eldom be negotiated without prolonged negotiations.Their implementation is often also phased over a long period. That is onereason why there are not many customs unions in the global economy (WTO,2002a).The membership configuration of RIAs was always diverse and during thesecond or contemporary wave of regionalism it became complex as well (referto section 7). During the second wave, RIAs have been concluded betweennon-contiguous non-regional countries. Cross-regional arrangements haveincreased in number and the term ‘regional’ may appear an incongruity. Thesimplest configuration of an RIA is a bilateral preferential agreement betweentwo economies. Such agreements account for over half of the RIAs in forceand almost 60 percent of those negotiated in 2002 (WTO, 2002a).Such a large number of existing and future bilateral preferential agreementshave resulted from the so-called hub-and-spokes strategy of regional
18
Regionalism in global trade
integration. This strategy is implemented by each spoke entering into abilateral preferential agreement with a hub. This strategy was givenmomentum by the EU. It was a hub to which economies with many spokestried to link by concluding bilateral PTAs. The spokes, in turn, concludedbilateral preferential agreements among themselves. The EU–Mediterraneanagreements under the ‘Euro-Mediterranean Partnership’ are an example of thiskind of bilateral preferential agreement. Numerous agreements following thisstructure were set up in Latin America during the 1990s. Asian economiesstarted entering into such bilateral PTAs at the end of the 1990s. Thesebilateral agreements are far simpler than those between the plurilateral RIAs.In this case, on one side of the agreement is an RIA while on the other therecan be an individual economy or another RIA. The EU–MERCOSURagreement is an example of such a complex plurilateral RIA. Such RIAsaccount for 25 percent of the present RIAs in force (WTO, 2002a).
7. THE SPAGHETTI BOWL EFFECTWith the passage of time, the RIAs proliferated, so much so that overlappingof RIAs became a common phenomenon. Overlapping RIAs as well as anetwork of RIAs covering continents at regional and sub-regional levels havemanaged to create a good deal of complexity in membership configuration.Rapid proliferation raised the level of overlapping so much that a regional mapof RIAs began to look like a spaghetti bowl.18 The networks of overlappingagreements have generated intricate webs of discriminatory treatment, whichoften lead to complex and incoherent regulatory structures for the conduct ofa growing share of world trade. These networks raised several problematicissues. One of them was that one country could now have several sets of rulesof origin for different preferential trade partners under different RIAs. Thiscreated a confusing maze of ROO, which on occasions were even conflicting.Consequently, the procedural rigmarole and cost of administering suchagreements rose considerably, making RIAs an inconvenient means of trading.The other complexity was that one country having membership in a number ofRIAs has to maintain tariff schedules for each preferential trade partner withvarying phase-out periods.One negative impact of the spaghetti bowl is that when countries areobliged to spent a great deal of time and resources on the negotiation andmaintenance of agreements at regional level, they tend to ignore theirresponsibility at the multilateral level. When economies feel burdened bymembership of different plurilateral RIAs, which often happens, it leads toconsolidation of RIAs. The constituent economies rationalize their participation by aligning themselves with one RIA grouping and dropping the other.
Globalism versus regionalism
19
As the spaghetti bowl effect intensifies, it results in more criss-crossingtariff concessions and ROO. The level of complexity rises, particularly whereeach country maintains a distinct preferential regime with the other. Anillustration of such rising level of complexity is the RIAs signed by the Centraland Eastern European Countries with EFTA. In this case each CEEC has tonegotiate preferences with each one of the EFTA members, and vice versa(WTO, 2002a). The complexity level worsens if a country is involved inmultiple RIAs covering services. The remedy for this kind of complexity isharmonization of tariff concessions as well as in ROO. It can dramaticallyreduce the administrative burden associated with membership in plurilateralRIAs. In the early 2000s, the European economies had the largest number ofRIA partners. Even countries that participate in a small number of RIAs, dohave to negotiate and administer a number of preferential trade relationships.This number of relationships depends upon the composition of the RIAs inwhich an economy participates. An example of this scenario is the subSaharan economies. They participated in a small number of RIAs, all of themplurilateral, making negotiation and administration of RIA relationships anonerous and complex task (WTO, 2002a).
8. A REPRESENTATIVE RIA IN THE EARLY 2000sThe above exposition has amply demonstrated that RIAs have large variationsin their coverage, structures, procedural provisions, general exceptions, andregulations on quantitative restrictions, subsidies, contingency instrumentsand ROO. However, an attempt can be made to create an imagery of arepresentative RIA, or one that is something of a statistical ‘mode’ in termsof essential features of an RIA. To determine its distinctive features, oneneeds to examine the current RIAs in force. To exemplify the essentialcharacteristics of the entire group, an RIA in the early 2000s should, in termsof broad sectors, cover all industrial products and selected agriculturalproducts. Only a tiny number of RTAs cover all sectors and products, whichis atypical of the group. The preferential treatment provided in an RIA appliesonly to products originating in the constituent member economy. Therefore,the ROO are a significant element in characterizing the scope of an RIA. AnRIA has detailed provisions on how origin of an imported product should bedetermined. If a product comprises inputs from more than one country, thecountry where the last ‘substantial transformation’ took place is considered thecountry of origin. Among the three basic methods for conferring origin,technical tests have gained prominence during the recent period.19 Occasionally, the ROO are supplemented by a ‘cumulative clause’, whereby importedinputs from certain countries are treated as domestic.20
20
Regionalism in global trade
The institutional structure of RIAs varies in levels and functions, albeit allthe RIAs have provisions for coordination between the members’ relevantadministrative bodies, like customs administration. A representative RIAwould have an overarching institution to facilitate the implementation of theagreement and consider whether the members take any initiative towardsdeeper integration. The overarching institution can be charged with largelyprocedural functions, or given authority for granting liberalization. In somecases, it was found to have the mandate for further liberalization as well asharmonization. There is a rising trend in endowing the institutional body witha legal personality. As regards settlement of disputes between the constituentmembers, the institutional process is largely consultative, with a possibility ofa formal decision being issued by the institutional body. Elaborate disputesettlement mechanisms are far from common in RIAs, albeit they do exist insome and provide for resorting to an arbitration process, which in turn affordsa binding decision. However, the incidence of these elaborate, binding,procedures has been on the increase in the recent period. In RIAs with deeperintegration the trend towards having binding procedures for disputesettlements is much higher than in a PTA or FTA. All RIAs with deeperintegration contain provisions on harmonization and approximation ofeconomic and trade legislation. To this end, they create necessary institutions.A representative RIA does not encourage accession of new memberswithout introducing regional or geographical qualification to accession. It alsocarries provisions regarding accession to other RIAs, and provides for amember country’s participation in other RIAs. As noted above, a good number(over 25) of post-1990 RIAs were between one country and a group ofcountries, which constituted an RIA among them. In acceding to another RIA,the member county is required to ensure that it does not inflict any negativeeffect on its original RIA membership. What is more, members of the originalRIA should be consulted before embarking upon the new membership. Thisrule is clearly stipulated in the agreement. A representative RIA appliesgeneral exceptions (GATT Article XX) and security exceptions (GATTArticle XXI) applicable to trade.Quantitative restrictions (QRs) are considered the most widely tradedistorting trade barrier. RIA provisions call for the abolition of QRs on theRIA’s date of entry into force, or for their progressive elimination over astipulated period of time. They apply to all products, or to the subset ofindustrial products. The current trend is outright abolition of QRs on importsof all goods. With rapid market access liberalization during the 1990s, thistrend has gained strength. A rule of thumb in this regard is that the deeper theintegration, the faster the elimination of QRs. Specific QRs on agriculturalimports are usually dealt with in separate bilateral agreements or protocols, butin the new environment of faster market access they are strongly discouraged.
Globalism versus regionalism
21
A representative RTA has well laid out rules on subsidies, with those onagriculture dealt with separately. The reason for dealing with agriculturalsubsidies differently from subsidies in general is that they are considered amultilateral issue and, therefore, cannot be dealt with on the level of an RIA.21Provisions on subsidies are cast in general terms, reminding members thatthose subsidies that distort or threaten to distort trade are not compatible withobligations under the agreement. Details on subsidies that are expresslypermitted are not given. RIAs also provide for the use of safeguard measures,either of a general or a specific nature, to deal with emergency situations.They provide for safeguard actions that are permitted under Article XIX ofGATT-1994. Provisions granting the possibility of action when externalpayment conditions deteriorate are also allowed by an RTA. After 1990, thesesafeguard measures could also be applied to deal with structural adjustmentsand for infant industry cases. Increased imports of a product in a membercountry trigger an emergency safeguard mechanism, which is provided underthe RIA regulations. RIA provisions contain the application of anti-dumping(AD) duties.22 RTA regulations demand compliance with the WTO rulesregarding AD duties. Their proportion is higher in PTAs and FTAs than inCUs and deeper integration agreements. Likewise, provisions permittingcountervailing (CV) duties are permitted by an RIA in intra-trade. However,consultation with the overarching institutional body is considered necessarybefore adopting CV measures. Again, CV measures are adopted much morefrequently in PTAs and FTAs than in CUs and deeper integration agreements.These are the salient features of a representative RIA during the presentperiod.23
9. CONCLUSIONS AND SUMMARYOver the preceding quarter century, particularly during the 1990s, a good dealof progress has been made in economic globalization. It has markedlyexpanded and deepened. There are several dimensions to the dynamics of theglobalization process, including the integration of trade and financialtransactions among countries. A three-way interaction between globalization,supra-national institutions and various sub-groups of global economies hascreated a new dynamic in the global economy. Against the backdrop of risingglobalization, the regionalism trend has been on the rise. All the 146 membersof the WTO are members of one or more RIAs. But regionalization is neithera substitute for multilateral trade nor for globalism. An expanding trend ofregionalization may or may not underpin the forces of free trade, liberalizedtrade regimes and globalization.As it is an additive process, multilateralism is a direct function of the degree
22
Regionalism in global trade
of multilateralism of individual economies. For a smooth expansion of freetrade and growth of world GDP, developing a functional multilateraldiscipline and system is indispensable. Formal regionalization of trade is anold phenomenon, dating back to the sixteenth century. A formal preferentialtrade agreement between England and Scotland was made in 1547–48. Sincethen, many historic attempts at regionalization have been made, the majorityof them successful.According to one definition, under regionalism, a legal framework ofcooperation covering an extensive economic relationship is created, with theintention that it will be of indefinite duration, and with the possibility that theregion will economically evolve in the future. The debate over regionalismhindering or helping free trade is an old chestnut. Several empirical studies,particularly those deploying Vinerian logic, have concluded that regionalismcan lead to trade diversion. But these results were challenged by other studies.Some analysts believe that global free-trade equilibrium can be sustained ifsmall economies form trading blocs, albeit a consensus in this regard is yet toemerge.Regional integration between independent states that apply MFN treatmentin trade with each other can have several possible levels. It can potentiallyhave many stages and formal shapes. These stages of integration range fromshallow to deep. Corresponding to the stage of integration, an RIA could havea spectrum of institutional frameworks or arrangements varying frompreferential trading areas, to free trade areas, to customs union, to commonmarkets and finally to economic union. These are the five standardized tiers orstages of RIA. Combinations of two stages, like a free trade area and customsunion, are feasible, and do exist.RIAs vary significantly along many dimensions. They have variegatedobjectives and can potentially take myriad different forms, each with differentimplications and nuances. Members of an RIA can and do differ in importanteconomic features. They can follow the principle of open or closedregionalism, two fundamentally different varieties. They can be unipolar andhierarchical or multipolar and decentralized. Their functioning proceduresmay also differ considerably, as can their operational style. An unmistakablefact about RIAs is that they have a political dimension because all countriesand regions are political entities in their own right.With the brisk proliferation in RIAs, overlapping of RIAs has become acommon phenomenon. Overlapping RIAs as well as the network of RIAscovering continents at regional and sub-regional levels have managed to createa good deal of complexity in membership configuration. Rapid proliferationhas raised the level of overlapping so much that a regional map of RIAs hasbegun to look like a spaghetti bowl. This tendency has created a great manyoperational difficulties and administrative burdens in running contemporary
Globalism versus regionalism
23
RIAs. The remedy for this kind of complexity is harmonization of tariffconcessions as well as in ROO. It can dramatically reduce the administrativeburden associated with membership in plurilateral RIAs.
NOTES1.
2.
3.4.
5.
6.7.8.9.10.11.12.
13.14.
An indispensable condition for an emerging-market economy is its sustained ability toattract capital inflows from the global banks and securities markets. Other than the rapidendogenous growth endeavors and extensive macroeconomic and financial liberalizationand deregulation, respect of property rights and human rights are considered the basicprerequisites of becoming an emerging-market economy. The national government mustoffer protection to property and human rights of both the citizens of the country and the nonresidents alike. See Das (2003a), Chapter 1 for greater detail.The International Monetary Fund (IMF) and the World Bank were conceived at theBretton Woods conference, held in July 1944 at Bretton Woods, New Hampshire, USA.The two supra-national organizations became operational in 1946 after a sufficientnumber of countries had ratified the agreement. The international financial architectureof a post-World War II has largely stayed in place since then, despite major shifts inmonetary policy. Since then the IMF and the World Bank are referred to as the BrettonWood twins.As of July 2003, the WTO had 146 members plus 28 countries with observer status. TheRepublic of Macedonia became the 146th member on 4 April 2003. With such largemembership, it is almost a global institution.Trade Ministers of 135 member countries of the WTO participated in the Third MinisterialConference, held in Seattle, 30 November–3 December 1999. The Ministerial Conference isthe highest-level decision-making body of the WTO. As required by the MarrakeshAgreement, signed on 15 April 1994, the Ministerial Conference is held once every twoyears.The Treaty of Accession between the European Union and ten countries, namely, the CzechRepublic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, andSlovakia was signed in Athens, Greece on 16 April 2003. These 10 countries are to acquireformal membership status of the EU in May 2004. Save for Cyprus and Malta, they are allCentral and East European Countries countries. These eight economies were the satelliteeconomies of the Soviet Union until its collapse in 1990–91. Bulgaria, Romania and Turkey,three candidates for future membership, are waiting on the sidelines.Refer to Winters (2000) for greater detail.For instance, see Viner (1950); Meade (1955); Lipsey (1960) and Arndt (1969).This was the Fourth Ministerial Conference of the WTO, 9–13 November 2001, at Doha,Qatar. The Doha Round of MTNs was launched after it and this is scheduled to end inJanuary 2005.For instance, see Bagwell and Staiger (1993a) and Bagwell and Staiger (1993b), Deardorffand Stern (1994) and Frankel et al. (1996).For instance, see Bhagwati and Panagaria (1996), and Krueger (1996).NTBs include para-tariff measures, price control measures, financial measures,monopolistic measures, and technical measures.The Agreement on a Treaty on European Union was signed in Maastricht on 10 December1991. It included a timetable for Economic and Monetary Union. On 1 January 1993, theEuropean Single Market was completed. On 1 November 1993, the Maastricht Treaty cameinto force, and the EEC became the European Union.The Andean Pact was a common market between Bolivia, Colombia, Ecuador, Peru andVenezuela.Although its complete form is Australia–New Zealand Closer Economic Relations TradeAgreement or ANZCERA, CER is used much more often.
2415.
16.17.18.19.20.
21.
22.23.
Regionalism in global tradeRules of origin are the criteria used to define where a product was made. They are anessential part of trade rules because a number of policies discriminate between exportingcountries: quotas, preferential tariffs, anti-dumping actions, countervailing duty charged tocounter export subsidies, and more. Rules of origin are also used to compile trade statistics,and for ‘made in’ labels that are attached to products. A great deal of time was spent on theROO during the Uruguay Round of multilateral trade negotiations. It resulted in anagreement on ROO, which is a part of the GATT-1994. This first-ever agreement on thesubject requires WTO members to ‘ensure that their rules of origin are transparent; that theydo not have restricting, distorting or disruptive effects on international trade; that they areadministered in a consistent, uniform, impartial and reasonable manner; and that they arebased on a positive standard. That is, they should state what does confer origin rather thanwhat does not.’ RIAs either conform to the WTO rules in this regard, or formulate their owndeviations. These rules vary from RIA to RIA and may be similar, simpler, or more complexthan the WTO rules.To be more explicit, if the concessions granted are one-way, it is called a preferential tradearrangement, whereas if the concessions are reciprocal, it is called a preferential trade area.Frankel 1997 and several others of his works have been cited in this work. The author tookthe initiative in getting express permission from Professor Jeffrey A. Frankel for thispurpose.The term ‘spaghetti bowl’ was first used by Bhagwati and Panagaria (1996).Three principal methods can be used to determine where a substantial transformationoccurred: (1) the change-in-tariff classification method, (2) the value-added criteria and (3)technical measurement based on the import content of a product.There are two types of cumulation: (1) bilateral cumulation, where there are inputs fromother member countries of the RIA which are considered domestic, and (2) diagonalcumulation, where there are inputs from certain non-member countries which are considereddomestic. As a generalization, RIAs contain provisions allowing bilateral cumulation.The WTO has two sets of subsidy regulations. The first set of rules relates to industrialsubsidies and come under the Agreement on Subsidies and Countervailing Measures. Thesecond set relates to agricultural products and is spelled out in the Agreement onAgriculture.Anti-dumping duties are governed by Article VI of GATT-1994.The sources of this information regarding the RIA are WTO documents published during therecent period.
2.
Rationale, motivation and welfareimplications
1. THE RATIONALE BEHIND REGIONALISMCommitted free traders among economists turn up their noses at the regionalintegration agreement (RIA) phenomenon. Whatever the trade expansionproperties of RIAs, they can lead to substantial trade diversion, which in turnimplies distortion of efficient global allocation of resources, resulting inwelfare losses. Preferential reduction in tariffs under an RIA inducespurchasers to switch demand towards the RIA partners. This happens at theexpense of both domestic producers and imports from non-member countriesand the rest of the world. The former is trade creation, while the latter is tradediversion. It needs to be clarified that trade is created only when cheaper andmore competitive products from the RIA member economies substitute formore expensive and less competitive domestic products. When intra-blocimports substitute for cheaper and more competitive imports from the nonRIA-member economies, when both faced tariffs, it is a case of tradediversion. To be sure, the former is beneficial, but the latter can be detrimental.The detrimental effects include loss of tariff revenue. However, the overalleffect on national income may well be positive, depending upon the cost ofalternative sources of supply and on trade policy towards the non-RIAmember countries.RIAs can potentially result in the reduction of global trade and welfare.Even if it is not correct, one must know the counterfactual, or more correctlythe anti-monde. Generally, that is left for one’s imagination. Meaning thereby,if an RIA is reducing global welfare, it is doing so in comparison to what. Theanswer is, in comparison to complete and undistorted global free trade. RIAsare unquestionably the second best compared to global free trade. That beingsaid, in the real-life situation, undistorted global free trade does not exist. Butcompared to the global trading system in which tariffs and non-tariff barriersabound, the case against RIAs is generally far from clear, and weak if it doesoccur (WB, 2000). Besides, other than the economic rationale, as we saw inthe preceding chapter, multiple non-economic objectives generally lie behindthe formation of an RIA. It is widely recognized that most RIA formulationsamong economies have one or more strong political objectives. An RIA25
26
Regionalism in global trade
motivated solely on economic objectives is rare. Furthermore, there areboth static and dynamic factors that coalesce and encourage the formation ofRIAs.Apparently, trade diversion is one of the realities of an RIA.Notwithstanding the plausibilities of trade diversion, while forming or joiningan RIA, countries do not expect trade diversion losses to outweigh the tradecreation gains. This assumption strongly drives policy mandarins towards anRIA. In the present global economic mise-en-scène, most countries findthemselves much more ready to participate in regional rather than inmultilateral negotiations because they think that the chances of success ofnegotiations are maximized when they are undertaken at the regional level.One of the reasons is that negotiations in RIAs generally entail a small numberof usually neighboring, like-minded, countries. This general perception isoccasionally correct.
2. MOTIVATIONThe commonest and most persuasive motivation behind the formation of anRIA is market expansion in such a manner that all partners of the RIA benefit.Forming an RIA increases the size of the ‘home’ market for the membercountry’s firms. As the constituent members of RIAs frequently agree toeliminate the possibility of imposing contingent protection measures like antidumping (AD) action and countervailing (CV) duties, this improves marketaccess of the member economies in the entire RIA-wide market. In amultilateral context, an agreement to eliminate AD measures and CV dutiesappears unlikely in the foreseeable future.The second major objective is to increase bargaining power vis-à-vis thirdcountries by becoming a part of an RIA. This argument applies more to smalldeveloping economies as well as small states like the island countries in theCaribbean. In this case, the RIA that can help more is the customs unionvariety rather than the free-trade kind. This reason is often given as one thatspurred the formation of the European Economic Community (EEC).1 At thetime of its formation in the late 1950s, Western European economies believedthat individually European countries would have little leverage in negotiationswith the United States (US), but if they formed an RIA it would increase theirbargaining power. This motive has also been present in some measure in theformation of Mercado Comun del Sur or MERCOSUR. The argument therewas that groups of countries would have more leverage in accession to NorthAmerican Free Trade Area (NAFTA) than individual Latin Americaneconomies (Das, 1990; Hamilton and Whalley, 1996).Third, defensive logic is often resorted to in RIA formation. An RIA may
Rationale, motivation and welfare implications
27
be formed as a reaction to other RIAs, particularly if the other RIAs areperceived as posing a threat of becoming inward-looking, or closed. Forinstance, if the EU2 and the NAFTA or FTAA3 continue to travel down theroad with plausible threats of becoming inward-looking blocs, having a‘fortress’ mentality, other geographical parts of the globe would surely comeup with plans for parallel RIAs. This may be their response to provide acounter-threat to existing RIAs as well as keeping them from turninginward.Fourth, many developing economies, particularly those in Latin America,treated RIA formation as one of the tools for trade policy reforms. Regionalintegration initiatives represent a third tier of trade policy reform, which aimsto complement and reinforce the unilateral and multilateral liberalization. Inaddition, a widely agreed achievement of RIAs that motivates countries toparticipate in them is their ability to lock in economic reforms andliberalization. They are known to have done this better than the WTO. It ispartly due to the fact that each RIA covers its own favorite set of policy areas.Some of them are not covered by the WTO at all, or not covered adequately.For instance, investment related issues and factor market policies, althoughdiscussed constantly in the WTO forum,4 are still not covered by it. In spite ofthe birth of the General Agreement in Trade in Services (GATS), WTOdiscipline on trade in services is still inadequate. Reforms in these and otherareas can be anchored through RIAs in ways that are not available in the WTOforum.Fifth, even in the traditional domain of the WTO, that is trade in goods andservices, the RIA discipline can be made stronger than that of the WTO. Animportant strand of the systemic credibility of the WTO is its ability topersuade members to ‘bind’ tariffs.5 The maximum that can be attained in thisrespect is to bind tariffs at applied rates. Traditionally, developing economieswere slow and reluctant to bind their tariffs because they wanted to save‘bargaining chips’ for negotiations. Although during multilateral negotiations,countries are exhorted to reduce differences between bound and applied rates,there is no WTO requirement to bind at applied rates. As their participation inthe multilateral trading system increased, developing country governmentsvoluntarily decided to increase the share of bound tariff lines. In an RIA,binding is not voluntary but a requirement. The rate at which the tariffs arebound is zero. Thus, to that extent, RIAs are responsible for spawning greatertrade discipline than the WTO. Greater credibility of regional liberalizationstrategy and trade discipline under an RIA may be associated with higherdynamic growth effects in the member developing economies because theywould lead to higher domestic and foreign investment.Sixth, harmonization of regulatory regimes is another motivation behind themembership of RIAs. Modernization and upgradation of regulatory regimes
28
Regionalism in global trade
goes hand in hand with harmonization. In the absence of harmonization,technical barriers to trade and sanitary and phytosanitary measures can be usedas protectionist barriers by the importing country. Entering into an RIAprovides an economy with a wide variety of opportunities for harmonizationand rationalization. For instance, harmonization of product standards, testingand certification procedures and rationalization of documents, particularly inthe area of customs clearance, is commonly carried out by RIA members.Constituent members frequently link their computer systems after joininghands in an RIA. Variations in these systems and regulatory regimes work asnon-tariff barriers (NTBs). The benefits from the eliminations of these NTBsrise with the rising intra-RIA trade.Last, the developing economies are motivated to join in RIAs withemerging-market6 and industrial economies in the expectation of benefitingfrom capital transfer, receiving foreign direct investment (FDI) andtechnology transfer from the better-off and more mature partner economies.They tend to see additionality in it. That is, after becoming a member of anRIA with mature economies, the developing economies believe that thefinancial transfers would rise in volume, although additionality is somewhatdifficult to determine. These developing countries may also see such transfersoffsetting tariff revenue losses and the cost of trade diversion.7
3. MULTILATERAL TRADE LIBERALIZATION AND RIAsEight rounds of multilateral trade negotiations (MTNs) have an impressiverecord for tariff reduction on manufactured products. According to WTO(2001), during the first five rounds of MTNs between 1947–62, weighted tariffreductions of 36 percent took place. In the Kennedy Round (1964–67) tariffsdeclined further by 37 percent and again in the Tokyo Round (1980–87) by33 percent. During the Uruguay Round (1986–94) weighted tariff reductionsof 38 percent took place. While this was an unmitigated success, the GATTrounds were not as effective in disciplining tariffs on primary products andNTBs, in particular the quantitative restrictions.At least until the Uruguay Round agreement was signed and the WTO wascreated, the global trading system was replete with and distracted by voluntaryexport restraints and administered protection.8 This made it very difficult todetermine whether the liberalization taking place is most-favored nation(MFN) liberalization being done to move towards a free-trade regime, orwhether it is merely of an ad hoc and discriminatory variety. When the globaleconomy is ridden with protectionist barriers, large welfare gains fromregional integration are feasible. Simultaneous regional reductions of tariffsand NTBs will then lead to possible expansion of scale economies for the
Rationale, motivation and welfare imp