue regional integration in general, and how integration is expected to function in the Andean case in particular. First of all, some problems of collective action are pointed out. Subsequently, the most important political science integration theories are presented which explain the how of integration. Afterwards, economic science integration theories are introduced in order to give some reasons why countries integrate. Finally, section 2.2 proposes a theorisation of the Cartagena Agreement.

As for collective action, there are situations in international relations in which states can solve their problems more effectively by co-operating instead of selfishly following their own national interest, given rational government behaviour. However, in an anarchic world, as it is seen by realists, this implies a number of problems. The two traditional approaches to explaining such problems in international relations theory, (neo-)liberalism and (neo-)realism, both draw on game theory - initially used by micro-economists to explain the behaviour of economic actors in different market conditions - to elaborate on the problems of collective action. In perfect competition, it is supposed that every actor chooses the behaviour that maximises his profits, and everybody benefits from that. This, however, does not work with public goods. Here, rational and profitable individual behaviour might lead to irrational collective behaviour. An example: if all the inhabitants of a village gain their living by fishing in the lake next to the village, everybody will try to maximise his own profit, but when there are no more fish in the lake, everybody will have a problem. People can either decide to keep on going like that or co-operate - in our example, they might agree on certain quotas - but they can never be sure if the others will comply with the co-operation agreement. If the others do not co-operate, the actor who mistakably thinks that they do and who himself adopts a co-operative behaviour - will

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suffer losses. Nobody can trust the other although everybody knows that co-operation

would probably be a better strategy than competition ¹ . This makes co-operation difficult to

achieve, but does not preclude it. An option to surmount the problem of cheating and

mistrust is the creation of international organisations or international regimes ² providing

information and, possibly, surveillance mechanisms (e.g. a hegemon is present who polices

the regime) ³ .

2.1.2 Political Integration Theory

2.1.2.1 Intergovernmentalism

Regional integration can be seen as a type of international institution in the sense that

countries opt for co-operation, jointly dealing with problems which concern them all.

However, it is obviously more than just co-operation in a given issue area.

Integration theory has been developing in close relationship with the European integration

process as the first and most evolved “specimen” of regional integration schemes, evolved

to such an extent that is pictured as a phenomenon sui generis by most authors (n=1

problem). During the history of integration, diverse approaches of conceptualising the EU

have appeared. The first ones, developed from the 1960s onwards, focus on explaining

integration outcomes. A second broad stream of integration which came up in the 1980s in

the context of a deepening of integration focused more on the analysis of governance.

¹ This situation is also illustrated in game theory in the so-called prisoners’ dilemma: The governor of a prison has two prisoners whom he cannot hang without a voluntary confession of at least one of them. Thus, he separately tells them that if they confess before their fellow-sufferer, they will be rewarded and the other one will be hanged. In case both confess on the same day, both will get ten years in prison. If, however, neither of them confesses, they will both be released. This last option would be the pareto-optimal outcome. However, since neither of the prisoners knows what the other one will do, they may be more tempted to act individually and confess, thus causing the other one to be hanged.

² According to the consensus definition of regimes as developed by Krasner, regimes are “implicit or explicit

principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area of international relations. Principles are beliefs of fact, causation, and rectitude. Norms are standards of behaviour defined in terms of rights and obligations. Rules are specific prescriptions or proscriptions for action. Decision-making procedures are prevailing practices for making and implementing collective choice.“ Krasner, as quoted by Hasenclever/Mayer/Rittberger (1996), p. 179

³ For detailed analyses of the collective action problem, see Little (2004), Gamble/ Payne (1996) and

Hasenclever/Mayer/Rittberger (1996).

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Source: Peterson/Blomberg (1999), p. 319

The earlier and also a lot of the newer theories are explanatory, foundational theories. However, anti-foundational and constitutive theories - such as discourse theory or postcolonialism - have become more and more important in the last years ⁴ .

Since this thesis tries to explain the role of subnational actors in an integration scheme which it is not yet as advanced in terms of the degree of economic and political integration and supranational decision-making, “history-making” ⁵ theories, which try to explain integration outcomes, seem to provide the most useful tools for the analysis. This is why the presentation of theories will be limited to these approaches.

In general, rationalist integration theories can be divided into two main currents - statecentred theories and multi-level-governance theories. The main difference between these types of approaches is the role they attribute to national states on the one hand and to society on the other hand in the integration process. State-centred approaches affirm that the states act as “gatekeepers” of the integration process. Supranational institutions may be created by these states in order to be better able to pursue their national interest, but they will never be more autonomous than the member states allow them to. Other approaches take the opposite view: states will, at some point, loose some of their initial control over the actions of supranational institutions as the latter and the civil society push for a deepening and widening of integration.

Among the state-centred approaches, the most prominent one has been Moravscik’s Intergovernmentalism. As to the relation between Intergovernmentalism and Neofunctionalism, which will be presented later on, according to Malamud,

⁴ Diez/ Wiener (2004), p.7

⁵ Peterson/Blomberg (1999), p. 319

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“neofunctionalism may be considered the opposite of intergovernmentalism, as it does not fully explain the starting up of an integration process but advances a hypothesis on the causes for further expansion instead” ⁶ . Malamud claims that Andean integration has not gone much beyond an Intergovernmentalist project ⁷ .

Derived from International Relations Theory, Intergovernmentalism was developed in the 1960s, criticising earlier theories like Neofunctionalism for heavily under-emphasising the power of national governments. Intergovernmentalists like Hoffman state that European integration would only happen if it was in the best interest of national governments, an assumption which seemed to be confirmed by de Gaulle’s empty chair policy in the 1960s.

Moravscik, the founder of the most important stream of Intergovernmentalism (called liberal IG) puts the main emphasis on the role of the state and national interest, but also stresses the importance of relative strength of some national governments over that of others. His approach has three main components. First of all, he assumes rational and utility-maximising state behaviour. Second, he explains how national preferences are determined through inner-state bargaining and third, how states try to realise their interest in inter-state negotiations ⁸ .

Intergovernmentalism does not see any automaticity in the integration process - thus, if there is a deepening of integration, it is the result of “great bargains” among heads of states and governments. Sub- and supranational actors who - as will be seen in the next sectionare the most important actors in Neofunctionalism, play a more indirect role in Intergovernmentalism. The question of whether integration is deepened or not is determined by either convergence or divergence of national interests.

Intergovernmentalism has been confronted with the criticism that it focuses too much on the final stages of decision-making and pays too little attention to informal integration and the constraints that such integration imposes on decision-makers. Moreover, it underestimates the role of supranational bodies.

2.1.2.2 Neofunctionalism

The first ideas about integration of states in the post-World War II area were uttered by David Mitrany. Aware of the failure of various political/institutional co-operation schemes

⁶ Malamud (2004), p. 144

⁷ Malamud (2001)

⁸ Moravscik (1993)

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in the past, he campaigned for a process of technical co-operation in different policy areas which would, in the end, connect all countries in the world and put an end to nationalism and the territorial division of power. Cram points out that Mitrany’s theory cannot actually be considered a theory of European integration since he held that “nationalism at the nation-state level must not […].simply be replaced by nationalism at the European level”. ⁹ However, Mitrany’s thinking laid the basis for a number of later theories concerned explicitly with European integration.

Another early theorist dealing with integration in Europe, Karl Deutsch, defines integration as the

attainment, within a territory, of a ‘sense of community’, and of institutions and practices strong enough and widespread enough to assure, for a ‘long time’, dependable expectations of ‘peaceful change’ among its population. When a group of people or states have been integrated this way, they constitute a ‘security community’ ¹⁰ Laursen states that

Deutsch coined the term of amalgamation to define this state, meaning the „merger“ of two or more previously independent units into a single larger unit, with some type of common government. 11

Deutsch finds nine conditions for such an amalgamated security-community to exist, for example the mutual compatibility of main values and a distinctive way of life, as well as mobility of persons at least among politically relevant states and unbroken links of social communication, both geographically between territories and sociologically between different social strata.

Ernst Haas takes up Mitrany’s idea of technical co-operation, but rejects the notion that technical and political co-operation can be neatly separated from each other. He focuses on integration within the European community, but does not neglect other parts of the world. Haas’s frequently quoted definition of international integration reads as follows:

The process of attaining this condition [the formation of a political community] we call integration, the process whereby political actors in several distinct national settings are persuaded to shift their loyalties, expectations, and political activities toward a new and larger center, whose institutions possess or demand jurisdiction over the pre-existing national states. ¹² An important indicator for integration is the mode of conflict-solving. Haas names three different types of conflict-solving. First, there are lowest common denominator solutions, where equal bargaining partners gradually reduce antagonistic demands by exchanging concessions. But this type of accommodation never goes beyond what the least co- ⁹ Mitrany,as quoted by Cram (2001), p.53 ¹⁰ Deutsch, as quoted by Laursen (2003), p.4 ¹¹ ibid., pp. 5 ¹² Haas (1961), pp. 366

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operative member wants. A second way of solving conflicts is “splitting the difference”, meaning that actors reduce their demands, exchange concessions and admit a mediatory service, for example, a general secretariat. A solution is then found somewhere in between the opposing views of negotiators. The third mode of accommodation is “upgrading the common interest”. Here, both parties gain since states have redefined their aims and work out solutions at a higher level, which often implies the expansion of the mandate of the mediator, and thus a rising degree of supranationality. Where the latter two are predominant, a political community is in the making.

For Haas integration is a process which will, at some point, gather momentum and continue automatically through the mechanism of so-called political and functional spillovers described above. Functional spillovers arise from the interconnectedness of modern economies which makes it difficult to confine integration to one sector. If two political areas are functionally linked, integration in one area will create problems in adjacent areas, which can, in the long run, only be solved by further integration. Political spillovers largely follow from economic integration. The term designates the process by which national interest groups, in a rational and opportunist fashion, increasingly turn to the supranational levels of activity to campaign for their interests, eventually aligning with their equivalents from other countries and forming a transnational civil society which leads to an expansion of scope and level of the new institutions. Neofunctionalism thus considers sub- and supranational actors as the main catalysts of integration. The member states’ only function is to fulfil the ambitions of non-state actors ¹³ . This assumption, as mentioned above, is heavily criticised by intergovernmentalists and convincingly presented by Mattli who alleges that in order for integration to be successful, not only demand, but also supply conditions must be fulfilled, such as the perception of governments that they politically win from it ¹⁴ . When Haas recognised this flaw at the moment of de Gaulle’s empty chair policy, he tried to remedy his own theory by adding two new dimensions to it, namely nationalism and the perception of the value of integration as well as the power of statesmen. This modification is criticised by Mattli, in whose opinion “the link between the two analytical extensions is only weakly drawn, and neither one adds much explanatory power” ¹⁵ .

¹³ Corbey (1995), p. 256

¹⁴ cf. Mattli (1999a,b)

¹⁵ Mattli (2005), p. 332

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The original version of neofunctionalism assumes that, in order for a shift of loyalties, expectations and political activities to occur, several conditions need to be fulfilled according to Haas (1961) and Haas/Schmitter (1964). These can be divided into institutional, functional and environmental factors. As for institutional preconditions for political integration, Haas states that it is necessary to create supranational bodies which are little susceptive to different phases induced by changes in national policies. Functional requisites include a clear definition of tasks of these supranational institutions. These tasks need to be specific and economically important. The first two sets of preconditions in the CAN will be touched upon in Chapter 3.

The main focus of this thesis, however, will be on the “environmental” conditions, since these are considered the decisive ones for the case of the CAN. They will be examined extensively in Chapters 4 and 5. The environmental factors listed by Haas (1961) and Haas/Schmitter (1964) include political pluralism and a modern, industrial society.

Urbanism is the great outreaching dynamic, breaking down isolation and encroaching upon tradition. Modern industrial urbanism is innately inimical to any isolation […] Because the modern “industrial-political” actor fears that his way of life cannot be safeguarded without structural adaptation, he turns to integration; but by the same token, political actors who are neither industrial, nor urban, nor modern in their outlook usually do not favor this kind of adaptation, for they seek refuge instead in national exclusiveness. ¹⁶ Why an urban-industrial society is considered so important can be summarised in one word: interdependence. This is what Mattli calls the main “demand condition” of integration. ¹⁷ This “demand” is also the most important element of a more recent variant of Neofunctionalism: Sandholtz and Stone Sweet’s “transaction-based approach to integration” which focuses on the variation of nature and extent of supranational governance over time and across different policy areas in the European Union. In a first step, Sandholtz and Stone-Sweet ask whose interests are served by supranational governance. These are identified as those individuals, groups and firms who transact across borders. They are the ones that are advantaged by uniform European rules, and disadvantaged by the presence of a multitude of diverging national rules. Sandholtz and Stone-Sweet hypothesise that as transnational exchange expands, these groups exert an increased pressure on the EC’s institutions to expand supranational rules in order to achieve collective gains and accomplish Treaty aims. This makes the relative intensity of transnational activity the main determinant of variation of supranational governance, although member states’ governments possess the means to obstruct or facilitate decision-

¹⁶ Haas(1961), p. 375

¹⁷ Mattli (1999a), (1999b)

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