in such a manner that they becomebarriers to trade, do it after a domestic cost–benefit analysis of theseagreements. Being a totally domestic computation, the cost–benefit analysisdoes not take into account the cost to global trading partners and to producersin the trading economies. RIA provisions in areas like SPS and TBT should beso devised as to reduce the cost to foreign producers, or the domestic rulemakers should fairly take into account the cost of these regulations to foreignproducers. It is in this sense that RIA provisions should be allied with those ofthe WTO so that the national regulations do not excessively burdeninternational trade.An RIA with a fortress mentality, that discriminates against foreign tradewith non-member economies may well have its own somewhat unnecessarynorms in areas like SPS and TBT. Article I, Article III and SPS Agreement and
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TBT Agreement, all prohibit such SPS and TBT regulations. This kind ofdiscrimination can be either de jure or de facto, the latter being difficult toidentify. If the multilateral rules require transparency, such discrimination canbe identified and controlled. Also, ‘negative integration’ rules at the multilateral level can also be used to address such discrimination and tradediversion. Negative integration de jure applies to standards in the RIA, whicheliminate the national standards and regulation to bring the RIA closer(Trachtman, 2003).4.3 Does New Regionalism Promote Further Regionalism?Without conscious endeavour, RIAs have been known to inspire creation ofother RIAs. During the era of new regionalism one can find several examplesof it. When an RIA is formed, it imposes certain costs on the non-members.This cost can be inflicted even without raising CETs. Exporters from the nonmember economies are rendered uncompetitive because, unlike the exportersfrom the member economies, they pay tariffs. Furthermore, in product lines inwhich scale economies are available, RIAs may help lower the costs of firmsfrom the RIA member countries by increasing the size of their ‘home’ market.Often the non-member economies respond to this by forming RIAs of theirown, or join into an existing one.During the era of new regionalism, after the Single Market Programme ofthe EU (or EC-91) and the creation of NAFTA, a good number of RIAs wereformed in this manner. This trend was christened the ‘domino effect’. ThreeScandinavian economies, Finland, Norway and Sweden, sought accession tothe EU after the EC-91. As the EU worked towards deeper integration, theseScandinavian economies became concerned about the loss of their exportmarkets. If just one of them had joined, the cost to the other two of remainingoutside would have risen. All three tried to join the EU, although Norwayeventually backed out.Creation of the European Free Trade Area (EFTA) may have been inresponse to the creation of the EEC. Some believe that creation of NAFTAwas in response to a ‘multilateral system that some countries believed gave theEU too much latitude’. Creation of MERCOSUR is also believed to have beendriven by a desire to balance NAFTA. Although a large number of suchexamples of this kind are not available for the developing economies, there aresome. For instance, the same phenomenon contributed to Bolivia and Chileseeking to join MERCOSUR. Another strategy that the non-member countriesfollow is joining a rival RIA if one exists.If this process continued, the global economy would be divided into severallarge and small RIAs. It is a possibility that some large RIAs would takeinitiative to pursue global free trade. Such cooperation may take place only if
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there are some evenly matched RIAs with same views regarding attainingglobal free trade (Winters, 2000).4.4 New Regionalism and Multilateralism: The Case of MERCOSURMERCOSUR is considered one of the most important examples of renewedworldwide interest in regionalism. It is seen as a consolidation of unilateralreforms undertaken in conjunction with major macroeconomic adjustments.The MERCOSUR agreement was brought about by the Treaty of Asuncionsigned in 1991 and it came in force in 1995. Although it was launched as acustoms union, its ambitions for higher-level integration were clear.MERCOSUR has made some progress towards a common market – albeit notnecessarily EU-style.Wilfred J. Ethier contended that the new regionalism reflects the success ofmultilateralism, not its failure (Ethier, 1998a, 1998b). MERCOSUR is indeedan important part of the new regionalism in Latin America. In view of itsimportance, one can take it as a case study and examine first, whether it hasthe characteristic features of new regionalism à la Ethier, and, second, using asimple economic model, look at the likely welfare and trade pattern effects ofa MERCOSUR-type trading arrangement on members and non-members visà-vis other forms of free-trade area formations. This way it is possible todecide whether or not new regionalism strengthens multilateralism as positedby Ethier.31A noteworthy and crucial characteristic of MERCOSUR is reduction ofmost-favored-nation (MFN) tariffs concurrently with a reduction of intraMERCOSUR preferential tariffs. This is one characteristic, which makesMERCOSUR a perfect fit into what Ethier (1998a, 1998b) considered the newregionalism. In several other distinctive features MERCOSUR meets therequirement. For instance, Brazil is the largest country, an importantemerging-market economy, while Paraguay and Uruguay are comparativelysmaller economies. Second, smaller partners undertook major unilateralreform and liberalization measures. In the case of MERCOSUR, however,even the larger partners did so, albeit to a lesser extent. Third, dramaticinternal liberalization by members was not adopted by the member countries.Fourth, MERCOSUR has an on-going agenda for deeper integration. Thereare plans for creating a comprehensive economic union. Thus viewed,MERCOSUR does incorporate all the distinctive features of the newregionalism.Between 1985 and 1997, the average MFN tariffs in the MERCOSURmember economies came down from 37.2 percent to 12.3 percent. At the sametime the average tariffs imposed on the partner economies declined from 35.2percent to 4.2 percent. Thus, the MFN tariff reduction was large. The
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additional preferential tariff reduction for the members of MERCOSUR wasmodest. Between the signing of the Treaty of Asuncion in 1991 andestablishment of common external tariffs in 1995, intra-MERCOSUR tradeexpanded rapidly. Exports within MERCOSUR had doubled as a share of totalexports during the same period, while imports within the group also recordeda strong growth. Not all of this growth in trade can be attributed to the creationof MERCOSUR because trade was expanding rapidly with other countries aswell.Estevadeordal et al. (2002b) developed a Krugman-type trade model basedon imperfect competition and product differentiation. They examined theimpact of MERCOSUR-type FTA where preferential tariffs decline with thenon-discriminatory MFN tariffs, and compared it to the impact of a traditionalFTA where only preferential tariffs decline. The results of this rigorousexercise revealed that a MERCOSUR-type FTA leads to trade creation andthat the welfare of both members and non-members increases. Thus the newregionalism can be the ‘Land of Cockaigne’ where everybody is better off thanthey would be without it. Thus, one can logically conclude that newregionalism does not undercut multilateralism. If anything, it reflects thesuccess of multilateralism and multilateral trading system, not its failure.
5. PARTICIPATION OF THE DEVELOPING ECONOMIESVirtually all the developing economies are now participants of at least oneRIA. Of the RIAs currently in force, approximately 35 percent are agreementsconcluded between developing economies (WTO, 2002a). These agreementsare of various kinds, ranging from customs unions and FTAs to partial scopeagreements. The recent trend among the developing economies is to opt foragreements favoring wider trade integration. An example of this is the recentlyconcluded FTA between Chile and Mexico, which was notified to the WTOunder the provision of the GATT Article XXIV. The new trend is a break fromthe past. One of the reasons for it being adopted in the developing economiesis that they can lock their domestic liberalization measures and economicrestructuring to the schemes of regional integration. Liberalization andrestructuring commitments become easier to justify politically, if membershipof a regional integration scheme is shown to the electorate as the final target.This process subdues the domestic lobbyists and interest groups, a disturbingreality in trade policy.Forms of regionalism vary from region to region. For instance, regionalismin Africa is unique and not comparable with that in Asia or Latin America. Thefinal objective of the majority of the regional initiatives on the continent ofAfrica was establishing customs unions, or common markets. They also
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tended to have a large number of signatories and long transition periods, oftwo, even three, decades. In contrast to this, the Asian economies setthemselves modest objectives, usually not thinking beyond FTAs. Transitionperiods were shorter than those in Africa. The developing economies in LatinAmerica were fairly comprehensive in their approach. They tried to establishcustoms unions, common markets, and plurilateral (having three or moremembers) regional initiatives, backed up by a network of a large number ofbilateral preferential trade agreements PTAs. A large variety of regionalinitiatives coexisted.As set out in section 3, the developing economies were also involved in aspecial variety of RIAs, those that were concluded between them and theindustrial economies. These agreements were not the usual RIAs, they were ofnon-reciprocal as well as preferential in nature. They were provided a waiverfrom the WTO provisions because of their non-reciprocity and preferentialnature. There are three major agreements of this kind in force: (1)US–Caribbean Basin Economic Recovery Act, an agreement between the USand 21 Caribbean and Central American countries, (2) CARIBCAN, anagreement between Canada and 18 Caribbean countries, and (3) the FourthLomé convention between the EU and 71 African, Caribbean and Pacificeconomies. The Cotonou Partnership Agreement was made between African,Caribbean and Pacific states and the EU. This agreement replaced the oldLomé Convention. Over time, this trend underwent a change. There has beena clear shift from non-reciprocal to forming reciprocal RIAs betweendeveloping and industrial economies. During the second half of the 1990s,numerous developing economies concluded reciprocal RIAs with the EU,EFTA and Canada. The Euro-Mediterranean Partnership Agreement is amajor illustration of the new RIAs between the developing and industrialeconomies (WTO, 2002a).
6. CONCLUSIONS AND SUMMARYThe Single Market Programme (EC-92) of the EEC was chalked out in 1986,which had a great deal of impact on the minds of the policy makers all theworld over, who began to examine their own policy responses. The EC-92 hada sizable impact on cross-border investment and merger and acquisitionactivity. Evidence is available to show that goods and financial marketintegration in the EU grew sufficiently more advanced than in the 30-countryOECD. This was demonstrated by stronger correlations of consumption andoutput growth among the EU economies. RIAs have spread rapidly globallysince the late 1980s. The past became the prologue for the second global waveof regional initiatives, or the ‘new regionalism’. The 1990s, and the early
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2000s, turned out to be prolific in this regard. There was a strong demand tojoin or form an RIA on economic as well as political grounds.Transnational corporations play a large and significant role in world trade.There is not only acceptance of regional integration among them but they havealso played a proactive role in their expansion. They are known forestablishing horizontal and vertical production linkages in several neighboringcountries. Such linkages are common in industries like vehicles, chemicalsand pharmaceuticals, machinery including precision machinery and heavymachinery sectors, and most of all in electronics. In so doing, TNCs increasetheir ability to exploit scale economies in production. For their part, as thedeveloping economies began to liberalize and reform their economies theyalso sought to attract more FDI and the TNCs’ role in their economies. Withadvances in information and communications technology and modes oftransportation, TNCs found that they could manufacture a range of products ina more cost-effective manner by sourcing from multiple locations in the samecontiguous region. The result was development of production networks spreadover several economies in a particular geographical region, which in turnsupported the second wave of regionalism.In the context of the second wave of regionalism, 1988-89 was a watershedbecause this is when the US agreed to and implemented the free-trade areaswith Canada and abandoned four decades of opposition to the principle ofregional integration. Other major regional initiatives like MERCOSUR andNAFTA followed in the wake of CUSFTA. Several old preferential trade areawere revived and many discontinued RIAs were superseded by renegotiatedagreements, often among the same signatories. Since the birth of the WTO inJanuary 1995, on an average 15 RIAs were notified every year. Compared tothis, an average of three RIAs were notified to the GATT annually during itsentire lifetime spanning 1948 and 1994. Total numbers of notified RIAs stoodat 250 in March 2002, of these, 159 agreements were still in force. It must beclarified that included in this number are the notifications made under GATTArticle XXIV, GATS Article V, and the Enabling clause. This number doesnot take into account accession to existing RIAs. Of these 159 notified RIAs,18 were EIAs in services. Of the remaining 141 notified RIAs in force, 124were intended as free-trade areas and customs unions. The new regionalismengulfed all major players of the global economy.The characteristics of new regionalism included reduction of nondiscriminatory most-favored-nation tariffs along with reduction in intra-RIAtariffs. New regionalism entails one or more relatively smaller economiesforming a regional or sub-regional bloc with a large emerging-market orindustrial economy. Second, it is the smaller country that generally undertakesmore significant unilateral liberalization and adopts reform measures. Third,dramatic moves to liberalize are not commonly seen in the new regionalism.
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The degree of liberalization by members is generally modest. Fourth, regionalarrangements generally involve ‘deep’ integration, or plans to move from‘shallow’ to ‘deep’ integration within a stipulated period. Intra-bloc tradeshare in total trade was found to be much larger in RIAs between industrialeconomies and RIAs between industrial and emerging-market economies thanin those among the developing economies.During the second wave of regionalism, not only the number of RIAs beingnegotiated increased exponentially but also their scope and geographical reachbroadened. Greater regional economic integration was frequently taken up asone of the principal objectives of the RIA, which implied deepening of intraregional trade.As many countries are members of several agreements – sometimes withvery different rules – the contemporary global network of RIAs has becomehighly complex. Some of those who examined the relationship between newregionalism and multilateralism in the current mise-en-scène have came to theconclusion that the two trends feed on each other and that they reinforce eachother. With all-round expansion in multilateralism, both cross-border tradeand financial flows, including FDI, have expanded considerably in volume.FDI is an important part of the current wave of regionalism.In some ways, the new regionalism works counter to multilateralism. Assoon as a new RIA is formed, the non-member economies that trade with theRIA-forming economies wonder and worry about its ‘fortress’ aspect. ManyRIAs have differing regulatory policies in areas like anti-dumping, subsidies,intellectual property rights, and technical barriers to trade and sanitary andphytosanitary measures from those in the WTO regime. These developmentsagain promote the suspicions of non-constituent economies regarding thefortress mentality. In the original Article XXIV of GATT-1947, and itsUruguay Round clarification updated by the Understanding on Interpretationin the GATT-1994, RIA regulations regarding SPS and TBT are still unclear.From the perspective of the regulatory theory, both SPS and TBT Agreementsare protectionist and work as restraints on trade and global competition. RIAshave been known to inspire creation of other RIAs, although not quite in amechanical manner. During the era of new regionalism one can find severalexamples of it.Virtually all the developing economies are now participants of at least oneRIA. Of the RIAs currently in force, approximately 35 percent are agreementsconcluded between developing economies. The recent trend among thedeveloping economies is to opt for agreements favoring wider tradeintegration. The developing economies have also been involved in a specialvariety of RIAs, those that were concluded between them and the industrialeconomies. These agreements were non-reciprocal as well as preferential innature. This trend has undergone a change in recent years. During the second
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half of the 1990s, numerous developing economies concluded reciprocal RIAswith the EU, EFTA and Canada.
NOTES1.
2.3.4.
5.6.7.8.
9.10.11.12.13.14.15.
16.17.18.19.20.
21.
As noted in Chapter 1, note 11, the Agreement on a Treaty on European Union was signedin Maastricht on 10 December 1991. It included a timetable for Economic and MonetaryUnion. On 1 January 1993, the European Single Market was completed. On 1 November1993, the Maastricht Treaty came into force, and the EEC became the European Union(EU).Greece became the twelfth member of the Euro Zone on 1 January 2001.The EU membership reached 15 in 1995, when Austria, Finland and Sweden joined.One example of such hegemonic bargaining power is provided by the formation of NAFTA,when several provisions with respect to intellectual property protection and environment andlabor standards were secured by the US from Mexico, while Mexico was unable to obtainsimilar benefits in return.Its formal name is Canadian–US Free Trade Area or CUSFTA.Its full name is Mercado Común del Sur or the common market of the south. Its membershipcomprises Argentina, Brazil, Paraguay and Uruguay.The Andean Pact was a common market between Bolivia, Colombia, Ecuador, Peru andVenezuela.The six original members of ASEAN are: Brunei Darussalam, Indonesia, Malaysia, thePhilippines, Singapore, and Thailand. The four members who joined later were Vietnam in1995, Laos and Myanmar in 1998 and Cambodia in 1999. The AFTA agreement was notsigned until 1992.Refer to p. 40 of the World Trade Organization’s Annual Report 2002.By March 2002, 18 EIA agreements in services were notified to the WTO (WTO,2002b).These statistical data were culled from WTO documents.In April 2003, the membership of the WTO was 146 countries.Unlike the European Union and the North American Free Trade Area, APEC does not havea formal trade treaty to back up its blueprint of trade liberalization.The African, Caribbean and Pacific countries are a group of 71 countries with preferentialtrading relations with the EU under the former Lomé Treaty, now called the CotonouAgreement.An indispensable condition for an emerging-market economy is its sustained ability toattract global capital inflows. Other than the rapid endogenous growth endeavors, respect ofproperty rights and human rights are the basic prerequisites of becoming an emerging marketeconomy. The national government should offer protection to property and human rights ofboth the citizens of the country and the non-residents alike. See Das (2003a), Chapter 1 forgreater details.Group of Three (or G-3) Agreement between Columbia, Mexico and Venezuela was signedin 1995.The source of these data is Chapter 3, Table 3.1, Schiff and Winters (2003).The European Economic Area was notified to the GATT in 1994. It included the EU,Iceland, Liechtenstein, Norway.The source of these data is Chapter 3, Table 3.1, Schiff and Winters (2003).CARICOM stands for Caribbean Community and Common Market. During 2001,CARICOM updated its founding treaty in order to establish the legal basis for movingtowards a single market. In 2002, CARICOM decided to launch into its Single Market andEconomy initiative.The 1988 Protocol of Quito called for amendments to the Andean Group’s founding treaty.Its institutional structure was also revised in 1988. In December 1996 its name was changedto the Andean Community.
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22. Its formal name was the Treaty on European Union. Its Final Act was signed at Maastrichton 7 February 1992.23. The European Monetary System is a system of fixed but adjustable exchange rates betweenthe currencies of many EU Member States. It came into being in 1979 and was designed toensure that currency and exchange rate conditions remain as stable as possible within theEU. EMS comprises a stable currency zone largely free of serious internal fluctuations inexchange rates. It is made up of three elements: (1) an exchange rate and interventionmechanism, (2) a comprehensive financial assistance system, and (3) the European CurrencyUnit, the ECU, as a reference value and accounting unit. In the EMS the agreed exchangerates of the participating states are not allowed to fluctuate upwards or downwards beyonda margin of 2.25 percent. If a currency comes under pressure and its exchange rateapproaches the margin limit the participating central banks intervene: they have to buy upthe weak currency and sell the stronger one in order to support the exchange rate. This partof the EMS agreements is known as the Exchange Rate and Intervention Mechanism(ERIM). To prevent the central banks running out of funds when they have to make suchinterventions they grant each other temporary loans (credit mechanism).The goal of stable exchange rates between the participating states was achieved to a largeextent in the 1980s. However, in 1992 the British pound and the Italian lira came underpressure to devalue and they withdrew from the EMS. Subsequently, in order to remove theever-increasing pressure of speculation from the EMS, the margins were increased in 1993to 15 percent in both directions. Otherwise the EMS remained unchanged. By April 1998,13 of the 15 Member States of the European Union belonged to the EMS exchange ratemechanism, i.e. all except Sweden and the United Kingdom.Twelve of the EU Member States were to join the monetary union or the Euro Zone on1 January 1999. New agreements had to be made for the relationship between the new singlecurrency, the euro, and the currencies of those EU Member States that did not participate inthe monetary union. The EMS II was devised for this group of countries. The aim was toprevent excessive currency fluctuations between the euro and the other non-Euro-Zonecurrencies. The EU summit in Amsterdam in June 1997 agreed on some basic guidelines foran EMS II. New entrants to the EU would automatically follow EMS II.24. The principal decision on enlargement was made as early as 1993. Back then, at theCopenhagen summit, the EU members agreed that the associated Central and EasternEuropean Countries should integrate fully into the Union. At the same time, the EuropeanCouncil established political and economic conditions for accession. These ‘Copenhagencriteria’ demand of the accession candidates:1.2.3.
25.26.27.28.
stability of institutions guaranteeing democracy, the rule of law, human rights, andprotection of minorities;existence of a functioning market economy with the capacity to withstand thecompetitive pressures in the EU Single Market; andadoption of essential EU legislation (acquis communautaires) and administrative andjudicial structures that ensure its effective implementation.
In addition, the EU set a reform agenda for its own institutions and a legal framework in the‘Agenda 2000’ put forward by the EU Commission in 1997.The previous four expansions of the EEC-EU took place in 1973, 1981, 1986 and 1995.Turkey has been pressing for EU membership since 1987, but the EU has declined to opennegotiations because Turkey’s democratic credentials were under doubt and it did not meetthe so-called ‘Copenhagen criteria’ mentioned in note 24.The source for information regarding the current developments in RIA initiatives is CID,2003.In spite of halting progress, the Uruguay Round is credited with a weighted average tariffreduction of 38 percent in industrial countries’ tariffs, an agreement on the phase-out of theMultifibre Agreement (MFA), non-tariff barriers on agricultural products being converted totariffs and lowered, the so-called ‘voluntary’ export restrictions being abolished and theGATS being created. This was responsible for making progress in the liberalization of
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29.
30.31.
Regionalism in global tradebarriers to trade in services. In the end, the Marrakesh Agreement significantly altered theconditions under which international trade is conducted.Open regionalism refers to plurilateral agreements that are non-exclusive and open to newmembers to join. It requires first that plurilateral initiatives be fully consistent with ArticleXXIV of the GATT, which prohibits an increase in average external barriers. Beyond that,it requires that plurilateral agreements do not constrain members from pursuing additionalliberalization either with non-members on a reciprocal basis or unilaterally. Becausemember countries are able to choose their external tariffs unilaterally, open agreements areless likely to develop into competing bargaining blocs. Finally, open regionalism impliesthat plurilateral agreements both allow and encourage non-members to join.For example, by the end of 2001 the EU had concluded MRAs for the results of conformityassessment with Australia, Canada, Japan, New Zealand, Switzerland and the US.A study on these lines was conducted by Estevadeordal et al. (2002b). The case studypresented here draws on their work.
4.
RIAs and the global trading system
1. CHANGING GLOBAL PERSPECTIVES ON RIAsA group of trade economists follow the logic of regional integrationagreements (RIAs) being the ‘stepping stones’ toward a liberal global tradingsystem, and to that end strongly support regional integration. Expansion ofRIAs could have positive effects on the global economy provided theemerging RIAs are ‘open’ to trade from outside. One key benefit to the globaleconomy comes from the impact of RIAs in stimulating domestic growth,which in turn increases the demand for extra-regional imports, therebyintegrating it with the global economy. There are several channels of demandexpansion. The principal ones are: (1) demand expansion due to the incomeeffect of gains from trade, (2) increased income induces more investment,(3) increased investor confidence leading to improved ability to attractforeign direct investment (FDI) from the global investing community, and(4) beneficial macroeconomic effects of RIAs.Open regionalism can certainly promote and facilitate externalliberalization, meaning trade with non-member economies outside the RIA.Economies grouped in RIAs can regard them as complementary as well assupplementary to multilateralism. They need not necessarily be the antithesisof multilateralism. By following both regional and multilateral approachessimultaneously, the pace of liberalization of the global trading system can bemade brisker. This two-pronged approach to trade liberalization can achievegreater gains for those willing to proceed faster and at the same time putpressure on the multilateral negotiations to perform better and deliver tangibleresults in a reasonable time. This is essentially the ‘building block’ argumentbuttressing the formation of RIAs.It is noteworthy that after the mid-1980s, developing-country perspectiveon regionalism differed from that adopted during the first wave of regionalismin the 1950s and 1960s (see Chapter 1). This was partly due to the fact that theeconomic conditions for the developing countries over the 1990s weremarkedly different from what they were in the earlier period. Economic andtrade reforms – undertaken unilaterally, regionally and multilaterally—sincethe mid-1980s led to the creation of a liberal trading environment in a goodnumber of developing economies, particularly in the emerging-marketeconomies.1 The trade policy landscape in the developing economies has83
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undergone a radical transformation since 1985. These extensive tradeliberalization endeavors and their outcome have been widely documentedand commented upon (Greenaway and Morrissey, 1993; Dean et al., 1994;Dean, 1995). Therefore, at present, additional gains by way of domesticliberalization and deregulation undertaken for joining RIAs would not be aslarge for the developing economies as they were during the first wave of RIAs.However, one continuing benefit of commitment to an RIA is themechanism of ‘locking in’ or anchoring gains from liberalization and reforms,which result in concrete gains. When a smaller developing economy joins alarger industrial one in an RIA, it ensures that the policy reforms that havebeen undertaken will not be reversed by a protectionist future government. AnRIA takes the legal status of an international treaty. It is harder to repudiate aninternational treaty than bring in changes through national legislation. Thisseems to have happened in the agreements between the European Union (EU)and East European economies and in Mexico and the North American FreeTrade Area (NAFTA). To be sure, there are exceptions in this regard.2Furthermore, it is widely accepted that the domestic policy reforms which gowith an RIA are generally helpful in enhancing the credibility of domesticreforms and attracting FDI (refer to Chapter 2, section 2). Mexican experienceafter joining NAFTA is a good illustration. The NAFTA paid off richly forMexico even before it was initiated. There was a sudden spurt in FDI in thecountry. It was over $14 billion in 1991, up 50 percent from 1990. Until 1998,Mexico remained the second largest recipient of FDI in the region, afterBrazil, which was a much larger economy. In 1999, FDI inflows into Mexicowere $11 billion, which was close to the average of the 1995–98 period(UNCTAD, 2000).Although the plausibility of the RIA route of a liberal global trading systemis clear, it is far from an easy and smooth process. There can be a myriad ofproblems along the way, and it could well be what Shakespeare called a‘barfull strife’. Not all regional initiatives have progressed smoothly.Indubitably, they have their limits and limitations. For instance, the