<s> Regionalism in Global Trade
For my wife Vasanti,and to a beautiful life lived with her.
Regionalism in GlobalTradeDilip K. Das
Edward ElgarCheltenham, UK • Northampton, MA, USA
© Dilip K. Das, 2004All rights reserved. No part of this publication may be reproduced, stored ina retrieval system or transmitted in any form or by any means, electronic,mechanical or photocopying, recording, or otherwise without the priorpermission of the publisher.Published byEdward Elgar Publishing LimitedGlensanda HouseMontpellier ParadeCheltenhamGlos GL50 1UAUKEdward Elgar Publishing, Inc.136 West StreetSuite 202NorthamptonMassachusetts 01060USA
A catalogue record for this bookis available from the British LibraryLibrary of Congress Cataloguing in Publication DataDas, Dilip K., 1945Regionalism in global trade / Dilip K. Das.p. cm.Includes bibliographical references.ISBN 1-84376-817-81. Trade blocs. 2. Regionalism. 3. Free trade. 4. International trade. 5.Globalization–Economic aspects. I. Title.HF1418.7.D37 2004382'.9–dc222004048267
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall
ContentsList of AbbreviationsPreface
viixi
1. Globalism versus regionalism
1
2.
Rationale, motivation and welfare implications
25
3.
New regionalism: the evolving landscape
57
4.
RIAs and the global trading system
83
5. Regionalism in Asia-Pacific
123
6.
171
Regionalism in the Western Hemisphere
Bibliography
203
Index
219
v
Being and non-being create each other.Difficult and easy support each other.Long and short define each other.High and low depend on each other.Therefore the Masteracts without doing anything;and teaches without saying anything.Things arise and she lets them come;things disappear and she lets them go.She has but doesn’t possess,acts but doesn’t expect.When her work is done, she forgets it.That is why it lasts forever.from Tao Te Ching
AbbreviationsAAACACPACUAEMUAGADADMsAFTAANZCERIAAPECAPTAPTAARFAASEANATCBITCARIBCANCARICOMCACMCATIFTACBICDBCEAOCEECCEFTACEPTCEPCERCETCETsCDCGECOMESA
Agreement on AgricultureAndean CommunityAfrican, Caribbean and PacificAsian currency unitAfrican Economic and Monetary UnionAndean Groupanti-dumpinganti-dumping measuresASEAN Free-trade areaAustralia–New Zealand Closer Economic Relations TradeAgreementAsia Pacific Economic Co-operationASEAN-Plus-ThreeASEAN Preferential Trading ArrangementAsian Regional Financial ArrangementAssociation of South East Asian NationsAgreement on Textiles and Clothingbilateral investment treatyCaribbean–Canada Trade AgreementCaribbean Community and Common MarketCentral American Common MarketCaribbean Free Trade AssociationCaribbean Basin InitiativeCaribbean Development BankCommunauté Economique de l’Afrique OccidentaleCentral and East European CountriesCentral European Free Trade Areacommon effective preferential tariffCloser Economic PartnershipCloser Economic Relationscommon external tradecommon external tariffscountervailingcomputable general equilibriumCommon Market for Eastern and Southern Africavii
viii
CPsCPACUCUSFTAEACMECOWASECSCEACEAVGEAFTAEEAEECEIAEFTAEMEAPEMPAEMSEMUEPERIMEUFDIFSUFTAAETDESGATSGATTGCCGDPGNPGSPHKMAIAPICSIDICTICORIORIORGIOSITOITUIS
Regionalism in global trade
contracting partiesCotonou Partnership Agreementcustoms unionCanada–United States Free Trade AreaEast African Common MarketEconomic Community of West African StatesEuropean Coal and Steel CommunityEast African CooperationEast Asia Vision GroupEast Asia Free-trade areaEuropean Economic AreaEuropean Economic Communityeconomic integration agreementEuropean Free-Trade AreaExecutives’ Meeting of East-Asia-Pacific Central BanksEuro-Mediterranean Partnership AgreementEuropean Monetary SystemEconomic and Monetary Unionexport promotionExchange Rate and Intervention MechanismEuropean Unionforeign direct investmentformer Soviet UnionFree Trade Area of the AmericasElectronic Trade Documentation Exchange SystemGeneral Agreement on Trade in ServicesGeneral Agreement on Tariffs and TradeGulf Co-operation Councilgross domestic productgross national productGeneralized System of PreferencesHong Kong Monetary Authorityindividual action planInternational Center for Settlement of Investment Disputesinformation communications technologyincremental capital output rationIndian Ocean rim or regionIndian Ocean Rim GroupingInternational Organization for StandardizationInternational Trade OrganizationInternational Telecommunications Unionimport-substitution
Abbreviations
ISIJSEPAJSGLACLDCLAFTALAIAMERCOSURMFAMFNMRAsMTNsNIEsNIAEsNTBNAFTAOAUOECDOLSOPTADPAFTAPBFPECCPPPPTAQRsR&DRlAsROORTASAARCSACUSADCSAPTASDTSEACENSIDSSMPSOEsSPSTBTTFP
ix
import-substituting industrializationJapan–Singapore Economic Partnership AgreementJoint Study GroupLatin American and Caribbeanleast developed countryLatin American Free Trade AreaLatin American Integration AgreementMercado Comun del SurMultifibre Agreementmost-favored-nationmutual recognition agreementsmultilateral trade negotiationsnewly industrialized economiesnewly industrialized Asian economiesnon-tariff barrierNorth American Free-trade areaOrganization of African UnityOrganization for Economic Co-operation and Developmentordinary least squareOrganization for Pacific Trade and DevelopmentPacific Free-Trade AreaPacific Business ForumPacific Economic Co-operation Conferencepurchasing power paritypreferential trade agreementquantitative restrictionsresearch and developmentregional integration agreementsrules of originregional trade agreementSouth Asian Association for Regional Co-operationSouth African Customs UnionSouthern African Development CommunitySMRC Preferential Trade Areaspecial and differential treatmentSouth East Asian Central Bankssmall island developing stateSingle Market Programstate-owned enterprisessanitary and phytosanitarytechnical barriers to tradetotal factor productivity
x
TNCsTRIPSUDEACUEMOAUNUNCTADUSTRVERWAEMUWCOWTO
Regionalism in global trade
transnational corporationsTrade Related Aspects of Intellectual Property RightsUnion Douanière et Économique de l’Afrique CentraleUnion Économique et Monétaire Ouest AfricaineUnited NationsUnited Nations Conference on Trade and DevelopmentUnited States Trade Representativevoluntary export restraintWest African Economic and Monetary UnionWorld Customs OrganizationWorld Trade Organization
PrefaceThis book addresses one of the most important aspects of international trade,namely, regional trade and regional integration agreements (RIAs). They havebecome an integral and enduring aspect of the multilateral trading regime.RIAs are groupings of countries formed with the objective of reducing barriersto trade between member countries. They have long historical antecedents.They were also a part of the process of nation building. As noted in Chapter 1,the Zollverein in nineteenth-century Germany was responsible for creatingthe modern German state. RIAs were also a part of the colonial tradingarrangements. Over the post-war period the European Economic Community(EEC), presently the European Union (EU), led developments in this area.Over the last decade regional integration became the focus of intense globalinterest, debate and scrutiny.To a much greater extent than is often realized and acknowledged, regionaland multilateral integration initiatives are complements rather thanalternatives in the pursuit of more open global trade. The objective of thisbook is to evaluate the pattern and gauge the progress of regional integrationin the global economy over the post-war, and more specifically during thecontemporary, periods. By contemporary period I imply the decade of the1990s and the early 2000s. Although the essential focus of this book is ontrade, it also delves into macroeconomic and investment related issues inregional co-operation and integration.Although a derogation of the World Trade Organization (WTO) discipline,regional trade and integration is an intellectually challenging phenomenon.RIAs seem to arouse more debate and passion than do most other issues ininternational economic policy. During the 1990s, this issue led to unseemlyspats among academics. The height was when a noted researcher was publiclyaccused of CIA connections. With virtually all the 146 members of the WTOpartners in at least one RIA, and several part of two or more, RIAs havebecome by far the most important exception to the most-favored-nation(MFN) principle. It is intuitive to assume that with a large number of RIAs ofdifferent kinds in force, a great deal of the global trade must be influenced, ifnot governed, by them. Quantifying trade under various preferential tradeagreements is not easy. It faces methodological problems. However, it isbelieved that at present ‘more than half of the world trade’ is intra-RIA (WorldTrade Organization, 2002c).xi
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The RIAs in trade in goods fall under three WTO categories, albeit they aregenerally treated as falling under the same rubric. The three categories are (1)the Article XXIV arrangements, (2) the Enabling Clause arrangements limitedto developing countries and permitting partial preferences under theGeneralized System of Preferences (GSP) and (3) the arrangements permittedby the WTO through a grant of an exception of Article I. What is more,regional integration that covers trade in service is governed by Article V of theGeneral Agreement on Trade in Services (GATS). After an RIA is launched,the WTO has to be notified of its date of launch, membership details, legalagreement, coverage and the category under which it has been launched. Sincethe birth of the WTO in January 1995, on an average 15 RIAs have beennotified every year. Compared to this, an average of three RIAs were notifiedto the GATT annually during its entire lifetime spanning 1948 to 1994. To besure, the increase in notification reflects in part an increase in the membershipof the WTO, and in part, new notification obligations.RIAs presently have widespread existence in the global economy. As theirnumber multiplies, networks of overlapping agreements may generateintricate webs of discriminatory treatment, which are likely to lead to complexand incoherent regulatory structures for the conduct of a growing share ofworld trade. Some economists believe that this proliferation of RIAs should bewelcomed, while others are less sanguine and emphasize the importance andprimacy of multilateral trade liberalization. The latter group warns against thediscrimination and fragmentation of the global economy that can accompanythe spread of RIAs. References to the EEC and EU have been made repeatedlyin this book. The reason is that it is the oldest RIA of the contemporary period,lasting for almost half a century. Progress made by the EEC/EU has a gooddeal of educational value for the other RIAs.Interestingly, the present trend of regionalization of the global tradingsystem is progressing in the background of a strong trend towardglobalization. Thus, both centripetal and centrifugal forces are working onregional economies simultaneously. There are some who argue that RIAsdivert attention from the multilateral efforts to liberalize global trade andexpend scarce negotiating resources. Others, however, assert that the negotiating realities require an admixture of regional and multilateral initiatives.In the early 2000s, several pluri-dimensional and inter-linked issues werethe subjects of raging debates among the members of the WTO. Some of themhad legal overtones, while other were institutional issues. Some age-oldeconomic chestnuts were also the focus of attention of the members. Forinstance, Article XXIV of the GATT-1994 was one such issue. Article XXIVhas been decried as an antithesis of the spirit of the GATT–WTO system,because it allows members of a trade bloc to discriminate against the nonmembers. However, the authors of Article XXIV, in their pragmatic desire to
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accommodate RIAs, were cautious in guarding the interests of the non-RIAmembers. They also attempted to ensure that RIAs were compatible with arule-based and progressively more open world trading system. Theconventional wisdom in this regard is that Article XXIV ensures that tradebloc formation ensures free trade. However, one view holds that in realityArticle XXIV is partly responsible for the difficulties in further multilateraltrade liberalization.There is no presumption in this book that RIAs are benign and welfareenhancing. They can indeed be welfare enhancing, but only under certainconditions. In assessing the appropriate integrative strategy in regionalizationfor promoting economic growth, it is essential to look at how regionalism inthe global economy developed to its current state and what are the mostimportant trends and features during its contemporary phase of development.In this book, we examine inter alia the motivating factors and underlyingdynamics of the progression towards closer regional and sub-regionalcooperation and integration in the global economy. The objective of this bookis to address the regionalization of world trade against a background ofadvancing global integration. In an interesting and scholarly manner, this bookattempts to meet the needs of students as well as policy mandarins in this area.This book also attempts to make them understand how the dual forces ofregionalism and globalism are impacting upon the world economy,particularly trade in goods and services.Regional trade is a complex and diffused issue – albeit governed by simpleprinciples – RIAs are even more so. This book covers several important areasgermaine to the theme of regionalism in a globalizing world economy. It isdivided into six chapters, which cover a large area of contemporary knowledgein regionalism vis-à-vis multilateralism, the RIAs and the recent developmentsin them. RIA-related economic issues like motivation, rationale and welfareimplications are the focus of the second chapter. Regionalism as applied totrade in goods as well as in services is examined. The third chapter focuses oncontemporary regionalism, which has been christened the ‘new regionalism’.In this context, one can say that what is past is prologue. The characteristicsof new regionalism, its impact, evolving landscape and constantly changingRIA kaleidoscope are closely examined. The RIAs and global trading systemis the theme of the fourth chapter, along with the idiosyncrasies of ArticleXXIV of the GATT–WTO system. The post-Uruguay Round developments inregionalism are discussed and so is the progress in the Doha Round ofmultilateral trade negotiations. Two regional foci of the book are the AsiaPacific region, the most dynamic regional of the global economy and theWestern Hemisphere, where regionalism has had a long history – although theUnited States and Canada are recent converts. The last two chapters have beendevoted to these two regional experiences. They provide a varied perspective
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on RIAs because their historic and economic features differ radically fromeach other.During the 1990s, RIA-related issues grew in significance, both for studentsof international economics, and academic scholars on the one hand and policymandarins on the other. In the foreseeable future, they are likely to gainmomentum and grow more significant. The agreement for the Free Trade Areaof the Americas (FTAA) was signed in 2001. With 34 members, it ispotentially the largest free trade area (FTA) ever attempted. Negotiations forthe FTAA are progressing rapidly; it is scheduled to come into force in late2005. The Accession Treaty to include ten more countries in the EuropeanUnion (EU) was signed in April 2003 and these ten economies are due tobecome the new members of the EU in May 2004. Save for Cyprus and Malta,these are all Central and East European Countries (CEEC) countries. Theseeight economies were satellite economies of the Soviet Union until its collapsein 1990–91. Bulgaria, Romania and Turkey, three candidates for futuremembership, are waiting on the sidelines. The Association of South EastAsian Nations (ASEAN) is actively endeavoring to include China – which isfast emerging as a highly successful trading economy accounting for 4.7percent of global trade in 2002 – and Japan and Korea to complete theASEAN-Plus-Three grouping. Several ‘New Age’ initiatives, which entailbilateral free trade agreements, like the one between Japan and Korea, are alsounderway.In this book we try to see whether regionalism has a rightful place in arapidly globalizing world economy in the new century. We try to see whatplace RIAs have in the global trading system, what their welfare implicationsare and whether they adversely affect the global trading system.A unique feature of the book is that it deals with regionalism in a nuancedmanner, in the background of on-going globalization. The traditionaltreatment used to be to analyse regionalism per se. Second, it familiarizes thereaders with the newest concepts and latest knowledge in this sub-discipline.Regionalism has become a fertile area of academic research. The results ofthese analyses and research projects need to be presented in a comprehensiblemanner for the student and policy-making communities.The book is pitched at the level of masters’ level students in InternationalEconomics, International Political Economy, Political Science, InternationalRelations as well as MBA students. In business schools courses on‘environment of business’ are taught, which would find the book useful.Senior level undergraduate students and researchers in the area of internationaltrade and regionalism can also benefit from it. Decision makers in businessand public policy community would find this book germaine to their work.Although analytical, this book is not rigorous and is not aimed at academicscholars in the area of international trade. It steers clear of complex modeling
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exercises, because a great many times they are inaccessible even to brightstudents.A recent acknowledgement I read began with the following words: ‘Thisbook comes to publishing trailing clouds of the kindness of others.’ Thesegracious sentiments represent what follows in these pages as well. Mygratitude is due to my son, Siddharth, for providing efficacious researchassistance, so very cheerfully. I thankfully acknowledge the generousassistance of L. Alan Winters, Professor of Economics, School of SocialSciences, University of Sussex; Anthony J. Venables, Yu Kuo-Hwa Professorof International Economics, London School of Economics, London, andJeffrey A. Frankel, Professor of Economics, Harvard University, for eitherproviding me with drafts of their current research work, or for giving mepermission to cite from their work, or both. In particular, Alan kept in touchwith me despite his frequent travels and overflowing schedule. He did notmake me feel that my e-mail messages were nagging him. Throughout thisendeavor my wife, Vasanti, remained a kind friend and wise counselor. Sheput up with my sixteen-hour long days with a smile and without complaining.I am grateful for her support.
TorontoSeptember 2003
Dilip K. Das
1. Globalism versus regionalism1. GLOBALISM VERSUS REGIONALISMThe closing years of the twentieth century are notable for the expansion anddeepening of globalization. It essentially refers to the on-going economic,financial, technological, social and political integration of countries around theglobe. New technologies, steeply declining transport and communication costsand more liberal trading and financial regimes have led to increased tradevolumes, larger investment flows, and creation of increasingly footlooseproduction networks that ignore national boundaries. At this point in timesome twenty-five developing economies have successfully joined in the globaleconomic integration process. This new group of economies has beenchristened the emerging-market economies.1 Historically, globalization is notknown for unidirectional progress. Yet, barring the unforeseen, thecontemporary wave of globalization is likely to continue and more countrieswill try and integrate with the global economy in the foreseeable future (Das,2003a).A three-way interaction between globalization, the supra-nationalinstitutions and various sub-groups of economies has created a new dynamicsin the global economy. All the sub-groups of economies, developing,transition, emerging-market and industrial are feeling the pervasive effects ofglobalization. Second, these economies are also being affected by, andaffecting, institutions like the Bretton Woods twins and the World TradeOrganization (WTO).2 On the one hand, evolution of these supra-nationalinstitutions is influencing the policy options in these country groups, and onthe other, the ability of these country groups to have an impact on the supranational institutions has been rising. This dynamic three-way interaction ishaving a discernible impact on the policy-making process at the national,regional and global levels.There are several dimensions to the dynamics of the globalization process,including the integration of trade and financial transactions among countries.Powerful economic and political forces have accelerated the globalization ofmarkets. Managed correctly, globalization can turn into a forceful public good.Advancing financial globalization and the resulting contagion effect – whichis considered a downside of financial globalization – has added to theproblems of individual economies as well as that of regional integration1
2
Regionalism in global trade
arrangements. On the economic side, globalization is essentially being drivenby liberalization, deregulation and technological advancement. The relativecosts of air, ocean and land transport have continued to fall, making crossborder merchandise transactions less expensive. The revolution in informationcommunications technology has had an even more dramatic impact on trade inservices, particularly financial services. The improved availability ofinformation and declining transaction costs have stimulated internationalflows of capital, labor and technology – or knowledge in general. To be sure,none of this would have been possible in the absence of political decisions topursue policies consistent with globalization. The global economic, financialand trade scenarios are fast undergoing a discernible transformation. Scholarslike Kenichi Ohmae have pointed out the advent and significance of a ‘borderless economy’, growth of global federalism, the decline in the significance ofthe nation state, and the rise of consumer sovereignty (Ohmae, 1985).After the first oil shock in 1973, a fortiori during the decade of the 1990suntil the beginning of the Asian crisis, a good deal of progress was made ineconomic globalization. Since the mid-1980s, a large number of developing,transition and emerging-market economies undertook unilateral andmultilateral liberalization of their economies (Das, 2003b). In the backdrop ofrapid globalization during this period, a paradox in the global trading systemis easy to see. The reference here is to rising interest in, and number of,regional trading blocs in the global economy. A la Peter Drucker, the paradoxis that the rapidly integrating global economy is overlain with ‘a splinteringworld polity’ (Drucker, 1987). The global economic and trading system hascome under dual forces. The economic globalism affecting it was a centripetalforce, pulling the global economies together into an integrated, organicwhole. As opposed to this, regionalism was a centrifugal force, which exertedpressure in the opposite direction. Although the two forces seemingly pulledthe global economy in opposite directions, they reflected complementarydimensions of dynamic capitalist market development. The two opposingforces may well be compatible and may coexist.The meaning of regional integration must be clarified at the outset, soshould the use of the generic term ‘regional integration agreement orarrangement’ (RIA) used in this book. It basically and traditionally impliesdiscriminatory trade liberalization. Two or more economies, under an RIA,can decide to lower trade barriers against one another vis-à-vis the rest of theglobal economy. This could be variously described as preferential tradeagreement, or reciprocal preferential arrangement, or discriminatory tradingarrangement.It is common to find RIAs between neighboring economies. They aregenerally regional and contiguous in the geographic sense, although it is nolonger a necessary condition. RTAs were formed between: the US and Israel,
Globalism versus regionalism
3
Canada and Chile, South Africa and the EU; while Asia Pacific EconomicCo-operation (APEC) forum has far-flung members. The use of the term‘regional’ continues even when RIAs members do not belong to a particulargeographical region. Thus, the use of term ‘regional’ could be a completemisnomer, and could merely be used for a group of countries that falls shortof global.For an analytical discussion of an RIA, its geographical contiguity, or itsbeing part of a region, is not necessary. In the past, one generally required atleast three countries to form an RIA. This condition no longer holds. Duringthe late 1990s, two-economy groups began negotiating RIAs. Regionalismcontributes to regional economic integration as well as to creating regionaltrading blocs. Different kinds and degrees of regionalism will be discussed inthis book. Semantics in this regard is important because it can affect the waypeople think about RIAs. For instance, terms like ‘free trade agreement’ arenot seen as having a protectionist ring around them. To be sure, ‘preferentialtrade agreement’ sounds less discriminatory and benign. However, anexpression like ‘discriminatory trade agreement’ sounds offensive, aggressive,something that transgresses and is objectionable (WB, 2000).That regionalism has been on the rise is a well-accepted fact. The evidenceregarding the stock of completed RIAs, and the large number of RIAsplanned or under negotiation, is a testimony to the basic attraction of suchagreements to virtually all 146 WTO members.3 As noted above, at the turnof the twenty-first century, both globalism and regionalism have come tocoexist in the global trading system. The two trends have been burgeoningtogether. These developments raise important questions for the global tradingsystem. It is being increasingly assumed that building complementary regionaland multilateral institutions is the most pragmatic way of grappling withthe complexities of the fast-changing global economic and trade realities.However, in the wake of the debacle at the third Ministerial Conference ofthe WTO in Seattle,4 it became necessary to take a good look at this standand to question this easy assumption. Does regionalism have a direct, effectiveand systemic link with trade liberalization? The opposite can also be true.Is regionalism fragmenting global trade, and in the process creating anew global disorder characterized by growing rivalries and marginalization(Das, 2001)? How RIAs impact upon the global trading system is anotheropen and moot question. In this book we address these assumptions andqueries.The assumption that regionalism is a short cut to globalization does notalways have to be correct. Cogent arguments exist on both the sides of thedebate. Growth in regionalism does not necessarily have to lead to expansionof free trade or a liberalized trading regime. It is believed by some that thetarget of free or liberalized trade is easier to reach in large regional agreements
4
Regionalism in global trade
like the Free Trade Area of the Americas (FTAA) and the APEC forum withmemberships as large as 34 and 21, respectively. In the European Union (EU),with the signing of treaties of accession with 10 more countries in April 2003,the membership of the EU will extend to 25 in May 2004.5 None of thesequalify as small RIAs. When the FTAA is launched in 2005, it will potentiallybe the largest, in a geographical sense and in terms of the number of countries,venture in regionalism.In addition, large RIAs like these three are likely to contain economies asdifferent in size, outlook and level of economic development andindustrialization as any in the WTO. Differences and difficulties havebedeviled large RIAs in the past. They are likely to continue to do so. If at alltrade frictions are less challenging in a regional grouping than in the WTO, itwould only be to a small extent. Also, it is difficult to comprehend howrelatively larger trade issues like agricultural liberalization or managing tradedisputes, would be any easier in an RIA setting than in the WTO. Thedifficulties, differences and countries involved in these situations may well besimilar, with the same interests and sensitivities as in the WTO.The flip side of this coin is that regional trade or economic groupings canoffer immediate steps to the broader process of integration into the worldeconomy. They can achieve faster and deeper liberalization than is possible atthe multilateral level. Some go so far as arguing that regionalization is often aprerequisite to achieving globalization. Some countries, particularly those inAfrica, view RIAs as part of a wider economic integration process. There is apossibility that these regional economic groupings can work as a force forcreating global public goods. An important illustration in this regard is that ofAPEC’s research on trade facilitation and its leadership on e-commerce, whichproved to be of enormous assistance to the WTO.An amber signal is essential here. Although regionalism is in vogue and itis here to stay, in the ultimate analysis it is neither a substitute for multilateraltrade nor for globalism. It is true that the forces of free market do not alwaysgovern the global economy; regionalism and globalism can function in acomplementary manner. This in turn would open the possibilities of globalwelfare gains. Regionalism that is not open, and is devoid of globalism, is theantithesis of maximized global output and, therefore, for global economicwelfare. As we shall see in Chapter 5, the concept of open regionalism waspioneered by Australia and New Zealand and was subsequently adopted by theAPEC forum.In this book we try to see whether regionalism has a rightful place in arapidly globalizing world economy in the new century. We try to answerqueries like what is the place of RIAs in the global trading system, what aretheir welfare implications and whether they adversely affect the global tradingsystem.
Globalism versus regionalism
5
2. THE REGIONALISM AND MULTILATERALISMDEBATEOf the two, multilateralism is relatively more difficult to define thanregionalism. Multilateralism is a characteristic of the global economy that isshaped and defined by the conduct of individual countries or economies.Whether an economy is multilateralist or not is best determined by the degreeto which its trading regime is free of vestiges of discrimination and hasachieved free trade. As it is an additive process, from the global perspective,multilateralism is a direct function of the degree of multilateralism ofindividual economies. The sum total of multilateralism of individualeconomies adds up to global multilateralism. There are periods in which itsoars and there are periods in which it sinks, depending upon the rising orfalling of multilateralism in individual economies.6Developing a functional multilateral discipline and system is indispensablefor the hurdle-free expansion of free trade, as well as for the growth of worldGDP. The history of international trade demonstrates that the risk of reversalin market-opening and expanding trade is much higher in the absence ofmultilateral constraints on national trade policies than in their presence. It isproved by the Cobden–Chevalier Treaty of 1860 between England and France,which contained a most-favored-nation (MFN) clause. Subsequently, theEuropean economies that signed a trade treaty with either England or France,also signed on to the MFN clause. By 1867 a majority of the Europeaneconomies had signed it with one or other of the two. The result was a networkof treaties, which caused a major decline in tariff barriers in Europe, in turnleading to a boom in international trade and output until the eve of WorldWar I. The post-war efforts did not succeed in renewing the network ofbinding treaties with commitments to market opening based on the MFNprinciple, and so consequently the global economy did not return to the preWorld War I level of international trade (Anderson, 2001). During the late1920s, when the Great Depression began, countries adopted beggar-thyne