MERCOSUR on the priceof its imports from non-members in an imperfectly competitive setting and
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with differentiated products. Formation of MERCOSUR had an immediateimpact on the pricing of exports of non-members to Brazil, the largesteconomy in MERCOSUR. The Treaty of Asuncion slashed the MFN tariffrates of the member economies by half at the end of 1991, and the other halfwas cut to zero in the next four years. The immediate effect of such large tariffcuts for member countries would be to increase their pre-tariff prices, whilethe non-members would do the reverse, that is, they would benefit fromreducing their pre-tariff prices. The broad conclusion of Chang and Winters(2000) was that while an RIA is intended to facilitate trade between theconstituent members without raising trade barriers to the non-members, asstipulated by Article XXIV, the non-member or innocent bystander iscompelled to reduce its export prices so that it can compete with the firmsfrom within the RIA. This necessarily results in a terms-of-trade loss for theinnocent bystander, leading to an unfavorable wealth effect.With the help of a multi-country, general equilibrium model based oncomparative advantages, Kose and Riezman (2000) found that being aninnocent bystander could be costly for a developing economy, particularly fora small developing one. However, according to Kose and Riezman (2000), inthis case the kind of RIA the developing country is opting out of matters agreat deal. The type of RIA significantly affects the size of welfare gains inthis model. If the innocent bystander was opting out of a CU, the losses werefound to be large, up to 70 percent of GDP. Conversely, if the RIA-formingeconomies decide to form an FTA, the losses are modest, close to 10 percentof the GDP of the innocent bystander. Thus, the inference for the policy makeris if the RIA is a CU, it is not desirable for a developing economy to be aninnocent bystander, but if it is an FTA it does not matter much. The third resultof this empirical exercise was that the developing country does best by beingpart of global free trade, or by liberalizing multilaterally, in other words, byintegrating globally.
8. CONCLUSIONS AND SUMMARYThe concept and phenomenon of RIAs failed to win over committed freetraders, who believe that whatever the trade expansion properties of RIAs,they can lead to substantial trade diversion, which in turn implies distortion ofefficient global allocation of resources, resulting in welfare losses.Notwithstanding the reality of trade diversion, while opting for themembership of an RIA, countries do not expect trade diversion losses tooutweigh the trade creation gains. In the present global economic mise-enscène, most countries find themselves much more ready to participate in aregional negotiation than in a multilateral one because they think that the
Rationale, motivation and welfare implications
53
chances of successful negotiations are maximized when they are undertaken ina regional fora.For most economies, the most persuasive motivation behind the formulationof an RIA is market expansion in such a manner that all partners of the RIAbenefit. Other principal motives include increase in bargaining power vis-à-visthird countries by becoming a part of an RIA, forming an RIA as a defenseagainst other RIAs and for locking in domestic economic reforms andliberalization. Even in the traditional domain of the WTO, that is trade ingoods and services, the RIA discipline can be made stronger than that of theWTO. Harmonization of regulatory regimes is another motivation behind themembership of RIAs. Modernization and upgradation of regulatory regimesgoes hand in hand with harmonization.Various rounds of multilateral trade negotiations have an impressive recordfor tariff reduction, particularly on manufactured products. In addition, manylarge and medium-sized developing economies made significant endeavors toliberalize unilaterally after the mid-1980s. As it was politically unpopular,they had to stop unilateral liberalization after a while. Evidence for the 1990sshows that many developing economies liberalized their economic regimes tobe a part of regional economic integration endeavors. RIAs, thus, contributedto liberalization of trade policy regimes.On an average, non-preferential-non-discriminatory liberalization wasfound to be superior to liberalization in the context of an RIA. In the formercase, economies were found to grow faster, both in the short and long term.Not the same could be said about the economies whose liberalization waslimited to the preferential variety. The constituent members of an RIA alsointegrate their domestic policies so that market-segmenting effects ofdifferences in national regulatory regimes can be reduced. Domestic policyintegration also ensures a ‘level playing field’ for the firms from the membercountries operating in the RIA and ensures that resurgence in trade barriersthrough the back door in the member economies does not take place.Forming an RIA affects trade flows and their directionality and, therefore,production patterns in the economies that are constituent members of that RIA.It has several dynamic impacts over the constituent member economies. Itchanges production patterns in the economies that are constituent members ofan RIA. Locations of production in the constituent member countries areseriously influenced. It also enlarges the markets for domestic firms, whichprovides scale economies to firms, which in turn leads to efficiency gains.Larger market also tends to attract greater investment, including more FDI.Larger manufacturing and services sector projects for which market sizematters become feasible for the first time due to the formation of an RIA.Dismantling of regional trade barriers also forces firms from different membercountries into more intense competition with each other than was feasible
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before the RIA was formed. This induces firms to make efficiencyimprovements and raise their level of total factor productivity. Thus, theimmediate impact of enlarged markets is larger firms and enhancedcompetition.When the constituent members of an RIA are at varying levels of economicdevelopment, it is known to promote technology transfers from the highincome, matured, industrialized economies to the lower-income lessdeveloped constituent members. As opposed to this, the impact of forming anRIA between developing economies tends to be problematic in severalrespects. Some empirical studies have called into question the economicbenefits of such RIAs. RIAs between developing economies that providepreferential access to the members but do not change their trade policies visà-vis the rest of the world, may well end up lowering the welfare of the entiretrade bloc. It is not different in the case of small economies.After the formation of an RIA, industries locate and/or relocate based ontheir comparative advantage. These decisions are also significantly driven bythe agglomeration or clustering effect, which implies that as clusters ofmanufacturing activity – or, say, economic activity in general – start todevelop in a country and/or in an RIA, a spatial clustering or agglomeration ofeconomic activity takes place assisting the location-specific development.Membership of an RIA affects the creation or expansion of spatial clusters.With such a membership, tariff and non-tariff barriers go down, or areeliminated. This makes forward and backward linkages stronger. Largernumbers of firms can participate in the creation of spatial clusters after theRIA formation. The opposite also holds, that is, an RIA makes it possible tosupply goods to consumers from a small number of spatial clusters.Welfare implications of an RIA are an extensively researched issue, bothfrom a static and dynamic perspective. Contemporary researchers see severalimperfections in the Vinerian concepts and static analysis. RIAs and tradeliberalization on a preferential basis do not necessarily have to be benign inthemselves, although there are numerous dynamic channels of welfare gainsthrough RIAs. They could be welfare enhancing but only under certainconditions. The kinds of economies that are the constituent members of anRIA determine the welfare gains accrued in it.A closely related query to welfare gains is whether RIAs are a force forincome convergence among the member economies or for income divergence.The answer is that it is conditional upon the level of economic developmentand per capita income of the member economies of the RIA in question. RIAformation can lead to both income convergence and income divergence,although neither can be taken for granted.Not being part of an RIA when some neighbors are doing so can have itscosts, particularly for a small developing economy. The kind of RIA a
Rationale, motivation and welfare implications
55
developing country is opting out of matters a great deal. The type of RIAsignificantly affects the size of welfare gains. If the innocent bystander wasopting out of a CU, the losses were found to be large, but if the RIA formingeconomies decide to form an FTA, the losses are modest.
NOTES1.
2.
3.
4.5.6.
7.8.9.10.
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.The 15-member European Union was expanded when 10 countries signed the AccessionTreaties in Athens, Greece, on 16 April 2003, extending its reach to include a broad swathof Europe once allied with the former Soviet Union. The 10 future members – Cyprus, theCzech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia– will formally join in May 2004. This would bring the total membership of the EU to 25.The Free Trade Area of the Americas has 34 members. Countries participating in thenegotiations of the FTAA held their Seventh Ministerial Meeting in Quito, Ecuador, on1 November 2002 with the intent of reviewing progress in the FTAA negotiations so as toestablish guidelines for the next phase. The negotiations are scheduled to conclude inJanuary 2005 in accordance with the terms agreed by the Heads of State and Government atthe Third Summit of the Americas, held in Quebec in April 2001. The negotiations are toseek the FTAA’s entry into force as soon as possible after January 2005, but in any case nolater than December 2005. The 34 members of the FTAA are Antigua and Barbuda,Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Chile, Colombia, CostaRica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana,Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Lucia, St. Kittsand Nevis, St. Vincent and Grenadines, Suriname, Trinidad and Tobago, Uruguay, theUnited States of America, and Venezuela (see Chapter 6, section 9.4).They were discussed at length during the Fourth Ministerial Conference, in Doha, Qatar, andfound an important place in the ministerial communiqué of November 14, 2001.Tariff binding is defined as a commitment not to increase a rate of duty beyond any agreedlevel. Once a rate of duty is bound, it may not be raised without compensating the affectedtrading partners. Tariff binding is enshrined in Article II of the GATT-1994.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 details.See Hoekman and Kostecki (2001) for greater details.After several infringements of the deadlines, the Uruguay Round was successfullycompleted in 1994 with the signing of the Marrakesh Agreement on 15 April. The WTO wasborn on 1 January 1995.‘Free-rider’ infers that a country does not make any trade concessions, nonetheless profitsfrom tariff cuts and concessions made by other countries in negotiations under the mostfavored-nation principle.In trade economics, the two expressions, namely, GATT-1947 and GATT-1994, arefrequently used. The latter is the revised version of the original GATT Agreement of 1947.The text of the Agreement was significantly revised and amended during the UruguayRound and the new version was agreed upon in Marrakesh, Morocco. It is apparent that theGATT-1994 reflected the outcome of the negotiations on issues relating to the
56
11.
12.
13.14.15.16.17.18.
19.20.21.22.23.24.
Regionalism in global tradeinterpretations of specific articles. In its renewed version, GATT-1994 includes specificunderstandings with respect to GATT Articles, its obligations and provisions, plus theMarrakesh Protocol of GATT-1994.The conclusion has been challenged because these papers assume, rather than test, the ideathat imports from industrial countries provide the correct weights with which to combinestocks of foreign knowledge. Keller (1998) has suggested that their results are a little betterthan would be obtained from relating TPF to a random weighting of foreign knowledgestocks.There are remarkable differences between the CEEC economies and their sectoral structures.For instance, in Hungary agriculture, food-processing, other manufacturing and metals areless important than in Poland and CEEC5 group, which comprises Bulgaria, the CzechRepublic, Slovakia, Slovenia and Romania. The characteristics of these sectors are that theyare relatively low-skilled and labor-intensive. The services sector is relatively moreimportant in contributing to GDP and value-added in Hungary. In contrast, in the CEEC5,manufacturing contributes a relatively higher proportion to GDP, especially sectors liketextiles and apparel and miscellaneous manufactures. The services sector, and thereforetrade in services, is much less important in the CEEC5 than in the other economies of thisgroup.Greece joined the EEC in 1981 while Spain and Portugal joined in 1986. This is referred toas the ‘Southern enlargement’ of the EEC.See, for instance, Puga (2002) and Venables (2003) for greater details.For instance, see Yeats (1998) and Schiff (1997).The total population of these 49 least developed countries was 600 million.The Commonwealth Secretariat/World Bank Joint Task Force Report (2002), Small States:Meeting Challenges in the Global Economy.Albert O. Hirschman propounded this theory in his book The Strategy of Economic Growth,published in 1958 by the Yale University Press, New Haven, Connecticut. Soon afterpublication of this book, his theory became exceedingly popular among the academic andpolicy-making communities.See Venables (2002) for greater details. Also, refer to Midelfart-Knarvik and Overman(2002) for a discussion on the EU experiences in this regard.According to Heydon (2002), the precise number in 2000 was 1941.This section draws on Chapter 4, Schiff and Winters (2003).See, for instance, Viner (1950); Meade (1955); Lipsey (1960) and Arndt (1969).Here a high-income country means one that has relatively higher per capita income relativeto other members of the RIA as well as to the world average. Venables (2002) came up withthese conclusions.Over 90 percent of the senior European business executives surveyed in July 2003 by theEconomic Intelligence unit were of this opinion. See Europe Enlarged: Understanding theImpact, July 2003.
3.
New regionalism: the evolvinglandscape
1. THE IMPETUS TO A NEW WAVE OF REGIONALISMBy 1967, the European Communities (EC) had successfully established aCommission, a Council, a Parliament and a Court. These institutions ofintegration have since evolved and expanded. Progress towards Europeanintegration has never been smooth and steady. The early period wascharacterized by rapid growth and enthusiastic advance towards regionalintegration followed by periods of doubt and retrenchment. The formerseemed to coincide with economic booms and the latter with recessions.The early 1980s found the European Economic Community (EEC)1 in amoribund state. The severe anti-inflationary policies at the beginning of thedecade helped the US and Japanese economies to recover, but the EEC seemedfirmly stuck in the mire. In addition, the growth rate of intra-EC trade wasuneven. The rapid increase that had characterized the early stages ofintegration had lost steam in the mid-1980s. It was around this period that theseeds of the ‘second’ or ‘new’ wave of regionalism were sown. Members ofthe EEC drew up their Single Market Programme (SMP) in 1986. The SMPwas to be completed by 1992, and the plan was called the EC-92. The wellpublicized EC-92 plans had a great deal of impact on the thinking of the policymandarins almost all the world over. They began to examine it as their ownpolicy alternative. The rapidity with which regional integration arrangements(RIAs) spread globally after the EC-92 plans were publicized testifies to thefact that policy makers were favorably disposed towards RIAs and theirimpact on real economic growth and well-being.On 1 December 1991, agreement was reached in Maastricht on the Treatyon European Union, with a timetable for the Economic and Monetary Union(EMU). The European Single Market was completed on 1 January 1993. On1 November 1993, the Maastricht Treaty came into force after the Danes voted‘Yes’ at the second try, and the EEC became the European Union (EU). TheCommission was the prime mover behind the Maastricht Treaty, whichformally created the EU and extended the competences of the Union to foreignaffairs and justice. The last move turned out to be unpopular among themember economies. However, the success of the SMP encouraged the57
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Commission to follow it up by further deep integration and centralization, onlyto find it rejected by governments and electorates. However, rejections did not‘threaten the basic fabric of the common market: tribute to its deep foundationin European perceptions, and to its pragmatic and non-confrontational modeof progress’ (Venables and Winters, 2003).The SMP had a sizable impact on cross-border investment and merger andacquisition (M&A) activity. It was an attempt to move towards deepereconomic integration that eventually led to monetary union. The EU had 15members in 1995 and it moved ahead from a single market stage, so that EMUcould be created. A Euro Zone of 12 economies has come into being.2 Thesingle currency came into being in January 1999, when the Euro waslaunched.3 Thus, deeper integration was promoted through various channels.Consequently, the share of intra-Euro area trade has doubled since 1970 andintra-trade flows have risen appreciably. Integration also led to lowerdispersion of prices in the EU economies, although it is still fairly high.Progress in integration between countries and markets has been uneven(OECD, 2000; OECD, 2001; de Serres, et al., 2002).After the EU was created, many policy-imposed barriers to the flow ofgoods, capital and labor have disappeared. Although some changes, like thelaunch of the euro, are fairly recent, the bulk of evidence suggests that goodsand financial market integration in the EU is sufficiently more advanced thanin the 30-country Organization for Economic Co-operation and Development(OECD). This was demonstrated by stronger correlations of consumption andoutput growth among the EU economies (de Serres, et al., 2002). Also, theeuro area’s business cycle is far more synchronized than that of other OECDeconomies. The flip side of the coin is that the degree of market integration islower in the EU than that observed between regions in individual EUeconomies. National borders have not lost their significance. Some studieshave reported continuance of a large border effect (Wolf, 2000).In the context of the second global wave of regional initiatives, numerousdynamic developments and a great deal of transformation took place. Whatwas past became the prologue. The 1990s, and the early 2000s, turned out tobe prolific in terms of the unprecedented number of RIA agreements that werenotified to the GATT and subsequently to the WTO and regionalism returnedwith a vengeance. Consequently, RIAs proliferated all over the globe.Regional trade data for this period suggests that this trend looks set to continue(WTO, 2002a). There was a strong demand to join or form an RIA oneconomic as well as political grounds. Analysts studying RIAs never refute theidea that typically there is a strong political motivation, apart from theeconomic one, behind the creation of RIAs. Bhagwati (1997) aptly quippedthat ‘no politician is happy unless he put his signature on at least one of them’.The second global wave of regional initiatives is also referred to as the ‘new
The evolving landscape
59
regionalism’. Here, ‘new’ can be taken as a chronological reference. After thenew regionalism started, the possible division of global economy into threetrading blocs – never an issue in the first wave of regionalism – was seriouslydebated by economists and political scientists.
2. THE ROLE OF TNCs IN THE EXPANSION OFNEW REGIONALISMTransnational corporations (TNCs) play a large and significant role in worldtrade. Intra-firm trade among TNCs has been estimated to account for onethird of total world trade and TNC trade with other TNCs and non-affiliatesaccounts for another one-third of the world trade (Anderson, 2001). The Top500 TNCs account for nearly 70 percent of worldwide trade and thispercentage has steadily increased over the past twenty years (WTO, 2003).Their actions and decisions influence world trade in a significant manner.Those who study the operations of large corporations and TNCs in the largeRIAs like the EU, NAFTA and APEC, have inferred that there is not only agreat deal of acceptance of regional integration among them but that they alsoplay a proactive role in the RIAs expansion. They are known for establishinghorizontal and vertical production linkages in several neighboring countries.Such linkages are common in industries like vehicles, chemicals and pharmaceuticals, machinery, including precision machinery and heavy machinerysectors, and most of all in electronics. In so doing, TNCs increase the abilityto exploit scale economies not only in production but also all along the valuechain. This enhances efficiency and has led to greater competitiveness. One ofthe direct impacts of RIAs is creation and expansion of FDI opportunities forthe TNCs (Chapter 2, section 5.2). Business associations and chambers ofcommerce in various regions are known to support RIAs. In some RIAs, likeAPEC, the role of business has been institutionalized by creating bodies likethe Pacific Business Forum.Global competition has intensified over the last quarter century, which hasmade market access an important variable. RIAs provide increased marketaccess to corporations and TNCs. With technological advances, product lifecycle has become short in many products. This observation appliesparticularly to the following industries: electronics, precision machinery,chemicals, and pharmaceuticals. Global diffusion of technologies andinnovation has become increasingly rapid. The timespan that competitors taketo respond to new innovations has shortened dramatically. This has mademarket access more important for spreading the fixed costs of R&D andinnovation. In addition, according to the current customer-friendly businesspractices in sophisticated products, local presence of the manufacturing firm
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or services provider is essential. RIAs are also known to facilitate such apresence. Besides, large corporations and TNCs in an RIA can also followmarket trends closely and acquire smaller innovative firms, which in turnmakes them more competitive (Lawrence, 1996).As the developing economies began to liberalize and reform theireconomies, they also sought to attract more foreign direct investment (FDI)and the TNCs. This was the period when they had abandoned importsubstitution strategies and their export-led growth phase had just begun. TNCsbegan to appear more attractive to these developing economies because oftheir reputation for knowledge spillover. The TNCs bring in knowledge aboutthe newest technologies, management techniques and strategies and readymade access to markets. Besides, demand for FDI from the developingeconomies increased pari passu with supply from the TNCs.Most developing economies that shifted towards liberal trade regime alsoshifted away from statism. It not only lost its attraction but many emergingmarket economies also began to equate it with economic decadence. The roleof the state was reduced through privatization, which in turn attracted TNCsand foreign investors more towards these developing economies. Asinternational competition intensified, small cost advantages for TNCs began tohave large consequences. Large corporations and TNCs found that thecomplete manufacture of complex products in one country is not the mostcost-effective method of production. With advances in information andcommunications technology and modes of transportation, they found that theycould manufacture a range of products in a more cost-effective manner bysourcing from multiple locations in the same contiguous region. The resultwas development of production networks spread over several economies in aparticular geographical region. Sourcing of raw materials, labor-intensiveprocesses, and technologically sophisticated processes began to be done indifferent countries in the same region. Several Asian economies – particularlythe newly industrialized economies (NIEs) and the ASEAN-4 (namely,Indonesia, Malaysia, Philippines, and Thailand) and subsequently China –participated in these pluri-country manufacturing processes. Regionalizationof global production has picked up momentum since the mid-1980s, which hasaided and abetted regionalism.Merely dismantling tariffs and non-tariff barriers leads to a relativelyshallow form of regional integration. As opposed to this, development ofregional production systems and promotion of investment – particularly inservices sectors – requires a deeper form of international integration than thatformation of regional trading agreements (RTAs). It requires harmonization –albeit initially incomplete – of other policies including competition policies,product standards, regulatory regimes, investment codes and environmentalpolicies. Without harmonization of this kind, multi-country production
The evolving landscape
61
integration becomes difficult, expensive, or even impossible. In addition, largeinvesting firms and TNCs are not encouraged to invest unless they are sure ofcredible, stable and capable governments, and unless they are certain abouteasy access to foreign markets. Harmonized customs procedures help a greatdeal. They reduce administration and cut down on costs. This brings about adeeper form of international integration, which in turn is easier to achieve atthe regional level.Going by the above exposition, it is easy to believe that large corporationsand TNCs can play (and have played) a strong role in promoting regional andmultilateral liberalization in the recent past. However, this view has not goneunchallenged. There are those who believe that TNCs are essentiallyconcerned with investment access, and that trade liberalization is low on theirpriority. Given the emergence of new modes of production operations andregional integration, it seems more likely that TNCs are interested in both,investment and regional integration. Without trade liberalization and theharmonization of standards and regulations, their objective of successfulregionalization of their operations is not likely to be met fully. When largecorporations and TNCs are a part of the game, RIAs would move memberstowards economic integration that is deep (Lawrence, 1996). It goes withoutdoubt that intra-TNC trade and investment promotes deep integration.The downside of this genre of deeper regional integration is that when smalland large economies, with unequal bargaining power, negotiate for an RIA,the larger and more matured and industrialized economies may successfullyextract concessions of all kinds not just in trade but in non-trade issues fromsmaller economies. Panagariya (1999) suspected that the agenda for deeperintegration is likely to be determined by the larger, more industrializedeconomies, not by their smaller less-industrialized partners. The expected roleof the smaller economies would be to adjust their norms and standards to thisagenda. In the process, they may even have to adopt some policy measures thatthey consider unsuitable to them. A hegemonic power may gain at the expenseof the smaller partners of the RIA, if it chooses to bargain sequentially ratherthan simultaneously.4
3. THE CHANGING KALEIDOSCOPEIn the context of new regionalism, 1988–89 was a watershed point becausethis is when the US agreed to and implemented the Free Trade Area withCanada5 (or CUSFTA) and abandoned four decades of opposition to theprinciple of regional integration. During 1990–92, a new sub-regional customsunion was agreed in the eastern half of South America, called MERCOSUR.6The North American Free Trade Area (NAFTA) was created in 1994. The
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deeper integration in the EU and the establishment of NAFTA led to a‘domino effect’ of renewed interest in and creation of RIAs. Subsequently,failure to launch the new Round of MTNs in Seattle in 1999 further heightenedthe popularity of RIAs globally, although few new regional initiatives weredesigned or launched in the immediate aftermath.Old preferential trade areas (PTAs) began to be revived. For instance, inLatin America in the early 1990s the Andean Pact7 (which, like MERCOSUR,was made between a sub-regional group of countries) and the CentralAmerican Common Market (CACM) began to be rejuvenated. In Africa, newPTAs were formed on old foundations, and some that had been languishing fora long while were given a new lease of life. For instance, Union Économiqueet Monétaire Ouest Africaine (UEMOA) was created out of the CommunautéÉconomique de l’Afrique Occidentale (CEAO), and the Common Market ofEastern and Southern Africa (COMESA) was resurrected. The PreferentialTrade Area for Eastern and Southern African States was expanded and theUnion Douanière et Économique de l’Afrique Centrale (UDEAC) wasrevamped. There were 13 different RIAs in Africa in 2000. In Asia, theAssociation of Southeast Asian Nations (ASEAN) countries agreed inprinciple in 1991 on the ASEAN Free Trade Area (AFTA).8 Historically,protectionist tendencies in Asia, North America and South America hadthwarted proposals for regional integration, creation and rejuvenation ofRIAs in these areas was a noteworthy change of attitude of policy mandarins.Thus, in the beginning of the twenty-first century, RIAs are found on everycontinent and more than half of world trade is being conducted underRIAs.9Many of the discontinued RIAs were superseded by renegotiatedagreements among the same signatories. In most cases this reflects theevolution over time of the agreements themselves. The older agreements weresuperseded by the new, more modern agreements, which adapted to the newdimensions of the members’ economies. In some cases the membership wasexpanded, while in others it remained the same. Generally the new agreementswent deeper in terms of integration. Of the RIAs that were concluded in the