regioalism and multilateralism

8/19/2019 regioalism and multilateralism

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MCOM PART 1

SEMESTER 1 ROLL NO 58

CH 1 INTRODUCTON

1.1 CONCEPTUAL FRAMEWORK

(A)INTERNATIONAL TRADE THEORY

“International trade is the exchange of goods and services et!een the residents of

a given co"ntr# and those of the rest of the !orld$ (D"tta% &'' *+),

(-).EANIN/ O0 RE/IONALI1.

Regionalis2 refers to an# 3olic# designed to red"ce trade arriers et!een a s"set

of co"ntries regardless of !hether those co"ntries are act"all# contig"o"s or even

close to each other,

Regionalis2%according to 4i5i3edia%refers to the ex3ression of a co22on sense of

identit# and 3"r3ose co2ined !ith the creation and i23le2entation of instit"tions

that ex3ress a 3artic"lar identit# and sha3e collective action !ithin a geogra3hical

region,

According to JOSEPH NYE regionalis2 refers to “the for2ation of interstate

associations or gro"3ings on the asis of regions,$

(6).EANIN/ O0 .7LTI LATERALI1.

."ltilateralis2 is a charachteristic of the !orld econo2# or !orld econo2ic

s#ste2,It "lti2atel# de3ends on the ehavior of individ"al co"ntries%that is%that

is%the extent to !hich the# ehave in a 2"lti lateral fashion,for an# one co"ntr#%the

2"ltilateralis2 is a33ositive f"nction of

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(a) The degree to !hich discri2ination is asent%that is %the 3ro3ortion of trade

3artners that receive identical treat2ent%and

()The extent to !hich the trading regi2e a33roxi2ates free trade,

1o2eti2es%2"ltilateralis2 is referred to as 3rocess !here# co"ntries solve

3role2s in an interactive and co o3erative fashion, 1"ch interactions co"ld clearl#

e affected 2# regionalis2,

RO-ERT 8EOHANE defined 2"ltilateralis2 as “the 3ractice of coordinating

national 3olicies in gro"3s of three or 2ore states$,

1.2 INTRODUCTION

Do the forces that regional integration arrange2ents set "3 enco"rage or

disco"rage a trend to!ard gloall# freer trade9 4e don:t 5no! #et, The literat"re

on regionalis2 vers"s 2"ltilateralis2 is gro!ing as econo2ists and 3olitical

scientists gra33le !ith the ;"estion of !hether regional integration arrange2ents

are good or ad for the 2"ltilateral s#ste2, Are regional integration arrange2ents

"ilding loc5s or st"2ling loc5s% in scale regional

integration arrange2ents (the E7% NA0TA% 0TAA% A?E6% and% 3ossil#% TA0TA)%

the ;"estion has never een 2ore 3ressing, 4inters s!itches the foc"s fro2 the

i22ediate conse;"ences of regionalis2 for the econo2ic !elfare of the

integrating 3artners to the ;"estion of !hether it sets "3 forces that enco"rage or

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disco"rage evol"tion to!ard gloall# freer trade, The ans!er is% 4e don:t 5no!

#et, One can "ild 2odels that s"ggest either concl"sion% "t these 2odels are still

so astract that the# sho"ld e vie!ed as 3arales rather than so"rces of testale

3redictions, 4inters offers concl"sions ao"t research strateg# as !ell as ao"t the

!orld !e live in, A2ong the concl"sions he reaches @ 1ince !e val"e

2"ltilateralis2% !e had etter !or5 o"t !hat it 2eans and% if it 2eans different

things to different 3eo3le% 2a5e s"re to identif# the sense in !hich !e are "sing the

ter2, @ 1ector>s3ecific loies are a danger if regionalis2 is 3er2itted eca"se

the# tend to sto3 locs fro2 2oving all the !a# to gloal free trade, In the

3resence of loies% trade diversion is good 3olitics even if it is ad econo2ics, @

Regionalis2:s direct effect on 2"ltilateralis2 is i23ortant% "t 3ossil# 2ore so is

the indirect effect it has # changing the !a#s in !hich gro"3s of co"ntries interact

and res3ond to shoc5s in the !orld econo2#, @ Regionalis2% # allo!ing stronger

internali=ation of the gains fro2 trade lierali=ation% see2s li5el# to facilitate freer

trade !hen it is initiall# highl# restricted, @ The 3ossiilit# of regionalis2 3roal#increases the ris5s of catastro3he in the trading s#ste2, The ins"rance incentives

for oining regional arrange2ents and the existence of shiftale externalities oth

lead to s"ch a concl"sion, 1o too does the vie! that regionalis2 is a 2eans to ring

trade 3artners to the 2"ltilateral negotiating tale eca"se it is essentiall# coercive,

7sing regionalis2 for this 3"r3ose 2a# have een an effective strateg#% "t it is

also ris5#,

The ter2 regionalis2 has een often "sed in relation to the gro!th of regional

trade agree2ents,The e2ergence of ne! regional for2alities and international

trade agree2ents li5e North A2erican 0ree Trade Agree2ent (NA0TA)%and the

develo32ent of E"ro3ean 1ingle .ar5et and the E"ro3ean 7nion etc ,%de2onstrate

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the the i23ortance of a region # region asis 3olitical co>o3eration and econo2ic

co23etitiveness,

."ltilateralis2 refers to the 3ractice 3ro2oting trade a2ong several co"ntries

thro"gh agree2ents concerning ;"antit# and 3rice of co22odit#,

According to 3rea2le of the 7N 6harter 2"ltilateralis2 2eans Bestalishing

conditions "nder !hich "stice and oligation arising fro2 treaties and other so"rce

of international la! can e 2aintainedC, ."ltilateralis2 th"s involves

"stice%oligation%and a sort of internatonal r"le of la!

."ltilateralis2 is a ter2 in international relations that refers to 2"lti3le co"ntries

!or5ing in concert on a given iss"e, ."ltilateralis2 !as defined # MILES

KAHLER as “international governance of the B2an#%Cand its central 3rinci3le !as

“o33osition to ilateral discri2inator# arrange2ents that !ere elieved to enhance

the leverage of the 3o!erf"l over the !ea5 and to increase international conflict,$

6o23ared to "nilateralis2 and ilateralis2 !here onl# the co"ntr# itse lf decides

on !hat to do or 2a5e decisions et!een t!o nations%2"ltilateralis2 is 2"ch 2ore

co23lex and challenging, It involves a n"2er of nations !hich 2a5es reaching an

agree2ent diffic"lt, In 2"ltilateralis2 %there 2a# e no concens"s each nation

has to decide to so2e degree% to 2a5e the est o"tco2e of all,

/loal 2"ltilateralis2 is 3resentl# eing challenged%3artic"larl# !ith res3ect to

trade%# e2erging regional arrange2ents s"ch as the E"ro3ean "nion%

NA0TA%LA0TA and so on,

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."ltilateralis2 is the 5e#% for it ens"res the 3artici3ation of all in the 2anage2ent

of !orld affairs, It is a ga"ntee of legiti2ac# and de2ocrac#%es3eciall# in 2atters

regarding the "s of force or la#ing do!n "niversal nor2s,

1.3 MULTILATERAL TRADE AGENDA

The creation of the 4TO (4TO% &'++) in +F at the end of the 7r"g"a# ro"nds

cond"cted "nder the /eneral Agree2ent on Tariffs and Trade (/ATT) negotiations%

!as the largest refor2 in 2"ltilateral trade since the 1econd 4orld 4ar (4TO%

&'++), 4TO la#s the fo"ndation for international trade thro"gh its fo"ndation of a

2"ltilateral trading agenda, All +FG 2e2ers (# +,'+,&'+&) (1trong and Herd%

&'+&)% 2"st aide # the set of r"les set o"t in the /eneral Agree2ent on Tariffs

and Trade (/ATT)% /eneral Agree2ent in Trade on 1ervices (/AT1) and the

Agree2ent on Trade>Related As3ects of International ?ro3ert# Rights (TRI?1)%

(A33endix ) (4TO% &'++),The 3rinci3les of the trade agenda incl"de r"les on

2ost favo"red nation% national treat2ent% freer trade% trans3arenc#% 3ro2oting fair

co23etition and enco"raging develo32ent and econo2ic refor2 (A33endix +),

1.3.1 From GATT to WTO

/ATT% created after 4orld 4ar T!o !as a 3rovisional agree2ent et!een states

set "3 to 3rovide the r"les for ever increasing gloal trade d"ring the oo2 3eriod

after the !orld !ars, 0ro2 the creation of /ATT in +G* to the end of it in +G%

the gloal econo2# gre! faster than it had th"s far and !hat it !o"ld in the f"t"re

(4TO% &'++), The original intention !as to create a third instit"tion% International

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Trade Organisation to handle !orld trade along !ith the t!o -retton 4ood

instit"tions The 4orld -an5 and the International .onetar# 0"nd (I.0), D"ring

the first ro"nd of /ATT negotiations% r"les for GF%''' tariff red"ctions !ere

created affecting a fifth of !orld Trade (4TO% &'++), Altho"gh /ATT 2anaged to

decrease tariffs and 3ro2ote gloal trade% 2an# arg"e that /ATT !as not

s"ccessf"l, -ald!in (&''G) 3oints o"t that "ntil +'s /ATT !as a rich 2anCs

cl"% 3ro2oting the !elfare of the 2ost 3o!erf"l nations, Tal5s concentrated on

food and 2an"fact"ring and "ntil +'s the 2ain foc"s !as 2an"fact"ring

altho"gh the gloal econo2# sa! an increase in services and invest2ent% !hich

!o"ld have re;"ired closer reg"lation, Also% the 4TO (+) re2inds that the

/ATT !as for2ed in the +G's +& and # +*' “!as not relevant to the realities of

!orld trade as it had een in the +G's,$ /ATT also lac5ed a dis3"te settle2ent

s#ste2 and had loo3holes% es3eciall# in agric"lt"re that allo!ed co"ntries to

violate 3rovisions of the /ATT% !itho"t fear of re3erc"ssions (4TO% &'++),

1.3.2 The Case or O!e" Tra#e $WTO%

1tatistics 3rove a correlation et!een o3en trade and econo2ic gro!th hence the

4TO 3ro2otes lieration in trade so aggressivel#, Even d"ring the /ATT #ears%

!orld trade gre! on average # *J ann"all# (4TO% &'++), The 4TO fir2l#

elieves in co23arative advantage and that all co"ntries !ill enefit fro2 an

increase in co23etition overseas 2ar5ets 3rovide for co"ntries, -eca"se 2ar5ets

and technolog# develo3% co23arative advantage can shift fro2 co"ntr# to co"ntr#

th"s s"33orting free trade !hich !or5s as a sti2"l"s for nations to advance fro2co23eting in one sector to another (4TO% &'++), According to the 4TO%

3rotectionis2 leads to loated 2ar5ets% !here 3rod"cers s"33l# cons"2ers !ith

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o"tdated% "nattractive and ex3ensive 3rod"cts (4TO% &'++), -ag!ell and 1taiger

(&'') and Ossa (&'+') all concl"ded that the o3ti2al res"lt !o"ld e a s"ccessf"l

2"ltilateral trade agree2ent ased on si23le 3olicies that !o"ld allo! co"ntries to

agree on tariff red"ctions and 2ar5et access (4orld Trade Re3ort% &'++), &,&,,

Doha Ro"nds> 4TO The 2ost recent trade negotiations egan in Doha% Katar in

&''+ (4TO% &'++), The ai2 of the Doha ro"nds !as to f"rther lieralise trade and

create a 2"ltilateral trade s#ste2 thro"gh the introd"ction of lo!er trade arriers

and a2ended trade reg"lations, Originall# the negotiations egan on a asis to

reach an agree2ent on all trade as3ects "nder a single "nderta5ing% 2eaning that

all as3ects !ere treated as one 3ac5age, No co"ntr# co"ld 3ic5 and choose the

agree2ents that s"ited the2 est, The negotiations are slo! d"e to the nat"re of the

single "nderta5ing, Differences have grad"all# een narro!ed% "t the negotiations

are dragging eca"se no nation is !illing to ta5e on all oligations (4TO% &'++),

+ The 2ain to3ics of the Doha ro"nds co23rise agric"lt"re% services% 2ar5et for

nonagric"lt"ral 3rod"cts% trade related as3ects of intellect"al 3ro3ert# rights%

relationshi3 et!een trade and invest2ent% trade facilitation% RTAs% trade and

environ2ent and other trade related 2atters (4TO% &'++), All the aove to3ics

!ere incl"ded in the 4TO r"les 3rior to the Doha negotiations% "t allo!ed

co"ntries to "se the 3resent loo3holes to create trade diversion, The 4TO r"les on

RTAs is an essential to3ic d"ring the Doha ro"nds d"e to the enaling cla"se in the

/ATT that allo!s 2e2ers to create RTAs% !hich the 4TO finds trade

3rohiiting, The r"les can e inter3reted differentl# and since 2ost govern2ents

are 3arties to RTAs this is an "rgent 2atter to e disc"ssed in the negotiations

(4TO% &'++),

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1.& LI'T OF PTAs

A free trade area is asicall# a 3referential trade area !ith increased de3th and

sco3e of tariffs red"ction, All free trade areas%c"sto2s "nions% co22on

2ar5ets% econo2ic "nions% c"sto2s and 2onetar# "nions and econo2ic and

2onetar# "nions are considered advanced for2s of a ?TA% "t these are not listed

elo!,

M()t*)atera)

• Econo2ic 6oo3eration Organi=ation (E6O) (+&)

• /enerali=ed 1#ste2 of ?references

• /loal 1#ste2 of Trade ?references a2ong Develo3ing 6o"ntries (/1T?)

(+*)

• Latin A2erican Integration Association (LAIAALADI) (+*+)

• .elanesian 13earhead /ro"3 (.1/) (+G)

• ?rotocol on Trade Negotiations (?TN) (+)

• 1o"th Asian ?referential Trade Arrange2ent (1A?TA) (+)

• 1o"th ?acific Regional Trade and Econo2ic 6oo3eration

Agree2ent (1?ARTE6A) (+*+)

+*)atera)

• E"ro3ean 7nion M A6? co"ntries% for2erl# via the trade as3ects of

the 6otono" Agree2ent% later via Ever#thing -"t Ar2s (E-A) agree2ents

8

https://en.wikipedia.org/wiki/Free_trade_areahttps://en.wikipedia.org/wiki/Free_trade_areahttps://en.wikipedia.org/wiki/Customs_unionhttps://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/Economic_unionhttps://en.wikipedia.org/wiki/Customs_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_Cooperation_Organizationhttps://en.wikipedia.org/wiki/Generalized_System_of_Preferenceshttps://en.wikipedia.org/wiki/Global_System_of_Trade_Preferences_among_Developing_Countrieshttps://en.wikipedia.org/wiki/Latin_American_Integration_Associationhttps://en.wikipedia.org/wiki/Melanesian_Spearhead_Grouphttps://en.wikipedia.org/wiki/Protocol_on_Trade_Negotiationshttps://en.wikipedia.org/wiki/South_Asian_Preferential_Trade_Arrangementhttps://en.wikipedia.org/wiki/South_Pacific_Regional_Trade_and_Economic_Cooperation_Agreementhttps://en.wikipedia.org/wiki/South_Pacific_Regional_Trade_and_Economic_Cooperation_Agreementhttps://en.wikipedia.org/wiki/European_Unionhttps://en.wikipedia.org/wiki/ACP_countrieshttps://en.wikipedia.org/wiki/Cotonou_Agreementhttps://en.wikipedia.org/wiki/Everything_But_Armshttps://en.wikipedia.org/wiki/Free_trade_areahttps://en.wikipedia.org/wiki/Customs_unionhttps://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/Economic_unionhttps://en.wikipedia.org/wiki/Customs_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_and_monetary_unionhttps://en.wikipedia.org/wiki/Economic_Cooperation_Organizationhttps://en.wikipedia.org/wiki/Generalized_System_of_Preferenceshttps://en.wikipedia.org/wiki/Global_System_of_Trade_Preferences_among_Developing_Countrieshttps://en.wikipedia.org/wiki/Latin_American_Integration_Associationhttps://en.wikipedia.org/wiki/Melanesian_Spearhead_Grouphttps://en.wikipedia.org/wiki/Protocol_on_Trade_Negotiationshttps://en.wikipedia.org/wiki/South_Asian_Preferential_Trade_Arrangementhttps://en.wikipedia.org/wiki/South_Pacific_Regional_Trade_and_Economic_Cooperation_Agreementhttps://en.wikipedia.org/wiki/South_Pacific_Regional_Trade_and_Economic_Cooperation_Agreementhttps://en.wikipedia.org/wiki/European_Unionhttps://en.wikipedia.org/wiki/ACP_countrieshttps://en.wikipedia.org/wiki/Cotonou_Agreementhttps://en.wikipedia.org/wiki/Everything_But_Armshttps://en.wikipedia.org/wiki/Free_trade_area


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• India M Afghanistan (&'')

• India M .a"riti"s

• India M Ne3al (&'')

• India M 6hile (&'')

• India M .ER6O17R (&'')

• A1EAN M ?R 6hina (&''F)

• Laos M Thailand (++)

1tages of econo2ic integration aro"nd the 4orld (each co"ntr# colored according

to the 2ost integrated for2 that it 3artici3ates !ith)

Econo2ic and .onetar# 7nion (61.EE6% E7 )

Econo2ic "nion (61.E% E7% EE7EAE7)

6"sto2s and .onetar# 7nion (6E.A6franc% 7E.OAfranc)

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https://en.wikipedia.org/wiki/Indiahttps://en.wikipedia.org/wiki/Afghanistanhttps://en.wikipedia.org/wiki/Mauritiushttps://en.wikipedia.org/wiki/Nepalhttps://en.wikipedia.org/wiki/Chilehttps://en.wikipedia.org/wiki/MERCOSURhttps://en.wikipedia.org/wiki/ASEANhttps://en.wikipedia.org/wiki/PR_Chinahttps://en.wikipedia.org/wiki/Laoshttps://en.wikipedia.org/wiki/Thailandhttps://en.wikipedia.org/wiki/Economic_integrationhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Unionhttps://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttps://en.wikipedia.org/wiki/Eastern_Caribbean_Currency_Unionhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttps://en.wikipedia.org/wiki/Eurozonehttps://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttps://en.wikipedia.org/wiki/Single_market_of_the_European_Unionhttps://en.wikipedia.org/wiki/Eurasian_Economic_Unionhttps://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Community_of_Central_Africahttps://en.wikipedia.org/wiki/Central_African_CFA_franchttps://en.wikipedia.org/wiki/West_African_Economic_and_Monetary_Unionhttps://en.wikipedia.org/wiki/West_African_CFA_franchttps://en.wikipedia.org/wiki/Indiahttps://en.wikipedia.org/wiki/Afghanistanhttps://en.wikipedia.org/wiki/Mauritiushttps://en.wikipedia.org/wiki/Nepalhttps://en.wikipedia.org/wiki/Chilehttps://en.wikipedia.org/wiki/MERCOSURhttps://en.wikipedia.org/wiki/ASEANhttps://en.wikipedia.org/wiki/PR_Chinahttps://en.wikipedia.org/wiki/Laoshttps://en.wikipedia.org/wiki/Thailandhttps://en.wikipedia.org/wiki/Economic_integrationhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Unionhttps://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttps://en.wikipedia.org/wiki/Eastern_Caribbean_Currency_Unionhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttps://en.wikipedia.org/wiki/Eurozonehttps://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttps://en.wikipedia.org/wiki/Single_market_of_the_European_Unionhttps://en.wikipedia.org/wiki/Eurasian_Economic_Unionhttps://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttps://en.wikipedia.org/wiki/Economic_and_Monetary_Community_of_Central_Africahttps://en.wikipedia.org/wiki/Central_African_CFA_franchttps://en.wikipedia.org/wiki/West_African_Economic_and_Monetary_Unionhttps://en.wikipedia.org/wiki/West_African_CFA_franc


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6o22on 2ar5et (EEA% E0TA% 6E1)

6"sto2s "nion (6AN% 67-8R % EA6% E767% .ER6O17R % 1A67)

."ltilateral 0ree TradeArea (A0TA%6E0TA% 6I10TA% 6O.E1A% /A0TA% /66% NA0TA% 1A0TA% 1I6A

) v t e

1., REGIONALI'M A' A 'TEPPING 'TONE OR 'TUM+LING +LOCK

1.,.1 Re-*o"a)*sm as a ste!!*"- sto"e or tra#e

The t!o 2aor schools of tho"ght in the classical deate of ste33ing stones vers"s

st"2ling loc5s are Larr# 1"22erCs 1chool>of>tho"ght arg"ing that

discri2inator# lieralisation is trade lierating% and the

of>tho"ght s"33orting the vie! that discri2inator# lieralisation is trade

discri2ination (!e !ill ret"rn to this later)% (-ald!in% &''G), Research s"33orting

Larr# 1"22erCs arg"2ent has een cond"cted gloall# and strongl# s"33orts the

school of tho"ght, 8rishna (&'' cited in 0re"nd and Ornelas% &'+' +&) cond"cted

a research # calc"lating econo2ic gain !ith the traditional gravit# 2odel

(a33endix ) "sing &G h#3othetical 7nited 1tates ilateral trade agree2ents%

sho!ing that *'J of the agree2ents !o"ld have een !elfare enhancing, -ilateral

trade agree2ents are also eneficial for trade 3arties in need of instant

gratification% Heriert DieterCs (&'' F) research 3a3er concl"ded that ilateral

agree2ents 3rovide i22ediate reci3rocal gains for a co"ntr#Cs econo2#% and can

e a "sef"l 3olitical tool, 6aroline 0re"nd and E2an"el Ornelas (&'+') research

3a3er on RTAs is one of the 2ost recognised recent research 3a3ers arg"ing the

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https://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/European_Economic_Areahttps://en.wikipedia.org/wiki/European_Free_Trade_Associationhttps://en.wikipedia.org/wiki/Common_Economic_Space_(CIS)https://en.wikipedia.org/wiki/Customs_unionhttps://en.wikipedia.org/wiki/Andean_Communityhttps://en.wikipedia.org/wiki/Customs_Union_of_Belarus,_Kazakhstan_and_Russiahttps://en.wikipedia.org/wiki/East_African_Communityhttps://en.wikipedia.org/wiki/European_Union_Customs_Unionhttps://en.wikipedia.org/wiki/Southern_Common_Markethttps://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttps://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttps://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttps://en.wikipedia.org/wiki/ASEAN_Free_Trade_Areahttps://en.wikipedia.org/wiki/Central_European_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/CISFTAhttps://en.wikipedia.org/wiki/Common_Market_for_Eastern_and_Southern_Africahttps://en.wikipedia.org/wiki/Greater_Arab_Free_Trade_Areahttps://en.wikipedia.org/wiki/Gulf_Cooperation_Councilhttps://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/South_Asia_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/Central_American_Integration_Systemhttps://en.wikipedia.org/wiki/Template:World_economic_integrationhttps://en.wikipedia.org/wiki/Template_talk:World_economic_integrationhttps://en.wikipedia.org/w/index.php?title=Template:World_economic_integration&action=edithttps://en.wikipedia.org/wiki/Common_markethttps://en.wikipedia.org/wiki/European_Economic_Areahttps://en.wikipedia.org/wiki/European_Free_Trade_Associationhttps://en.wikipedia.org/wiki/Common_Economic_Space_(CIS)https://en.wikipedia.org/wiki/Customs_unionhttps://en.wikipedia.org/wiki/Andean_Communityhttps://en.wikipedia.org/wiki/Customs_Union_of_Belarus,_Kazakhstan_and_Russiahttps://en.wikipedia.org/wiki/East_African_Communityhttps://en.wikipedia.org/wiki/European_Union_Customs_Unionhttps://en.wikipedia.org/wiki/Southern_Common_Markethttps://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttps://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttps://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttps://en.wikipedia.org/wiki/ASEAN_Free_Trade_Areahttps://en.wikipedia.org/wiki/Central_European_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/CISFTAhttps://en.wikipedia.org/wiki/Common_Market_for_Eastern_and_Southern_Africahttps://en.wikipedia.org/wiki/Greater_Arab_Free_Trade_Areahttps://en.wikipedia.org/wiki/Gulf_Cooperation_Councilhttps://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/South_Asia_Free_Trade_Agreementhttps://en.wikipedia.org/wiki/Central_American_Integration_Systemhttps://en.wikipedia.org/wiki/Template:World_economic_integrationhttps://en.wikipedia.org/wiki/Template_talk:World_economic_integrationhttps://en.wikipedia.org/w/index.php?title=Template:World_economic_integration&action=edit


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MCOM PART 1


enefits of ilateral trade agree2ents, Trade agree2ents et!een Bnat"ral trade

3artnersC res"lt in 2ini2al trade diversion and is largel# trade creating, Nat"ral

3artners are co"ntries that alread# cond"ct a large a2o"nt of trade et!een each

other (8r"g2an% ++), 7sing a 2odel sho!ing nat"ral trade 3artners s3read over

several continents% 8r"g2an (++) concl"des that ilateral trade agree2ents

et!een nat"ral trade 3artners enhances trade eca"se the “gains fro2 freeing

intraregional trade are larger and the costs of red"cing interregional trade + are

s2aller$ (8r"g2an ++ cited in 0re"nd and Ornelas% &'+' +&), 0re"nd and

Ornelas (&'+') also recognise the enefits of ilateral trade agree2ents to!ards a

2"ltilateral fra2e!or5, Regional and ilateral trade agree2ents allo! co"ntries to

negotiate on r"les and 3roced"res that the 2"ltilateral fra2e!or5 cannot cond"ct

d"e to 3receding co23licated trade r"les (4TO% &'++), The st"d# # 0re"nd and

Ornelas (&'+') f"rther s"33orts the 4TO vie! of ilateral agree2ents s"33orting

a 2"ltilateral fra2e!or5 # concl"ding that discri2ination% if 3resent% can

enco"rage o"tside co"ntries to oin a 2"ltilateral fra2e!or5 in order to 2ini2ise

or eli2inate the cost of discri2ination, The research also sho!s that a ilateral

trade agree2ent can e the eginning of dee3er integration% incl"ding services%

2igration and invest2ent, 0inall#% a st"d# # -aier and -ergstrand (&''G cited in

0re"nd and Ornelas% &'+' +) carried o"t to research !hich co"ntr# 3airs !o"ld

2ost li5el# gain fro2 for2ing RTAs "sing the general gravit# 2odel (a33endix G)

also concl"ded that for2ing RTAs is the first ste3 to!ards dee3er integration !hich

is trade creating for co"ntries, The# !ere the first to e23iricall# sho! “the i23act

of co"ntr#> 3airCs econo2ic characteristics on the li5elihood of the 3air having an

0TA$ (-aier et al,% &'++ +), The research sho!ed that co"ntries that are

geogra3hicall# close to each other and es3eciall# if the# are re2ote fro2 the rest of

the !orld are 2ore li5el# to gain fro2 an RTA, Also the larger the /D? of a

co"ntr# and the difference in the si=e of the /D? et!een trade 3artners% 3erfor2

11


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as a s"ccess factor, Econo2ic si2ilarities see2 to e 5e# as3ects% -aier and

-ergstrand (&''F &G) concl"de that a larger difference et!een the relative factor

endo!2ent and the larger the difference in asol"te ca3ital and lao"r costs

co23ared to the rest of the !orld are% the 2ore li5el# it is that the for2ation of an

RTA is trade creating,

1.,.2 Re-*o"a)*sm as a st(m)*"- )o/0 or tra#e

The 3o3"lar 3erce3tion of trading locs is one of discri2inator# regional

organi=ations !hose 3rinci3al role is to advance the co22on econo2ic agenda of

2e2er co"ntries # 3rotecting do2estic 2ar5ets fro2 foreign co23etition

(-hag!ati +'), In this sense% trading locs are regarded as a direct threat to

2"ltilateralis2 and to the goal of free trade estalished at -retton 4oods,

According to this inter3retation% the international fra2e!or5 e2odied # the

/ATT4TO% International .onetar# 0"nd (I.0)% and the 4orld -an5 has een% or

is in the 3rocess of eing% re3laced # a 2ore li2ited goal of 3artial trade

lierali=ation centred "3on regionalis2, Accordingl#% the decline of co22it2ent to

2"ltilateralis2 2a# lead to a rea5>"3 of the gloal trading s#ste2 and 3ro2ote

3rotectionist trading locs !hose co23eting geo>econo2ics oectives co"ld lead

to an international crisis, The 3rinci3al trading locs>NA0TA (3erha3s extended to

Latin A2erica)% the E7 (incl"ding East>6entral E"ro3e)% and the e2erging Asian

loc centring on !ill eco2e the triad of do2inant

actors in f"t"re conflicts% !hile the rest of the !orld !ill eco2e increasingl#

isolated, As a 3ro2inent econo2ist noted% Pgiven the inevitale trade frictions that

!ill arise et!een large regional trading locs>!ith those left o"tside% s"ch as the

12


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14/42

MCOM PART 1


loc tensions, .exico:s financial crisis%


15/42

MCOM PART 1


t!elve) NA0TA and Association of 1o"th>East Asian Nations (A1EAN) 3l"s

Hong 8ong%

E7 trade alone acco"nted for &G 3ercent of all s"ch trade, Inter>regional trade is

;"ite 2odest # co23arison% re3resenting "st +' 3ercent of the !orld:s

2erchandise i23orts and ex3orts, Nearl# F' 3ercent of all !orld trade occ"rs

!ithin or et!een the three 2aor regional nodes (re3resenting onl# t!ent#>five

co"ntries), 4hen trade et!een this triad of regional locs and third co"ntries are

ta5en into acco"nt (a2o"nting to + 3ercent)% region> alis2:s do2inant role

eco2es clear, This e23irical evidence th"s 2a5es a strong 3ri2a facie case for

regionalis2 as one of the 2ost infl"ential factors deter2ining !orld>trade flo!s,

To !hat extent these regional flo!s re3resent a f"nda2ental restr"ct"ring of the

!orld econo2#

4e !ill arg"e that the ongoing conflict et!een regionalis2 and 2"ltilateralis2

re3resents co23eting organi=ing 3rinci3les of econo2ic integration and trade

!hich are at the ver# heart of the econo2ic and social transfor2ation of

conte23orar# ind"strial societ# and international relations, The res"lts of

co23etition et!een these t!o 3rinci3les of geo>econo2ic relations 3ro2ise to

have 3ro> fo"nd and far>reaching conse;"ences for the on> going gloali=ation of

the !orld econo2# and the transfor2ation of local 3rod"ction districts, The central

;"estion% again% has to do !ith the conse;"ences of regionalis2 for gloal free

trade, 7nfort"natel#% there are no straightfor!ard ans!ers for a ;"estion that is one

of the oldest and 2ost contentio"s iss"es in econo2ics and regional science,

1trictl# s3ea5ing% the ongoing deate ao"t the 2erits of regionalis2 and trading

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MCOM PART 1


locs is inconcl"sive, According to 2an# critics% 2"ltilateralis2 and the 4TO are

virt"all# s#non#2o"s, The 3rinci3al ai2 of the 4TO (and the /ATT efore it) is

to 3ro2ote a non>discri2inator# o3en 2ar5et in !hich onl# 3rices and tariffs

deter2ine international co23arative advantage a2ong sovereign nation states,

Thro"gh a 3rocess of 2"ltilateral negotiations involving as 2an# consenting

co"ntries as 3ossile% i23edi2ents to the free 2ove2ent of the factors of

3rod"ction are grad"all# re2oved, 4hile the 4TO can e vie!ed as a trading loc

itself% the large n"2er of 2e2er co"ntries elonging to the 4TO 2a5es this

loc ;"alitativel# different fro2 all other for2s of regionalis2, Nevertheless% since

not all co"ntries are 2e2ers% the 4TO% at least theoreticall#% is the largest and

2ost o3en trading loc of all (0ig"re &), The goal of free trade enshrined in the

4TO !ill lead to the o3ti2al "tili=ation of the factors of 3rod"ction in !a#s that

reflect variations in co23arative advantage, 1"ch an o3ti2al allocation !ill

"lti2atel# lead to an increase in collective !elfare of all 3artici3ants, The 4TO is

itself a trading loc !ith the goal of facilitating a gloal free>trading s#ste2% first%

# ens"ring that 2ost trade i23edi2ents are tariff> ased and therefore

Ptrans3arentP and% second% # the grad"al red"ction and re2oval of these tariffs,

The 3ri2ar# Pcoercive !ea3onP of the 4TO is the non>discri2ination 3rinci3le

s"33orted # .0N and national>treat2ent reg"lations, If non>discri2ination is the

core reg"lating 3rinci3le "nder3inning the /ATT 4TO and 2"ltilateralis2% the

latter:s 3er2ission of trading locs and regionalis2 "nder this s#ste2 of

international reg"lation is 3aradoxical eca"se regionalis2 e3ito2i=es the ver#

o33osite of non> discri2ination,

Not !ith standing /ATT Article QQI:s allo!ance for trading locs% the overall

level of tariffs has een lo!ered significantl# since the ince3tion of the /ATT, This

16


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MCOM PART 1


fact enales s"33orters of trading locs to arg"e that regionalis2% if 3ro3erl#

2anaged and s"3ervised% can foster the 3rocess of 2"ltilateral trade lierali=ation,

The 3ertinent ;"estion% therefore% is the extent to !hich regionalis2 3ro2otes or

erodes trade lierali=ation, Neoclassical econo2ists clearl# regard trading locs as

a Psecond>estP alternative to 2"ltilateral free trade (-hag!ati +**), Their

arg"2ents derive% # and large% fro2 the vie!s of a 6anadian econo2ist over% regional trade arrange2ents can serve as ste33ing stones for

17


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MCOM PART 1


"ilding 3olitical s"33ort and strengthening the !ill for negotiating freer trade

!orld!ide (La!rence ++ 1"22ers ++ 8r"g2an +), In s"2% classical

econo2ic anal#ses as !ell as “ne! trade theor#$ are a2ig"o"s ao"t the o"t>

co2e of regionalis2, 7nder certain favo"rale 3olitical conditions% s"ch as an

"n!avering co22it2ent to the .0N 3rinci3le (even "nder Article QQI of the

/ATT4TO)% trading locs can contri"te to the goal of gloal free trade, All the

sa2e% the# re3resent a second>est scenario !hich% given "nfavo"rale 3olitical

circ"2stances% is 3rone to co23licate the 2"ltilateral ideal, 6learl#% classical

anal#sis of the iss"e of regional integration re;"ires elaoration,

The 3ossiilit# of regionalis2 3roal# increases the ris5s of

catastro3he in the trading s#ste2, The ins"rance incentives for oining regional

arrange2ents and the existence of shiftale externalities oth lead to s"ch a

concl"sion, 1o too does the vie! that regionalis2 is a 2eans to ring trade 3artners

to the 2"ltilateral negotiating tale eca"se it is essentiall# coercive, 7singregionalis2 for this 3"r3ose 2a# have een an effective strateg#% "t it is also

ris5#,Regional trade agree2ents (RTAs) have 3roliferated aro"nd the !orld in the

3ast decade, 1o2e &'' RTAs c"rrentl# in force have een notified to the 4orld

Trade Organi=ation (4TO) and the n"2er !ill contin"e to rise given the 2an#

RTAs eing 3ro3osed and negotiated, It is esti2ated that% if one ta5es into acco"nt

RTAs !hich are in force "t have not een notified% signed "t not #et in force%

c"rrentl# eing negotiated% and in the 3ro3osal stage% close to G'' RTAs are

sched"led to e i23le2ented # &'+' (0iorentino% erdea and To;"eoe"f% &''),

irt"all# all co"ntries are 2e2er of at least one RTA% !ith 2ost co"ntries

elonging to t!o or 2ore RTAs at once, The geogra3hic reach of RTAs has also

18


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MCOM PART 1


changed over ti2e% 2a5ing BregionalC so2e!hat of a 2isno2er, 4hile 2ost RTAs

are still for2ed a2ong co"ntries inhaiting the sa2e region or continent% the#

increasingl# involve 2e2ers that are not i22ediate neigho"rs and create

3artnershi3s s3anning oceans, Trans>Atlantic and trans>?acific RTAs are gaining in

n"2er thro"gh s"ch agree2ents as the E"ro3ean 7nion (E7)M.exico Econo2ic

?artnershi3 Agree2ent% the E0TAM6hile free trade agree2ent (0TA) and the

recentl# signed 8oreaM71 0TA, The econo2ic i23ortance of regional

trade agree2ents has contin"ed to gro!, .ore than half of gloal 2erchandise

trade flo!s a2ong co"ntries connected # a co22on RTA, -"t RTAs are toda#

increasingl# i23ortant in areas other than 2erchandise trade, Indeed% the

architect"re of RTAs has eco2e oth 2ore co23rehensive and 2ore co23lex,

-esides trade in goods% 2an# RTAs no! reg"late s"ch s"ects as trade in services%

invest2ents% standards% intellect"al 3ro3ert# The od# of r"les governing

international trade has een extended to 2atters traditionall# considered to e

!ithin the real2 of do2estic reg"lations (Behind>theorderC 2eas"res), These

develo32ents s"ggest that RTAs have eco2e a 2aor and strategic 3art of

co22ercial 3olic# for 2an# co"ntries, -"t RTAs also 3ose i23ortant challenges

for the 2"ltilateral trading s#ste2, Indeed% the gro!ing i23ortance of RTAs has

directed attention to the 3otential conflicts as !ell as co23le2entarities et!een

the r"les that are ado3ted in RTAs (BregionalC r"les) and the 2"ltilateral r"les

estalished in s"ch agree2ents as the /eneral Agree2ent on Tariffs and Trade(/ATT) of +G% the /eneral Agree2ent on Trade in 1ervices (/AT1) and other

4TO Agree2ents (BgloalC r"les), 4hile the /ATT had in the 3ast cond"cted

exa2inations of RTAs% scr"tin# 2a# no! eco2e 2ore exacting, The 2"ltilateral

Doha trade ro"nd la"nched in &''+ incl"ded a negotiating 2andate ai2ed at

19


20/42

MCOM PART 1


clarif#ing and i23roving disci3lines and 3roced"res "nder the existing 4TO

3rovisions a33l#ing to RTAs M /ATT Article QQI% the Enaling 6la"se% and

/AT1 Article , These negotiations have res"lted in a ne! trans3arenc#

2echanis2 that !as ado3ted # the 4TOCs /eneral 6o"ncil in Dece2er &'',

The trans3arenc# 2echanis2 oliges .e2ers to notif# the 4TO of an# RTA that

.e2ers enter into and to 3rovide infor2ation ao"t the agree2ent, The

2echanis2 also 2andates the 4TO 1ecretariat to 3re3are a re3ort on notified

RTAs, 4hile this re3ort on the RTA has to e Bfact"alC and refrain fro2 an# Bval"e

"dg2entC% the increased level of scr"tin# can alert the rest of the 4TO

2e2ershi3 to so2e of the r"les and 3ractices in RTAs that adversel# affect non>

RTA 2e2ers, This 2a# ind"ce co"ntries to ado3t RTA r"les that co23le2ent

rather than conflict !ith existing 4TO agree2ents, The gro!ing 3olic# attention

3aid to RTAs finds a 3arallel in the deate in the econo2ic literat"re on !hether

RTAs are B"ilding locsC or Bst"2ling locsC to 2"ltilateral trade lierali=ation,+

These conce3ts refer to the nat"re of the d#na2ics or ti2e 3aths that RTA

for2ation can generate (-hag!ati and ?anagari#a% +), RTAs are "ilding locs

if the# accelerate 2"ltilateral trade negotiations or 3rogressivel# enlarge their

2e2ershi3 so that the# lead to gloal free trade, RTAs are st"2ling locs if the#

ha23er the attain2ent of gloal trade lierali=ation, + -hag!ati (++) first coined

the ter2s B"ilding locC and Bst"2ling locC, & antoni estevadeordal% 5ati

s"o2inen% roert teh The st"2ling loc ca23 arg"es that RTAs "nder2ineco"ntriesC incentives to "nderta5e f"rther 2"ltilateral lierali=ation eca"se

2e2ers are "n!illing to dil"te the 3referential access the# have to the 2ar5ets of

RTA 3artners, Another arg"2ent is that RTAs can create inco23atile reg"lator#

str"ct"res and standards !hich loc5 in the 2e2ersC 3olicies% and increase the

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MCOM PART 1


ad"st2ent costs associated !ith 2"ltilateral lierali=ation% th"s 2a5ing it less

attractive, The i23ortance of non>econo2ic 2otives or interests can 2a5e RTAs a

st"2ling loc to gloal free trade (Li2aSo% &''), RTAs can e val"ale to a large

co"ntr# eca"se the 3referential access to its 2ar5et allo!s it to extract co>

o3eration in nontrade 2atters fro2 s2aller 3artners, ."ltilateral tariff red"ctions

red"ce the val"e of 3referential access to the large 2ar5et and th"s the s"r3l"s that

can e extracted fro2 3otential RTA 3artners, ario"s 3olitical>econo2# 2odels

have so"ght to sho! that the estalish2ent of an RTA !ea5ens the 2otivation of

the 2e2ers for reci3rocal lierali=ation !ith non>2e2ers, In Lev# (+)% if an

RTA 3rod"ces dis3ro3ortionatel# large gains and relativel# s2all losses to the

2edian voter so that his "tilit# is raised aove !hat co"ld e achieved !ith a

2"ltilateral deal% 2"ltilateral lierali=ation !ill no longer e viale, 8rishna

(+*) arg"es that trade>diverting RTAs generate large rents tied to the 3references

granted # the agree2ent for 3rod"cers, ."ltilateral trade lierali=ation threatens

those rents, If govern2ents are s!a#ed 2ore # 3rod"cer interests% then

2"ltilateral lierali=ation !ill not e 3"rs"ed, .oreover% the attention that

govern2ents invest in RTA negotiations dra!s a!a# scarce 3olitical and h"2an

reso"rces fro2 2"ltilateral negotiations, There are strong arg"2ents for the

"ilding loc stor# as !ell, -ald!in (+F) has 3ro3osed a do2ino theor# of

regionalis2 !here the estalish2ent of an RTA increases the val"e for non>

2e2ers of oining the agree2ent,& The creation of a 3referential regionalarrange2ent !ill red"ce the 3rofits of the fir2s ex3orting to the region "t !ho are

located in a non>2e2er co"ntr#, The# !ill have a reason to lo# their

govern2ent to oin the loc, If the regional loc enlarges as a conse;"ence% the

val"e of 2e2ershi3 for o"tsiders increases since the# face a cost disadvantage in

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MCOM PART 1


an even greater n"2er of 2ar5ets, This leads to a sno!alling of co"ntries !hich

!ant to oin so that the RTA 3rogressivel# enlarges its 2e2ershi3 "ntil gloal free

trade is reached, Another "ilding>loc & Ho!ever% the do2ino theor# does not

ex3lain !hat incentives existing 2e2ers have to acce3t ne! 2e2ers,

introd"ction arg"2ent is that 3referential trade lierali=ation !ill hel3 enlarge the

ex3orting sectors and di2inish the i23ort>co23eting sectors in RTA 2e2ers,

Th"s a co"ntr# !hich enters into an RTA !ill ex3and the econo2ic and 3olitical

strength of its 3ro>lierali=ation constit"enc# (B"ggerna"tC effect)% 2a5ing it

3ossile for its govern2ent to c"t a 2"ltilateral deal (-ald!in% &''F), There are

also those !ho see RTAs as a ste33ing stone to!ards a gloal free trade 3olic#

(Ethier% +*), RTAs 2a# hel3 a govern2ent intent on carr#ing o"t econo2ic

refor2s to 2oili=e do2estic forces in s"33ort of o3ening "3 to the !ider !orld,

-# initiall# entering into a 3referential trade arrange2ent% the refor2ing co"ntr#

!o"ld e ale to ca3t"re econo2ic enefits% for exa23le thro"gh 0DI inflo!s fro2

its RTA 3artners that tilt the 3olitical alance !ithin the co"ntr# in favo"r of

econo2ic refor2 and 2"ltilateral lierali=ation, A 2ore recent vein of research has

arg"ed that% as 2ore RTAs are estalished% the cost to 3rod"cers of overla33ing

r"les !o"ld lead the2 to 3ress"re govern2ents to har2oni=e or B2"ltilaterali=eC

these r"les (-ald!in% &''), As ilateral and regional trade agree2ents 3roliferate%

a Bs3aghetti o!lC of r"les of origin !ill e2erge, This% in t"rn% !ill r"n against the

increasing frag2entation of 3rod"ction as fir2s find it 2ore cost>efficient to locatethe 2an"fact"ring of 3arts and co23onents in different co"ntries, The re;"ire2ent

to co23l# !ith different r"les of origin !ill then raise fir2sC 3rod"ction costs,

?aradoxicall#% RTA s3aghetti o!ls can eco2e "ilding locs to 2"ltilateralis2

as offshoring eco2es a force for the 2"ltilaterali=ation of existing regional r"les,

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MCOM PART 1


Indeed% there are nascent efforts # so2e gro"3s of co"ntries in Asia as !ell as the

A2ericas to exa2ine !a#s to connect their co22on RTAs into roader trade areas

so as to red"ce the co23lexit# of r"les facing econo2ic actors in the RTAs and to

facilitate 2ore trade and invest2ent, To e s"re% the 2"ltilaterali=ation of regional

r"les 2a# for 2an# still see2 to e a long>ter2 as3iration, -"t !hat is clear toda#

is that% given that nearl# all 4TO .e2ers are RTA 2e2ers and vice versa%

4TO .e2ers sho"ld have an interest in red"cing conflicts et!een regional and

2"ltilateral r"les and in ens"ring co23atiilities et!een the2, Yet% des3ite the

gro!ing acade2ic and 3olic# attention to regionalis2% the anato2# of RTAs

re2ains 3oorl# "nderstood, irt"all# all of the existing 2a33ings that have een

"nderta5en on RTAs foc"s on a single RTA disci3line M r"les of origin, The lac5

of a co23arative loo5 at A 3artial list of the literat"re incl"des Estevadeordal

(&''')% 1"o2inen (&''G)% Estevadeordal and 1"o2inen (&''F) and 6adot et al,

(&''), G antoni estevadeordal% 5ati s"o2inen% roert teh other RTA r"les severel#

li2its o"r "nderstanding of the effects of RTAs and 3rovides little fo"ndation for

reco22ending 2eas"res to f"rther co23atiilities et!een regional and gloal

r"les, 4e therefore ta5e "3 Richard -ald!inCs reco22endation in this vol"2e to

2ove the econo2ic 3rofessionCs disc"ssion fro2 high theor# to one !hich is 2ore

e23iricall# gro"nded and 3olic#>relevant,

1. REGIONALI'M ER'U' MULTILATERALI'M

In the light of the aove one s"s3ects therefore that the 1econd Regionalis2 !ill

end"re it sho!s 2an# signs of strength and fe! 3oints of v"lnerailit#, -"t% if so%

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MCOM PART 1


those of "s !ho see virt"e in a r"le>ased% o3en and 2"ltilateral trading s#ste2

2"st as5 searching ;"estions as to its co23atiilit# !ith s"ch discri2inator#

trading arrange2ents, In 3artic"lar% t!o 2aor ;"estions 2"st e ans!ered , Is the

i22ediate i23act>effect of s"ch 3referential trade locs% !hether 67s or 0TAs% to

red"ce rather than increase !orld !elfare9 Regardless of the i22ediate i23act>

effect% !ill regionalis2 lead to nondiscri2inator# 2"ltilateral free trade for all%

thro"gh contin"ed ex3ansion of the regional locs "ntil "niversal free trade is

reached% or !ill it frag2ent the !orld econo2#9 And !ill% in an# event% s"ch a

d#na2ic ti2e>3ath sho! that regionalis2 !ill get "s closer to the goal of

2"ltilateral free trade for all than 2"ltilateralis2 as the 3rocess of trade

negotiation !ill9 I shall no! treat each of these t!o i23ortant% and distinct (if at

ti2es anal#ticall# interrelated)% ;"estions in t"rn,

Is Re-*o"a)*sm (*/0er

The regionalists clai2 that the /ATT is the /eneral Agree2ent to Tal5 and Tal5%

!hereas regionalis2 3roceeds ;"ic5er, -"t is this reall# so9 +% Historicall#% at least%

the 0irst Regionalis2 failed !hereas the /ATT oversa! the effective dis2antling

of 3re!ar tariffs in the OE6D co"ntries and the enlarge2ent of disci3lines over

NT-s at the To5#o Ro"nd and e#ond, A little ca"tion% to sa# the least% is

necessar# efore celerating regionalis2Cs ;"ic5footedness, &, 0or those !ho

elieve that regionalis2 offers a ;"ic5 ro"te to effective trade lieralisation%

8enneth Da2Cs anal#sis ;"oted aove needs rene!ed attention, There is a !orld of

difference et!een anno"ncing an 0TA or a 67 and its i23le2entation and the

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MCOM PART 1


co23arison is not 3leasing if #o" are in the regional ca23, , As for s3eed% even

the est exa23le of regionalis2% the E6% started al2ost fo"r decades ago (+F)

and is no! into +&, The BtransitionC has not therefore een instantaneo"s an#

2ore than negotiated red"ctions of trade arriers "nder the /ATT Ro"nds, And

this too% des3ite this enor2o"s 3olitical s"33ort for a "nited E"ro3e, G, Ta5e

agric"lt"re, The record of regional trade locs dealing !ith agric"lt"ral trade

lieralisation is either nonexistent or dis2al, The 6A? is not exactl# the E6Cs

cro!ning achieve2ent, In fact% if it !ere not for 2"ltilateralis2 (i,e the 7r"g"a#

Ro"nd and the coalition of 6airns /ro"3 that cr#stallised aro"nd the .TN)% it is

diffic"lt to i2agine that the 3rocess of "nravelling the 6A? co"ld even have eg"n,

F, The (act"al or 3otential) exercise of the regional o3tion can also affect

the efficac# of the 2"ltilateral one, The "n!illingness of the E6 to start the .TN

in +*& and its largel# reactive% rather than leadershi3% role at the 7r"g"a# Ro"nd%

are in so2e degree a reflection of its eing less h"ngr# for 2"ltilateralis2 given its

internal 2ar5et si=e and 3reocc"3ations, Then again% is it not evident that% !ere it

not for the E6% the ca3acit# of the 0rench (for !hose 3olitical 3redica2ent one can

onl# have s#23ath#% 2"ch as one de3lores its conse;"ence for the !illingness to

lieralise agric"lt"re) to slo! do!n the refor2 of the 6A? and the lieralisation of

!orld agric"lt"re !o"ld have een significantl# less9 , .oreover% if regionalis2

is availale as a realistic o3tion% it !ill enco"rage exit rather than the see5ing of

voice and even the 2anifestation of lo#alt# to 2"ltilateralis2, This 2a# ha33en at

the level of the "rea"crats !ho !ind "3 3referring s2all>gro"3 negotiations

a2ong friends (code 3hrase Bli5e>2inded 3eo3leC) to the intellect"all# and

3oliticall# 2ore de2anding "siness of negotiating !ith and for the larger

co22"nit# of trading nations, Else it 2a# ha33en that% "st as 3"lic choice theor#

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n"2er of /ATT 2e2ers increases steadil#, Yet% recent theoretical !or5 on

/ATT>st#le trade negotiations (L"de2a% +') s"ggests that the free rider 3role2

2a# not e an effective arrier to freeing trade, .oreover% as 0inger (+*&) has

3ointed o"t% and as ex3erience of inade;"ate /1? concessions "nderlines%

develo3ing co"ntries have not een ale to free ride as 2"ch as their exe23tion

fro2 reci3rocit# "nder 1D treat2ent !o"ld i23l# the trade concessions on

co22odities of interest to the2 have not gone as far as the concessions on

co22odities of interest to other /ATT 2e2ers !itho"t s"ch an exe23tion,

(7nconditional) .0N does not !or5 in 3ractice as !ell as it sho"ld fro2 the free>

ridersC 3ers3ectiveU

. Is Re-*o"a)*sm More E*/*e"t9

Occasionall#% one finds the regionalists arg"ing that regionalis2 is also 2ore

efficient it 3rod"ces etter res"lts, A t#3ical arg"2ent is that% as 3art of the

NA0TA negotiations% .exico has acce3ted virt"all# all the 71 de2ands on

intellect"al 3ro3ert# (I?) 3rotection, A f"nn# stor#% told in develo3ing co"ntr#

circles% serves to 3roe this assertion criticall# A2assador 6arla Hills !as on a

to"r of 1o"th A2erica% extolling the virt"es of .exicoCs Bca3it"lation,C At a dinner

in her hono"r in 6aracas% she a33arentl# clai2ed B.exico no! has !orld>class I?

legislation,C At this 3oint% ?resident 6arlos ?eret= s"33osedl# t"rned to his left and

re2ar5ed C-"t .exico does not have a !orld>class 3arlia2ent,C The tr"e 2oral of

the stor#% ho!ever% is that% as 3art of the ilateral ;"id 3ro ;iios in an 0TA or 67%

!ea5 states 2a# agree to s3ecific de2ands of strong states%CC in !a#s that are not

exactl# o3ti2al fro2 the vie!3oint of the econo2ic efficienc# of the !orld trading

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s#ste2, In t"rn% ho!ever% these concessions can distort the o"tco2e of the

2"ltilateral negotiations, This 2a# !ell have ha33ened !ith TRI?s and TRI.s at

the 7r"g"a# Ro"nd,+ As is no! !idel# conceded a2ong econo2ists% the case for

TRI?s for instance is not si2ilar to the case for free trade there is no 3res"23tion

of 2"t"al gain% !orld !elfare itself 2a# e red"ced # an# or 2ore I? 3rotection%

and there is little e23irical s"33ort for the vie! that Binade;"ateC I? 3rotection

i23edes the creation of ne! technical 5no!ledge significantl#,$ Yet% the "se of 71

2"scle% "nilaterall# thro"gh 13ecial '+ actions% and the 3la#ing of the regional

card thro"gh the NA0TA carrot for .exico% have 3"t TRI?s s;"arel# and

effectivel# into the .TN, Again% a distorting i23act on the 2"ltilateral trade r"les

fro2 NA0TA negotiations can e feared fro2 the fact that% as a 3rice for the latter

to e acce3ted # the 6ongress d"ring the delicate rene!al of fast>trac5 a"thorit#%

the 71 Ad2inistration had to acce3t de2ands for har2onisation in environ2ent

and lao"r standards # .exico to!ards 71 standards, This effectivel# lin5ed in

3olitical circles the case for 0ree Trade !ith the de2ands for Blevel 3la#ing fieldsC

or 0air Trade (extre2el# !idel# inter3reted)%&C legiti2ating these de2ands and

!ea5ening the ailit# of econo2ists and of govern2ents negotiating at the /ATT

(2"ltilaterall# for ar2Cs length 0ree Trade) to resist this illegiti2ate constraint on

freeing trade,

/. Is Re-*o"a)*sm More Certa*"

."ch has een 2ade% in the .exican context% of the arg"2ent that the 0TA !ill

2a5e trade lieralisation irreversile, -"t so2ething needs to e added here

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/ATT also creates co22it2ents tariffs are o"nd, (This does not a33l# to

concessions 2ade "nder conditionalit#% of co"rse% # I.0 or I-RD,) .exico is a

2e2er% if recent% of the /ATT,

Recall Da2 (;"oted aove) Article QQI is so f"ll of holes in its disci3line that

al2ost an#thing goes, Red"ctions of trade arriers can e slo!ed do!n% as

Bcirc"2stancesC re;"ire% other indings can e to2 "3 # 2"t"al consent (an easier

tas5 !hen there are onl# a fe! 2e2ers in the loc "t 2ore diffic"lt "nder the

/ATT)% etc, Recall too that regional agree2ents have failed (LA0TA) andstagnated (A1EAN) as !ell, The c"rrent 2ood in 6anada over NA0TA is so"r and

the .TN loo5s etter in conVe;"ence,VV The sense ho!ever% that the 71 has let

6anada do!n and failed to live # the s3irit of the 0TA agree2ents !ill 3roal#

not end"re, -"t !ho 5no!s

Co"/)(#*"- Remar0s

The ;"estion of regionalis2 is th"s oth a diffic"lt and delicate one, Onl# ti2e

!ill tell !hether the revival of regionalis2 since the +*'s !ill have een a

sang"ine and enign develo32ent or a 2align force that !ill serve to "nder2ine

the !idel#>shared oective of 2"ltilateral free trade for all, .# "dge2ent is that

the revival of regionalis2 is "nfort"nate, -"t% given its 3olitical a33eal and its

li5el# s3read% I elieve that it is i23ortant to contain and sha3e it in !a#s s5etched

here so that it eco2es 2axi2all# "sef"l and 2ini2all# da2aging% and consonant

!ith the oectives of arriving at 2"ltilateral free trade for all,

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CHAPTER 2 REIEW OF LITERATURE

2.1 LITERATURE REIEWED

-hag!ati (+) first ;"estioned the validit# of this assertion% 3ointing to

an earlier i23ortant contri"tion # Li3se# (+F) that had s3elt o"t the !elfare

i23rove2ent criteria in a s3ecific 2odel that differed fro2 the ones defining the

“nat"ral trading 3artners,$ 1"se;"entl#% Bhagwati and Panagariya (+) offered

a s#ste2atic criti;"e of the nat"ral trading 3artners h#3othesis, Regarding

3roxi2it# as the asis of !elfare>i23roving "nions% the# de2onstrated that ceteris

3ari"s% a "nion !ith a 3roxi2ate 3artner co"ld e 2ore har2f"l than !ith a

distant one, Regarding the vol"2e>of>trade criterion% follo!ing ?anagari#a (+)%

the# 3ointed o"t that there !as a 3res"23tion that the 2ore a s2all co"ntr#

i23orted fro2 its "nion 3artner% the 2ore it !o"ld lose fro2 lierali=ing

3referentiall#U As long as the co"ntr# contin"ed to i23ort fro2 the o"tside !orld%

the 3rice facing its cons"2ers and 3rod"cers !o"ld not change, Therefore% it

!o"ld fail to rea3 an# efficienc# enefits that accr"e via the decline in the internal

3rice !hen lierali=ation is non>discri2inator#, Instead% the co"ntr# !o"ld lose

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MCOM PART 1


tariff reven"e on good i23orted fro2 the 3artner co"ntr# !ith the lost reven"e

transferred to the latterCs ex3orters,

Bhagwati and Panagariya (+) !ent on to f"rther 3oint o"t that it is eas#

to constr"ct 2odels in !hich the initial vol"2e of trade ears no relationshi3 to the

!elfare effects of 3referential trade lierali=ation, .oreover% the large initial

vol"2e of trade 2a# itself e the res"lt of existing trade 3references, 0inall#% the#

3ointed o"t that the vol"2e>of>trade criterion !as neither s#22etric nor transitive,

-eing its largest trading 3artner% the 7,1, is a nat"ral trading 3artner of India "t

the reverse is not tr"e, Li5e!ise% the 7,1, 2a# e a nat"ral trading 3artner of oth

.exico and 6anada "t .exico and 6anada 2a# not e nat"ral trading 3artners of

each other,

It is fair to sa# that the 3o!erf"l criti;"e # Bhagwati and Panagariya

(+) has no! een !idel# acce3ted and one hears little "stification of ?TAs on

the gro"nds of the nat"ral trading 3artners h#3othesis, 4hile the si23le verifiale

criteria that !o"ld allo! "s to "dge !hether a "nion is !elfare i23roving or

!elfare !orsening re2ain ill"sive% the 8e23>4an a33roach to c"sto2s "nions%

recentl# extended to free trade areas (0TAs) # ?anagari#a and 8rishna (&''&)%

does offer a neat tric5 to get aro"nd the trade diversion 3role2 # ad"sting the

external tariff a33ro3riatel#,+

Kemp and Wan ( +) de2onstrated that if t!o or 2ore co"ntries for2 a

c"sto2s "nion setting the co22on external tariff vector s"ch that trade !ith

o"tside co"ntries re2ains 3recisel# at its 3re>c"sto2s>"nion level% the o"tco2e is

1

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MCOM PART 1


necessaril# !ea5l# !elfare s"3erior to the initial e;"iliri"2 for the "nion as a

!hole and the !orld, As I ill"strate in 2# co23rehensive s"rve# of the theor# of

?TAs (?anagari#a &''') "sing a si23le 3artial>e;"iliri"2 exa23le% free=ing the

external trade vector !o"ld t#3icall# re;"ire the "nion 2e2ers to lo!er trade

arriers on the o"tside co"ntries as !ell% !hich hel3s eli2inate trade diversion that

!o"ld other!ise res"lt, Once trade diversion is eli2inated # giving the o"tside

!orld trade o33ort"nities that are as good as those 3rior to the for2ation of the

"nion% "nion 2e2ers can i23rove their !elfare # ex3loiting trade creation

o33ort"nities a2ong the2selves, As noted aove% ?anagari#a and 8rishna

(&''&) have recentl# extended the 8e23>4an theore2 to the case of 0TAs,

!!per and Ma""e## (+F)% i23roving c"sto2s

"nions in the context of develo3ing co"ntries !anting to achieve a certain level of

ind"striali=ation, The essential idea !as that if a gro"3 of develo3ing co"ntries

!anted to achieve an exogeno"s level of ind"striali=ation Wessentiall# in the for2

of a non>econo2ic oective anal#=ed # -hag!ati and 1rinivasan (+)X% the#

co"ld do so at a lo!er cost # s3eciali=ing a2ong the2selves thro"gh a c"sto2s

"nion, Recentl#% 8rishna and -hag!ati (+) have for2all# 3roved this res"lt #

ingenio"sl# 2arr#ing the 8e23>4an a33roach !ith the theor# of non>econo2ic

oectives,

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MCOM PART 1


econo2# is i23acted d"e to exogeno"s changes in the ter2s of trade and o"tside

tariffs in the 3resence of foreign>o!ned factors% has i22ediate a33licailit# to the

anal#sis of the !elfare i23act on 2e2ers of a 6o22on .ar5et s"ch as the

E"ro3ean 7nion, The anal#sis easil# lends itself to ;"estions s"ch as the !elfare

effects of exogeno"s changes in external E7 tariff on individ"al 2e2er co"ntrie,

CHAPTER 3 DI'CU''ION AND ANAL4'I'

A 4ealth of research and literat"re is fo"nd on the to3ic ho!ever% a

consistent the2e is the lac5 of “consistenc# in the 2ethodologies and intellect"al

ases of the research or in its concl"sions$ (1chiff and 4inters% &'' +&), It is

ovio"s that there is al2ost as 2an# theories and concl"sions in the research of

regionalis2 and trade agree2ents as there are researchers% therefore it is al!a#s

i23ortant to a33reciate all 3oints of vie! !hile reading thro"gh the literat"re,

Altho"gh the foc"s is in a f"t"re !ith little or no arriers to trade% and even tho"gh

ver# little has een achieved on a 2"ltilateral scale% “Regionalis2 2"st e vie!ed

in the context of a gloal trading s#ste2 that has delivered great enefits to the!orld over the 3ast F' #ears$ (1chiff and 4inters% &'' +&)

3.1. M()t*)atera)*sm

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MCOM PART 1


The creation of the 4TO in +F has een the largest ste3 to!ards 2"ltilateralis2

since the +G's, It reg"lates international trade thro"gh a 2"ltilateral trade agenda

and a set of r"les and agree2ents that all +FG 2e2ers 2"st aide #, Altho"gh

reg"lation of international trade egan alread# in +G* !ith the signing of /ATT% it

has een generall# agreed that altho"gh taxes !ere decreased% /ATT failed d"e to

the level of a"thorit# an agree2ent !itho"t legal oligations co"ld achieve, 4TO

aggressivel# 3ro2otes trade lieralisation eca"se statistics have 3roved a

correlation et!een o3en trade and econo2ic gro!th, Also% as co23etition

increases !ith trade o3enness% it is 3ossile for develo3ing nations to gain

co23arative advantage and therefore increase the nationCs !elfare, 4TO also

recognises the negative i23act 3rotectionist 2ethods generate and agrees !ith

2"ch of the literat"re on the trade diverting effects of regionalis2, The fail"re

of the Doha ro"nds !hich egan in &''+ is an on>going 3role2atic iss"e for the

4TO, The foc"s of the negotiations is trade lieralisations achieved "nder a single

"nderta5ing% ho!ever as 2an# scholars have noted% it is li5el# to e i23ossile to

have +FG 2e2er states agreeing on all 3oints in the single "nderta5ing es3eciall#

considering the differences in oth the develo32ent stage of a co"ntr# and the

reso"rces of the nation,

3.2. Re-*o"a)*sm

Regionalis2 has attracted st"dies for 2an# decades and not least for the historical

3atterns that can e detected, Large econo2ic fl"ct"ations and changes see2 to e

the catal#st for the 3heno2enon, There is a difference et!een traditional

regionalis2 !hich incl"ded colonisation and 2odern or neo regionalis2 !hich in

theor# sho"ld e !elfare enhancing and trade creating for all 2e2ers of a

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MCOM PART 1


se3aratel# decided "3on for each trade agree2ent and create a "rea"cratic% costl#

and conf"sing 3roced"re for trading co"ntries, Altho"gh trade agree2ents are

ass"2ed to decrease and grad"all# re2ove order 3rotection et!een trade

3artners% ROOs create another for2 of 3rotectionis2 and in certain sit"ations

create an i2alance et!een 3artners eca"se “ex3orters in lo!>tariff co"ntries are

effectivel# s"ect to the sa2e conditions as fir2s in the hightariff co"ntr#$

(8r"eger + cited in 0re"nd and Ornelas% &'+' ), 6oncl"ding fro2 this%

co"ntries 2"st caref"ll# calc"late the enefits of a ilateral trade agree2ent

co23ared to the costs of one,

CHAPTER & CONCLU'ION.

It is i23ossile to resolve the “regionalis2 vers"s 2"ltilateralis2 “ dis3"te, .ost

anal#ses of 2ost 0TAs%incl"ding 2ost i23ortantl# # far the E"ro3ean 7nion%

concl"de that trade creation has do2inated trade diversion, .ost of the anal#sts

agree that regional and gloal lierali=ation have 3roceeded together

4hile 0TAs are eing negotiated all over the !orld !ith India not eing and

exce3tion to the trend%their 3o3"larit# can e ex3lained in large 2eas"re to the

deadloc5 in the Doha ro"nd of trde negotiations, This deadloc5 is ho!ever seen #

2an# anal#st to e te23orar#

It !o"ld see2 that there is a do2ino effect in regionalis2 in other !ords% an action

res"lts in a reaction !hich then egins a series of events, The dissertation s"ggests

that regionalis2 is a reaction to gloalisation% eca"se it offers governance in trade

iss"es, This see2s to e 3artl# ca"sed # the fail"re of the Doha ro"nds and 3artl#

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d"e to the econo2ic t"r"lence of recent #ears, The 2ore regionalis2 occ"rs% the

2ore agree2ents are signed in fear of excl"sion fro2 the !orld 2ar5ets, It is

s"ggested that s2all neigho"ring co"ntries !ith si2ilar concerns for2 trade

agree2ents to o3en "3 ne! 2ar5ets and o33ort"nities !hile transnational

co23anies 3"rs"e the2 in order to o3en "3 closed 2ar5ets, Even 3rotectionist

co"ntries for2 trade agree2ents% eca"se 2"ltilateralis2 !o"ld ex3ose the2 to

extensive co23etition, Extensive co23etition co"ld also create a 3rod"ction

relocation effect or a ter2s>of>trade 3risoner dile22a !hich is avoided thro"gh

regional trade agree2ents,

It is s"ggested that !e change o"r a33roach to the iss"e of ilateral or regional as

o33osed to 2"ltilateral trade agree2ents fro2 one that see5s to identif# the 2erits

of one over the other%to one that act"all# see5s to create a s#nerg# et!een the t!o,

As stated efore%ilateral and regional agree2ents are here to sta# and the# are

infact a necessar# 3art of the !orld scenario, The challenge is not to 2a5e the2

disa33ear %"t to integrate the2 and to “2"ltilateralise$ !hat is ha33ening at the

regional and ilateral level, This !ill%indeed% even co23le2ent the ?TAs # fillingthe ga3s that the# leave o"t # 3roviding a stronger 2"ltilateral str"ct"re !ithin

!hich ?TAs can e integrated !itho"t har2ing the overall alance

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REFERENCE

htt3elirar#,!orldan5,orgdoias+',+F+*+>GF'>+*

htt3!!!,researchgate,net3"lication&&'F&*ZRegionalis2Zvs,Z."ltilateral

is2 Waccessed Oct ++% &'+FX,

-ald!in% Richard E,% +F, BA Do2ino Theor# of Regionalis2C% in Richard E,

-ald!in% ?, Haa3aranta and


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The 4orld Trading 1#ste2 at Ris5% ?rinceton 7niversit# and Harvester

4heatsheaf, -hag!ati% Eisen2ann% A5i5o% and erdier% Thierr# (eds,)% &'',

The Origin of /oods R"les of Origin in Regional Trade Agree2ents% Oxford

Oxford 7niversit# ?ress, Ethier% 4ilfred Trade Agree2entsC% A2erican Econo2ic

Revie! * F'M+, introd"ct ion +F Li2aSo% N"no% &'',

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BAre ?referential Trade Agree2ents !ith Non>Trade Oectives a 1t"2ling

-loc5 for ."ltilateral Lierali=ation9C% Revie! of Econo2ic 1t"dies G *&+MFF,

1"o2inen% 8ati% &''G,

BR"les of Origin in /loal 6o22erceC% ?hD Dissertation% 7niversit# of 6alifornia%

1an Diego, 4orld Trade Organi=ation% &'', International Trade 1tatistics &''%

4orld Trade Organi=ation,

Documents

regioalism and multilateralism