Effects of New Regionalism on World Trade

If looked at from a global perspective, the regional developments mentioned above clearly point to the emergence of a trend towards cross-regional RTAs. Most of the major players at the regional level are increasingly looking beyond their regional borders for partners in selective (often bilateral) preferential trade agreements.

This new regionalism is having significant effects on the world trading system. Some of these effects are positive. For example, one member of a multi-country RTA engaging in bilateralism might be motivated to force the other member of the bilateral RTA to make more progress in trade liberalization and thereby promote deeper integration in the RTA. Rajan et al. (2002a, 2002b) give this as one reason behind Singapore’s pursuit of bilateralism. They refer to the “convoy problem” whereby the pace of integration is held back by the “least willing member.” Another benefit is that RTAs can set precedents and develop negotiation modalities that can be adopted later in multilateral negotiations. The Canada-US FTA, in particular, developed concepts and modalities in the service trade areas that were important in the development of GATS (Lloyd, 2002).

The negative effects include multiple systems of rules, unequal access to world markets, undermining the MFN principle, and hub-and-spokes strategies. RTAs certainly create multiple systems of rules. This multiplicity may pose a problem for the governments and the traders of one country that is a member of more than one RTA. In areas such as rules of origin, and sanitary and phytosanitary standards, export traders may face different rules depending on the destination of their exports.

The precedents set by RTAs may be bad as well. There has been concern over some of the RTA precedents. One example is the exclusion of some agricultural products from the trade liberalization under the Japan-Singapore Economic Partnership Agreement; specifically, the Agreement excludes cut flowers and ornamental fish, Singapore’s principal exports of agricultural products to Japan, from the list of products imported under the terms of the agreement into Japan. It has been reported that Japan is pushing for a similar exclusion in the negotiations with Australia, the Republic of Korea, and Mexico. Another example is the US predilection for side agreements on environment and labor standards. Having succeeded in embedding these in NAFTA, the US is now pursuing such agreements in other bilaterals and in the Free Trade Area of the Americas (FTAA).

Since the development of the new regionalism, many countries are now hubs. In the Asia- Pacific area, Australia, Canada, Chile, Mexico, New Zealand, Peru, Russia, Singapore, and the US are now hubs on the basis of RTAs already in effect and others such as Japan and Thailand may join them soon. One can measure this effect crudely by considering the number of spokes for each hub, that is, the number of countries with which one hub country has separate bilateral free trade agreements (excluding plurilateral RTAs of which it is a member as these have connections across spokes). One might describe the EU as a superhub because of the large number of spokes. Hubs create multi-layered preference schemes. One consequence is that the spokes have less market access than the hub (as the hub enjoys preferential access to all spokes but a spoke has preferential access to the hub only) and, for the reverse trade, a hub gets unrestricted imports from the spokes but each spoke gets unrestricted access only from its hub partner.

New regionalism has created unequal access to world markets. Most of the bilaterals are between developed countries or in a few cases between a developed and a developing country; examples of the latter are the agreements Mexico has with the European Commission (EC) and EFTA¹¹ countries. When the larger size of the markets in developed countries—especially the US and the EU—is taken into account, there is no doubt that the increase in market access resulting from bilaterals has gone overwhelmingly to developed countries and not to developing countries. The one significant exception among the developing countries appears to be Mexico, which has secured mostly free access to its major markets in both North America and Europe. In the APEC area, the countries that have gained improved market access from the bilaterals are all the higher income countries of the region, again with the exception of Mexico.

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1. Dr. Jayanta K. Nanda
   (posted 04 July 2007 / 08:44:57 AM)
   
   Not only for India, but for global trade in the near future.
   
   -www.jknanda.com