Multilateralism VS. Regionalism

Multilateralism is represented by the efforts on worldwide liberalization of international relations, which started in the field of trade in goods when General Agreement on Tariffs and Trade (GATT) was signed, and developed into broader fields of trade in services, investment, agricultural products, public procurement, and intellectual property rights with its more sophisticated successor – World Trade Organization (WTO). However this development is generally known, its connections to globalization and changing global conditions are not usually analysed; even though they influenced the position of multilateralism as a principal part of economic governance comprehensively: Together with Tussie (2003, p. 99), we can assume that “globalization is having a profound effects on the political economy of trade. More countries than ever before have been persuaded to push aside protective barriers and compete for world markets. These new entrants include a wide range of developing countries and the former Soviet or Eastern bloc economies.” As a matter of this fact, multilateralism changes qualitatively (even GATT became broader scale, which was definitively confirmed by the signature of GATS and TRIPS under the WTO framework), quantitatively (from original 23 GATT countries, WTO had 150 members in 2007 and further countries (i.e. Russian Federation) are waiting for full membership), and formally (institutional framework of the WTO is much stronger and tries to influence state authority significantly). These three types of changes (qualitative, quantitative and formal) are traditionally designated to regionalism when New Regionalism is defined. Respecting the fact, that also multilateralism has gone through a profound change since late 1980’s, it is more easily understandable that its interaction with regionalism must be treated in another manner than before.

The concept of multilateralism:

Collectively, the agreements included in Annexes 1, 2 and 3 are referred to as the “Multilateral Trade Agreements”, since they comprise the substantive trade policy obligations which ALL the Members of the WTO have accepted. They form part of the “single undertaking” applied in the Uruguay Round. That is, all agreements form part of a single package that was accepted by the Members as a

Whole (or as negotiators like to say “noting is agreed until everything is agreed”). (From WTO website)

The concept of regionalism:

By definition, parties to a regional trade agreement (RTA) offer each other more favourable treatment in trade matters than to the rest of the world (including WTO Members). As you know, this is contrary to the MFN principle. The number of RTAs involving WTO Members has increased notably in the recent years. Free trade areas are more prevalent than customs unions. The purpose of a customs union or a free trade area should be to facilitate trade among the parties to the RTA and not to raise barriers to the trade with other WTO Members. RTAs shall be in line with the objectives of the MTS, and not constitute obstacles to it. Other requirements comprise provisions on interim agreements and transition periods and transparency provisions. The Enabling Clause (paragraph 2c) allows developing Members to conclude among themselves agreements on trade in goods (South-South agreements) subject to more flexible requirements than those contained in Article XXIV of the GATT. It is worth noting that the Transparency Mechanism for RTAs (transparency requirements) applies to all RTAs, whether notified under the GATT, the GATS or the Enabling Clause.

Multilateralism Vs regionalism and major trading blocks in the world economy:

The popular perception of trading blocs is one of discriminatory regional organizations whose principal role is to advance the common economic agenda of member countries by protecting domestic markets from foreign competition (Bhagwati 1990). In this sense, trading blocs are regarded as a direct threat to multilateralism and to the goal of free trade established at Bretton Woods. According to this interpretation, the international framework embodied by the GATT/WTO, International Monetary Fund (IMF), and the World Bank has been, or is in the process of being, replaced by a more limited goal of partial trade liberalization centred upon regionalism.

Accordingly, the decline of commitment to multilateralism may lead to a break-up of the global trading system and promote protectionist trading blocs whose competing geo-economics objectives could lead to an international crisis. The principal trading blocs-NAFTA (perhaps extended to Latin America), the EU (including East-Central Europe), and the emerging Asian bloc centring on Japan (and conceivably China)-will become the triad of dominant actors in future conflicts, while the rest of the world will become increasingly isolated. As a prominent economist noted, “given the inevitable trade frictions that will arise between large regional trading blocs-with those left outside, such as the East Asian newly industrializing countries and Japan trying to form their own defensive blocs-the whole multilateral trading system built up since the Second World War could un- ravel”.

Closer investigation of this pessimistic scenario suggests that the consequences of the emergence of trading blocs are far from clear. In the 1960s and 1970s, numerous attempts to promote regional arrangements faltered. The Central American Common Market (CACM), the Andean Pact, and a number of regional arrangements between African countries failed to achieve significant intraregional liberalization and integration. This discouraging history not- withstanding, regionalism experienced a resurgence during the Uruguay Round negotiations in the 1980s and 1990s. During the four-year period between 1990-1994, no fewer than 33 new regional integration arrangements were notified to the GATT (WTO 1995), and many existing regional arrangements, especially in Western Europe, were deepened and widened.

Of the total of 109 regional agreements notified to GATT between 1948-1994, Western European countries participated in 76. The collapse of the communist Council for Mutual Economic Assistance (CMEA) in Eastern and Central Europe in 1991 was an additional incentive to expand regional integration in Europe. This surge of regionalism made the Uruguay negotiations more difficult and contributed to its compromise outcome. Al- though the establishment of the WTO in place of GATT was hailed as a great success and proof that multilateralism was alive and well, serious doubts remain over its ability to resolve trade disputes and to achieve the goal of global free trade .

The Uruguay negotiations led to a series of compromises which, in the end, merely delayed the decisions necessary to maintain the multilateral framework. For example, agreements on financial services, direct foreign investment, intellectual property, and agriculture were postponed not resolved. Nor is it clears how effective WTO will be in dealing with intra and inter-bloc tensions. Mexico’s financial crisis, Japan’s deflating economy, America’s currency, and Europe’s uncertain progress toward monetary union collectively ensure a difficult climate for future negotiations on multilateral trade liberalization. Although there are still geographers and economists who discount the significance of regionalism and trading blocs, the fact remains that by the time the WTO was created, nearly all its members had notified GATT that they were parties to at least one regional integration agreement. If the Asia-Pacific Economic Cooperation’s (APEC) announced objective (November 1995) of achieving free trade by 2020 is formalized, all WTO members including Hong Kong and Japan will be parties to one or more trading blocs. Although economic integration theory and preferential trading agreements have attracted much attention in economics and political science, geographers have had little to say on these issues. Their neglect is premised on two mistaken assumptions:

(1)  That there is little or no evidence for the regionalization of world trade around separate regional nodes;

(2)  That evidence of restructuring the world economy around Western Europe, North America, and Japan is not the same as three emerging trading blocs.

As to the first point, the relative importance of regional nodes is evident from an examination of trading trans- actions using the IMF’s Direction of Trade statistics. Our brief summary begins with the caveat that there are many methods, and associated problems, for measuring global trading patterns. While this is not the place to review the relative merits of those different approaches, Grant has pointed out that the traditional measures and perspectives employed here provide a useful tool for interpreting and forecasting trade trends. The EU (of twelve); NAFTA; and Association of South-East Asian Nations (ASEAN) plus Hong Kong, Japan, South Korea, and Taiwan. This triad of regional blocs dominated trade in the world economy of 1991.

In that year, intra-regional trade accounted for 38 percent of all the world’s merchandise imports and exports. Intra-EU trade alone accounted for 24 percent of all such trade. Inter-regional trade is quite modest by comparison, representing just 10 percent of the world’s merchandise imports and exports.

Nearly 50 percent of all world trade occurs within or between the three major regional nodes (representing only twenty-five countries). When trade between this triad of regional blocs and third countries are taken into account (amounting to 19 percent), region- alism’s dominant role becomes clear. This empirical evidence thus makes a strong prima facie case for regionalism as one of the most influential factors determining world-trade flows. To what extent these regional flows represent a fundamental restructuring of the world economy is the

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