based on a complex mix of multiplepositive lists, coupled with more complex arrangements of ‘special anddifferential treatment’ for the less developed members of the RIA. However,contrary to the initial hopes, the creation of European Economic Communitystyle bureaucracies and sectoral industrial planning choked private sectordevelopment in the Latin American economies. Trade liberalization endeavorsat the national level did not succeed under the ISI regime. Effectiveliberalization was limited and intra-regional trade was even more so. Theseregional accords were highly bureaucratized and, therefore, procedure andpaperwork oriented. Many of their agreements could never be implementedand remained merely on paper, which in turn was filed away by the largebureaucracies.
3. IMPACT OF THE 1982 CRISISThe 1982 debt crisis, which started in Mexico, was not only a serious blow tothe economies in Latin America but also affected several large regional
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economies in an adverse manner.6 The crisis also had global financialrepercussions and drove the global financial system to the brink of a precipice.The regional economies suffered from a deep balance-of-payments inducedrecession, which in turn was followed by a contraction in trade, includingintra-regional trade. Imports of the Latin American economies suffered aserious contraction in the post-crisis period, which again included intraregional imports. As they were the counterpart of intra-regional exports,recession in these economies resulted in the collapse of intra-regional trade.The regional economies, both small and large, were gripped with an economicparalysis. Consequently, many of the weakened regional trading agreements(RTAs) collapsed, or were close to collapsing. Devlin and Estevadeordal(2001) called the 1982 crisis ‘a death blow for regional integration’. Mostobservers believed that the economies in Latin America would not have anypenchant for regional integration in the near future.As alluded to in the preceding section, economies in Latin America, likethose in South Asia, had a history of following autarkic policies. The post1982 crisis environment evolved in a different manner. The new growthstrategy turned out to be an antithesis of the popular import-substitutingindustrialization strategy of the past. It was based on liberalization, deregulation, privatization, outward-orientation, correct relative prices, a marketfriendly policy ambience, relinquishment of ‘statist’ strategy7 and acceptanceof the ‘Washington consensus’, as propounded by John Williamson.8 Inconjunction with macroeconomic and political reforms that were undertakenafter the crisis, there was serious trade liberalization in a majority of the LatinAmerican economies. Tariff barriers were reduced and rationalized and nontariff barriers were used less frequently. Large regional economiesdramatically slashed their tariff rates. For instance, average tariffs inArgentina were around 30 percent in 1989, 51 percent in Brazil and over 100percent in Uruguay. These rates were reduced under the unilateral reformsundertaken in 1991 when the Treaty of Asuncion was signed. Commonexternal tariffs in 1995 were down to 10.7 percent (Laird, 1995; see alsoEstevadeordal et al., 2002a).
4. THE ERA OF RESURGENCE IN REGIONALINTEGRATIONMuch to the surprise of many observers, new initiatives to form RIAs beganto appear in the latter half of the 1980s. Given the backround of debt crisis of1982, such initiatives were not expected at this point in time. Most analystsbelieved that the Latin American economies would be more busy in bringingin some semblance of order to their domestic economies than launching new
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regional trade initiatives. A strong second wave of regionalism materialized inthe global economy during the 1990s and early 2000s. It provided an impetusto regionalism in Latin America as well. The causae causantes for adoptingregionalism for these economies was that they believed that it provided themwith a policy tool to participate in the increasingly integrated global economy(see section 1). There was substantial evidence for the policy makers toobserve that successful countries tended to deploy policies that proactivelyharnessed the forces of globalization for economic growth and development,while those countries that distanced themselves from these forces werelagging behind.It was due to these endeavors that since the mid-1980s, various economiesand sub-regions in Latin America experienced a quickened pace of integrationamong themselves as well as with the global economy. The measures adoptedfor liberalization in the area of trade were swift and extensive.9 Economiesbecame increasingly open, therefore traded components of output andconsumption as a share of GDP rose steadily. This was the tangible result of aconcerted liberalization endeavor in the region (Markusen and Diniz, 2003).Integration brought local goods and services face-to-face with those fromdifferent regional and global economies. Many firms and economies in theregion lost their traditional markets and product specializations to newregional and global firms. Many firms that had been shortsightedly servingtheir local markets were undercut by the more competitive imports, both fromwithin the region and without. Under these circumstances economies orregions found attracting and retaining capital a difficult proposition. In thenew dynamic scenario, fresh investment could no longer be taken for granted.Adoption of neo-liberal strategy, ongoing regionalization and globalizationhas resulted in markedly intensified competition among the Latin Americaneconomies and sub-regions over the last two decades. Competition for marketshas also intensified between Latin America and the other regions of the globe.The emerging mise-en-scène made the local firms examine their product lines,cost structures, and the export potential of their products. The competitionoffered by imported regional goods and services forced them to worry abouttheir present and future markets. They were forced to reevaluate theircomparative advantage, exploit it if they could, or find new market niches ifthey did not have comparative advantage in their product lines (Castells, 1999;Conti and Graciara, 2000).The Latin American economies treated RIA formation as one of thetools for trade policy liberalization (see Chapter 2, section 2). The RIAsrepresented a third tier of trade policy reform, which aims to complementand reinforce the unilateral (the first tier) and multilateral (the secondtier) liberalization undertaken as part of the structural reform programsthat had been underway since the mid-1980s. Multilateral organizations
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like the International Monetary Fund (IMF), the World Bank and theGATT-WTO system contributed significantly to this liberalization and reformprocess. The RIAs became an integral part of it and were instrumental inpromoting and anchoring liberalization and reform endeavours (Stiglitz,2002).The impact of the neo-liberal strategies was visible in the regional trade,which has expanded substantially over the last two decades. Exports soaredfrom $92 billion to 406 billion over the 1980-2000 period, while imports rosefrom $93 billion to $418 billion. The performance of Mexico has beenoutstanding in this respect, where exports leaped from $16 billion to $180billion over this period. Increases in trade volumes resulted in small increasesin current account deficits, which was normal. However, the Latin Americaneconomies also suffered from large capital account deficits. The two principalcausal factors were the large stocks of international debt and remittancesserving the external asset holdings from foreign direct investment (FDI).Between 1980 and 2000, the level of international debt in Latin America rosefrom $205 billion to $740 billion, heavily increasing the pressure on thebalance of payments of the regional economies. During the 1980s, the realGDP growth in Latin America was weak at 1.2 percent per annum, which didnot even keep pace with the population growth. During the 1990s, it improvedto 3.2 percent, but in per capita terms it was again merely 1.2 percent.Regional disparities were a traditional economic malaise in the region, whichstill persists (Markusen and Diniz, 2003).In the early years of the twenty-first century, the regional dimension of tradebecame a more important part of the domestic policy than ever in the past.Brisk growth of trade in the 1990s between the partner economies of RIAsraised the level of interdependence among them. But a number of RIAs inLatin America encountered problems due to instability in global capitalinflows, macroeconomic instability, and backsliding on regional commiments. The contagion effect – economic and financial problems ofneighbors effecting the home economy – added to the problems of theindividual Latin American economies as well as the RIAs (Das, 2003a).Apparently, the easy stage of regional integration is now over. The subregions will need renewed political leadership and commitment and aredoubling of efforts if they are to achieve their objectives regardingdeepening of present RIAs.The Latin American Free Trade Association lost momentum, and asuccessor was created in 1980 – the Latin American Integration Association(LAIA or ALADI in Spanish)10 and it was christened Economic Complementary Agreement (ECA or ACE in Spanish). The failures and problems of the1960s had taught many indelible lessons, which in turn benefited thelaunching of LAIA. It eschewed the grand but somewhat contradictory
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objectives and schemes of the 1960s. LAIA focused on a limited number ofachievable goals. It confined itself to market access through exchange ofpartial or full trade preferences on specific product lines. LAIA also adoptedregulations on the application of safeguard clauses, rules of origin (ROO), andthe like.A watered-down ACE agreement in the four Southern Cone economiesresulted in the signing of the Treaty of Asuncion in 1991 to launchMERCOSUR in 1995.11 Negotiations continued for the next five years andMERCOSUR did indeed come into force in 1995. It was formed by acontiguous sub-regional group of economies and was planned as a customsunion, with ambitions for a higher level of integration. Future plans are toevolve as a common market. Subsequently, it incorporated Bolivia and Chileas associate free trade area members.As set out in section 2, the Andean Pact (AP) was born with an ambition tobe a customs union. The 1988 Protocol of Quito called for amendments to theAndean Group’s (AG’s) founding treaty. Its institutional structure was alsorevised in 1988. During the early 1990s, a free trade area (FTA) was formedbetween the AG countries. Subsequently, an imperfect customs union wasformed among three of them, namely, Colombia, Ecuador and Venezuela. InDecember 1996, they changed their name to the Andean Community (AC orCAN in Spanish) (see section 9.1). As stated in section 2, the CACM waslaunched in 1960. It was revived and relaunched in 1993 with the sameobjectives as the AC.The first ACE agreements were being negotiated and launched in the late1980s and early 1990s in Latin America. As alluded to in section 1, the shiftin the US strategy toward regionalism dated back to 1985. In May 1986,Canada and the US launched their free trade area negotiations. This was ahighly significant development because both of these economies hadhistorically shown a marked preference for multilateral trade as opposed toregional trade. Their philosophical opposition to regionalism was well knownand they pointedly eschewed regional arrangements of any ilk. In the post-warperiod, the US was the pioneer of both free trade and multilateral trade, andconsidered regional trading arrangements as an anathema to the expansion ofmultilateralism. It was demonstrated by the US enthusiasm and support for thecreation of the International Trade Organization and, failing that, for theGeneral Agreement on Tariffs and Trade (GATT).The progress in negotiations was swift. By October 1987, the 20-chapterCanada–United States Free Trade Agreement (CUSFTA) was finalized. It wassigned in 1988 and came into effect on 1 January 1989. The CUSFTAincluded a schedule for the elimination of all tariffs on trade between Canadaand the United States by 1 January 1998. It established a mutually beneficialframework for the fair and predictable treatment of investors and included
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rules governing trade in services. The CUSFTA established the necessaryinstitutional provisions to provide for the joint management of the agreementand to avoid and settle any dispute respecting the interpretation or applicationof any element of the agreement. Its dispute settlement mechanism promotesfairness, predictability and security by giving each partner an equal voice inresolving problems through ready access to objective arbitration panels. TheCUSFTA established a dispute settlement mechanism that guaranteed theimpartial application of each partner’s anti-dumping and countervailing dutylaws. Binational arbitration panels can review final determinations of dumpingor subsidies. The implementation of the CUSFTA generated some transitionalemployment losses in some sectors, but this was accompanied by employmentgains in others. The economies of both countries became more integrated.Canadian exports to the United States have increased, especially in goods suchas telecommunications equipment. The same applies to trade in services,particularly in financial services and consulting. There is now much more USinvestment in Canada and vice versa.CUSFTA emerged as a different kind of FTA from the run of the mill FTAsnegotiated during this period. When Canada and the US launched their freetrade negotiations, it transformed the landscape of international tradenegotiations, and influenced thinking of the policy mandarins aboutregionalism. As alluded to in the preceding paragraph, the negotiators had alarge number of agenda issues, many more than mere market access and tariffsand non-tariff barriers. The negotiations extended to the so-called ‘new issues’like trade in services, regulations on foreign investment, governmentprocurement, intellectual property rights, trade facilitation and the like. Therewas little consensus on these issues at the multilateral level in the GATT,therefore the US objective was to first pursue a bilateral trade agreement onthese ‘new issues’ of the period. It was hoped that once this was achieved, itwould influence the conduct of future multilateral negotiations. The CUSFTAsucceeded in achieving this objective. Not only was a model for negotiationsestablished in a range of new areas but new approaches for negotiationswere proposed in some of the old areas, like ROO and dispute settlement.The CUSFTA is considered a watershed point in regional negotiationsessentially because in this case two countries moved from the usual marketaccess issues to areas which were traditionally considered part of sovereignpolicy of countries (Devlin and Estevadeordal, 2001; Estevadeordal et al.,2002a).The CUSFTA accord became a pioneer by bringing the ‘new issues’ intothe fold of an FTA. It is known for breaking away from the well-beaten trackof regional negotiations as well as for being pragmatic and innovative. TheCUSFTA subsequently became the prototype for launching the NorthAmerican Free Trade Area (NAFTA).
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5. POST-URUGUAY ROUND DEVELOPMENTS INREGIONALISMAfter the completion of the Uruguay Round in 1994, a new generation of RIAscovered Latin America. NAFTA was launched in the same year (see section 6below). The negotiations for MERCOSUR, as alluded to above, were in thefinal stages in 1994. An initiative for the most ambitious regional agreementin the region was taken in December 1994 by the Clinton Administration during the Miami Summit. This was called the Free Trade Area of theAmericas (FTAA), comprising 34 prospective member countries of North andSouth America and the Caribbean. Several ministerial meetings have takenplace since then (see section 9.4). Formal launch of negotiations took place in2001. In the Seventh Ministerial Meeting held in November 2002 in Quito,Ecuador, members decided that FTAA should enter into force by December2005.This scenario highlights the recent dynamism in regional integrationactivities in Latin America. Economies and RIAs in this region alsoparticipated in extra-regional trading blocs. The Asia Pacific Economic Cooperation (APEC) forum is a good illustration. Mexico became an APECmember in 1993 and Chile the next year. Peru had to wait until 1998 becauseAPEC had declared a three-year moratorium on membership. The APECannounced its so-called Bogor initiative in 1994, the year FTAA negotiationsbegan.12 According to this initiative, the 21 members of APEC agreed ‘to freeand open trade and investment in Asia-Pacific’ by 2010 for the industrializedeconomy members and 2020 for the developing members. The other extraregional trading block that has attracted the attention of the Latin Americaneconomies and RIAs was the European Union (EU). At the end of 1995, theEU signed an economic co-operation agreement with MERCOSUR, while aFramework Co-operation Agreement with Chile followed shortly after, inJune 1996. The most noteworthy agreement in this regard is the free trade onethat Mexico signed with the EU in 1999. It is far-reaching in its significance,and covers economic and political cooperation between the two. In April2000, the EU, MERCOSUR and Chile launched negotiations for AssociationAgreement (Estevadeordal, 2002).13For the purpose of preferentially reducing tariff barriers, the older methodin Latin America was to negotiate and fix tariffs below the MFN rates. Thiswas normally done only for select sectors and product lines. However, in the1990s, most RTAs, including the bilateral agreements, followed the NAFTApattern of preferential tariff reduction. This pattern encourages tariff phase-outprograms that were swifter than any in the past and had almost universalproduct coverage. Each program followed a pre-specified timetable, accordingto which some tariffs were eliminated right away, while other were dismantled
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over a period of ten years. For sensitive product lines, ad hoc time lengthswere negotiated, while some products or sectors were kept outside theliberalization program. The negotiations generally began with taking the basetariff rates into account, which were usually the MFN tariff rates. The phaseout negotiations and planning began from this.14As set out in section 1, both trade in general and intra-regional tradeexpanded significantly in the 1990s, but the early 2000s were not so buoyantin this regard. In 2001 and 2002, total exports from Latin America fell. In2002, they declined by 3 percent. Stagnation in global economic growth in2001 and 2002 adversely affected Latin American exports. Import demand inthe EU, Japan and the US was depressed. Intra-regional trade declined in 2001and 2002 in the region, it fell sharply by 12 percent in 2002. This was the endof a decade-long trend in which it had grown at more than twice the rate ofexports to the extra-regional markets. As regards the sub-regions, during 2002,the sharpest decline in trade was recorded in the MERCOSUR economies.Intra-MERCOSUR exports accounted for only 11 percent of total exports,down from 20 percent in 2000. Intra-Andean Community trade grew by2 percent in 2002, with 12 percent of the trade being intra-Andean Communityin 2002. Intra-CACM trade grew by only 1 percent in 2002, following agrowth of 12 percent in 2001 (IDB, 2002a).
6. NAFTA MADE HISTORYNAFTA was not only innovative but also historic from several perspectives.The CUSFTA which was regarded as highly imaginative and innovative, wasthe prototype used for crafting the NAFTA accord. Five years to the day afterthe CUSFTA was implemented, an expanded free trade area was created withthe implementation of NAFTA, which included Mexico. It came into effect on1 January 1994 and created the largest FTA in the world, covering at the time,some 360 million people and nearly $500 billion in yearly trade andinvestment. NAFTA maintained the tariff elimination schedule established bythe CUSFTA for the bilateral trade between Canada and the United States.Both countries negotiated separate bilateral schedules with Mexico for theelimination of tariffs. However, the three member countries agreed to abolishtariffs and non-tariff barriers completely by 2009. NAFTA had an enormousdemonstration effect in Latin America. In fact, it is said to have had a ‘dominoeffect’.NAFTA set out rules in areas such as investment, services, intellectualproperty, government procurement, competition policy and temporary entry ofbusiness persons. To promote the effective enforcement of each country’slabor and environmental laws and regulations, separate agreements were
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negotiated. The North American Agreement on Labor Cooperation wasdesigned to facilitate greater co-operation between Canada, the United Statesand Mexico in this area.The North American Agreement on Environmental Cooperation allowseach party to choose the level of environmental protection it considersappropriate. It makes clear that each country may adopt standards morestringent than international standards, but prohibits the lowering ofenvironmental standards to attract investment.NAFTA was considered historic because for the first time a developingeconomy was joining hands with two matured and industrialized economicpartners. It was the first such reciprocal agreement. Until this point, Mexicowas a beneficiary of the Generalized System of Preferences of Canada and theUS. As it became a NAFTA partner, its obligations became the same as thoseof the two industrialized economies. The launching of NAFTA is widelyconsidered a watershed in the economic relations between Canada and the USon the one hand and Latin America and the Caribbean on the other (Ocampo,2003). It not only set a new precedent but also gave a boost to the debates onthe creation of a hemispheric FTA.After 1994, NAFTA became a prototype for the other agreements in theAmericas. Many of the agreements in Latin America that flatteringly imitatedit, followed a similar or the same structure and scope as well as treatingasymmetries in the identical manner to NAFTA. For instance, theChile–Mexico and Chile–Canada agreements were based exactly on theinnovative NAFTA model, as were the new bilateral FTAs between Chile andMexico on the one side and countries throughout Latin America on the other.These FTAs began in the traditional manner, emphasizing the market-accessin-trade-in-goods approach, but increasingly acquiring NAFTA-like characteristics. After the launching of NAFTA, many sub-regional accords began topursue a deep integration strategy involving larger commitments in terms ofloss of commercial sovereignty than one finds in a common or garden varietyof FTA.During the latter half of the 1990s, two economies became the trade hub ofthe hemisphere by signing numerous FTAs. Estevadeordal (2002) hasprovided complete lists and details of these agreements. One, Mexico, was thefirst country to finalize three NAFTA-like agreements bilaterally withColombia, Costa Rica, and Venezuela in 1994. The Group-of-Three (or G-3)Agreement was signed under the Enabling Clause of the GATT betweenColombia, Mexico, and Venezuela. Another agreement on the NAFTA modelwas signed by Mexico with Bolivia. All these agreements came into force inearly 1995. Mexico did not lose this momentum and persisted in its endeavorsto negotiate similar free trade agreements with Nicaragua in 1997 and theNorthern Triangle countries in 2000. It had earlier concluded a free trade
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agreement with Chile, in 1991, which was upgraded and deepened in 1998 andmade into a NAFTA-style agreement.Chile was another Latin American economy which acquired a reputation forbuilding up strong trade and economic ties with other regional economies ona bilateral basis. Its free trade agreement with Mexico was wide in scope andcoverage, and was further upgraded and deepened. It went on negotiatingsimilar agreements with Venezuela (1992), Colombia (1993), and Ecuador(1994). Chile’s 1996 agreement with MERCOSUR was deeper and wider inscope and of a more sophisticated variety than the ones negotiated thus far.The same observation can be made about Chile’s 1998 free trade agreementwith Peru. The most significant and broadest expansion in the free tradeagreements signed by Chile took place when it finalized a NAFTA-likeagreement with Canada. Chile’s 1999 accord with the countries of the CentralAmerican Common Market was also based on the NAFTA model. In 2002,Chile started negotiating a NAFTA-like accord with the US. When concluded,it will add to the ever-growing list of North–South free trade agreements in theLatin American region. When these new agreements were being launched,some of the older accords like the AC and CACM were busy carrying outgradual institutional and policy reforms.The EU–Mexico accord of 1999, noted in section 5, was also based on theNAFTA model. The influence exerted by NAFTA was still strong in 2001when MERCOSUR was negotiating to create an FTA with the AC. Extendingthis FTA across the Atlantic to the EU was also on the cards. Also in 2001,Chile was negotiating an FTA with South Korea, and the EU and Costa Ricahad completed an FTA with Canada. Negotiations for the large FTAA wereprogressing and were at an advanced stage for completion and launch in 2005.These negotiations were also benefiting from the much-admired NAFTAprototype.
7. NEW REGIONALISM IN LATIN AMERICAWith the adoption of broad-based structural reforms and trade liberalization inthe latter half of the 1980s and 1990s, ‘new regionalism’ was adopted by theregional economies. It has been noted in section 4 that a three-tierliberalization strategy was pursued, which entailed unilateral, multilateral andregional integration. The liberalization and structural reform strategy linked tothe new regionalism was reflected in unilateral slashing of tariff barriers,which were drastically reduced between 1985 and 2000, when they were lessthan 12 percent on average. The average maximum tariffs in Latin Americadeclined from more than 80 percent in the mid-1980s to 40 percent in 2000,with only two economies applying maximum tariffs of up to 100 percent on a
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small number of product lines. Tariff dispersion also declined, from 30 percentto 9 percent over this period. The highest average rate of tariffs and highestdispersion rate, as measured by the standard deviation, were 15 percent in2000. However, to avoid creating an erroneous impression, it must also beindicated that there were still several tariff peaks or ‘spikes’ in the regionaleconomies. Approximately 22 percent of tariff lines were subject to ratesabove 20 percent.15As for multilateral liberalization, the regional economies were enthusiasticparticipants in the last GATT round of multilateral trade negotiations, theUruguay Round (1986–94). Under their commitments to the GATT, the LatinAmerican economies not only dismantled tariff barriers but also made the newlevels of market access legally binding. According to the new trade discipline,all the participating economies were required to bind tariffs to a specifiedmaximum. One of the many achievements of the Uruguay Round was thesubstantial increase in binding of tariffs by the developing economies. Theyincreased from 22 percent before the round to 72 percent after the round. Forthe economies in transition, this proportion increased from 78 percent to 98percent.Thus, regional integration underpinned continued momentum in thedomestic liberalization process. The fiscal implications of domestic liberalization were not high because of a history of autarky in Latin America and lowabsolute levels of trade among the regional economies. Political resistance toliberalization and regional integration was also not entrenched. The reasonwas that increasing imports generally worked in tandem with rising exports.Therefore, policy makers in Latin America continued to use regionalintegration as an effective policy instrument for deepening the liberalization.Regional integration-based regulations and peer pressure were conducive to‘locking in’ or anchoring liberalization commitments, which under a unilateralpolicy would be reversible without any difficulty. Many Latin Americaneconomies were forced to reverse some their liberal policies during the 1990sand early 2000s when several of them suffered either from a crisis or thecontagion effect. Under severe fiscal or balance-of-payments shocks manyeconomies had to raise tariff walls, and revert to protectionism (Devlin andEstevadeordal, 2001).Adoption of new regionalism also led to rejection of the old ‘dependencia’doctrine, with which the Latin America economies were associated in the past.Consequently, they began to attract FDI instead of obstructing it. The old FDIphobia has turned into current appreciation of FDI, recognition of itscontribution to the enhancement of competitiveness of domestic industrialsectors, and its benefits in accessing export markets. In a globalizingworld economy, there has been an intense competition for global capitalamong the developing and emerging-market economies. A small number of
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emerging-market economies have become highly successful at attractingFDI.16 Creation of regional blocs like MERCOSUR is being deployed as a wayof distinguishing economies from competitors for the purpose of attractingFDI. In addition, the new regionalism provided support to trade andinvestment activities, which in turn is transforming productive sectors in theLatin America economies. There has not only been a strong growth in extraregional exports, but also product mix has become more diversified thanbefore. The strategy of new regionalism has also indirectly contributed togreater investment in, and production of, differentiated, knowledge-basedmanufactured goods and expansion of scale economies through increase inintra-regional trade.The new regionalism-related strategies, coupled with the adoption ofmarket-friendly outward-oriented strategies, enabled Latin America to bebetter integrated with the global economy and a more active participant in theglobal fora. Enhanced regional integration has allowed these economies tocooperate and become more effective global players. During the ongoingnegotiations for the FTAA, MERCOSUR, the AC and CARICOM allparticipated as sub-regional blocs, which gave them more clout than if eachcountry had participated individually.Although unilateral liberalization and the Uruguay Round coalesced toeliminate or slash most of the tariff lines, regional trade is still obstructed anddistorted by non-tariff barriers (NTBs) like onerous customs procedures,technical barriers to trade, and trade-related surcharges. Besides, there isevidence of stringent interpretations of the ROO obstructing regional tradeflows. Insufficient harmonization or lack of mutual recognition of regulatoryframeworks have also restricted full exploitation of the opportunities for theexpansion of regional trade. The economic payoff from effectively addressingthese issues would indeed be high and would substantially reinforce thereturns to tariff liberalization. However, the political economy of dismantlingthese obstacles is complex, and progress has so far been unimpressive.New regionalism failed to resolve