ASERI Focus
International Trade
No. 1, September 2008.
2008.
Regional Integration:
the path towards liberalization
or a step backward to protectionism?
Cristina Rago
Nowadays
global
we
witness
proliferation
integration
in
of
Africa,
a
are in force but have not been notified,
regional
those signed but not yet in force,
Asia,
to
those currently being negotiated, and
Latin
those in the proposal stage.
America, the Caribbean and even the
Pacific Islands, in different forms: Free
Trade
Agreement
(FTA),
Regionalism is a process that
does not affect just economics, but
custom
unions, common markets and so on.
also political, legal and cultural aspect
Just to quote some figures, 380 RTAs
of
have been notified to the GATT/WTO
process:
up to July 2007, but the figure rises to
interdependency among actors both at
400 taking into account RTAs which
national and international levels. The
the
countries
it
leads
involved
to
Evolution of Regional Trade Agreements in the world, 19481948-2007
Source: WTO Secretariat.
1
a
in
the
strong
ASERI Focus
International Trade
No. 1, September 2008.
2008.
likely
frustration
multilateral
with
approach,
inconsistent
interests
the
WTO
account the comparative advantage
where
many
producing inter-industry trade or the
make
the
absolute
advantage
perspective,
decisional process very slow, plays an
integration
important
losers. Whether the determinant of the
role
in
the
current
integration trend.
produces
and
comparative advantage is difference in
technologies
Professor
winners
Simona
Beretta
or
proportions
of
difference
factor
in
endowments,
analyses in depth this topic in her
integration will lead to inter-industry
recent paper Economic principles of
specialization
and
trade.
Regional Integration, included in the
ambivalence
is
evident:
book Elements of Regional Integration.
consumers are happy to buy imported
A
Approach,
cheaper foreign goods, less efficient
publication edited by ZEI, Center for
domestic producers are replaced by
European Integration Studies at the
more
Rheinische
domestic producers of the imported
Multidimensional
Friedrich-Wilhelms-
Universität Bonn. This book presents
efficient
foreign
But
the
while
producers:
good are damaged by integration.
the different dimensions of regional
Intra-industry trade has been
integration through a multidisciplinary
the fastest growing component of
approach,
intensified
international trade: it occurs when
political,
markets are non-competitive, due to
from
economic
legal
the
cooperation
and
cultural
to
aspects
of
product
integration.
differentiation
and/or
economies of scale. In these cases,
Professor
Beretta’s
paper
regional integration will trigger a self-
reports both political and economic
reinforcing
reasons
this
firms will gain more and more market
International
shares through integration, relocation
as
impressive
explanations
spreading.
to
of
ambivalence.
fostering the collapse of the smaller,
taking
into
2
production
causation”: big
integration is presented in its natural
Whether
their
“circular
and
so
on,
ASERI Focus
International Trade
No. 1, September 2008.
2008.
less innovative firms which are the
development, ambivalence shows up in
losers in this case. The figure below
terms of different levels of factor
shows at a glace an example of global
remuneration. Higher wages in the
production unbundling in an IT good:
country with an absolute advantage in
there is a long list of nations where
terms of total factor productivity will
parts are sourced for a hard-disk in
induce
migrations,
amplifying
the
An example of global production unbundling in an IT good.
Source: R. E. Baldwin, Multilateralizing Regionalism, Geneva, 2006.
Thailand that is then shipped on to
negative trend in the declining region.
many different markets to be used in
In this case, counterbalancing policies
various
regional
may be needed to save the losing
system must be able to cope with and
economies. But how to choose such
to favour this complicated map of
policies? Will they respect the WTO‘s
trade routes.
rules
electronics.
Any
and
the
principle
of
non-
discrimination defined in the GATT?
In a dynamic perspective, which
Losers
is more evident in case of integration
tend
to
react
by
lobbying politicians in order to receive
between partners at different levels of
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ASERI Focus
International Trade
No. 1, September 2008.
2008.
“protection” and limit their losses in
protectionist instruments: production
exchange for political support. That’s
subsidies
the game policy makers have to play
domestic regulations imposing some
during the decisional process about
medical or environmental standards to
trade policy, where both economic and
imported
political considerations matter.
barriers to trade” (BTB) and charge real
In
trade
policy
to
local
goods
producers
become
or
“technical
decisional
costs to foreign producers in meeting
process, the principle of the median
the requirements. These are the new
voter seems to fail in favour of the
forms of protectionism that become
collective
more and more important due to the
action
logic:
the
first
approach is in fact eroded by the
progressive
strength of pressure groups and in
traditional measures agreed during the
particular of the losing producers that
WTO rounds. But do these new forms
have more vigour, due to resources
of protectionism answer to the interest
and
in
of the entire society or meet just the
claiming protection for their survival
interest of some groups defending
and in offering their political support
themselves
to the party that will take care of their
competition?
organizational
capacities,
interest.
dismantle
against
of
the
foreign
In this sense regionalism may
The result of the game is then a
seem to be contradictory to the WTO’s
protectionist bias that can operatively
multilateral trading system, but in
be
some cases it has allowed groups of
translated
in
many
different
instruments: tariffs, import quotas and
countries
voluntary exports restraints (VER) with
commitments that go beyond what was
all
possible at the multilateral forum.
their
differences
in
terms
of
effectiveness, efficiency (see the rent
to
negotiate
rules
and
Preferential Trade Agreements
seeking effort of some agents to gain
(PTAs)
import licences) and equity. But even
cutting the tariffs on the imports from
some internal policies can turn into
just few countries could lead to import
4
also
exhibit
ambivalence:
ASERI Focus
International Trade
No. 1, September 2008.
2008.
good from a non efficient producer,
contrary
South-South
but a producer that seems to be
seem to be a good attempt to develop
efficient just for the absence of a tariff
institutional capacity in a more familiar
and not for the price of the good.
context
However a trade expansion among the
competition.
than
that
of
agreements
the
global
members of the PTA is recorded (trade
creation), but the exchanges are not as
Despite the different forms that
efficient as they could be without the
regional integration can assume, the
agreement (trade diversion).
process will require more and more
PTAs
protection
could
then
instrument
turn
rather
into
harmonization and mutual recognition
than
of standards as the European example
being a step towards liberalization.
shows in order to be the local path
The overlapping of different
towards global integration.
PTAs makes the systemic configuration
very complicated till the shaping of a
spaghetti bowl where Rules of Origin
can
easily
become
a
protectionist
instrument and political considerations
prevail on efficiency.
PTAs are now spreading even in
the form of North-South and SouthSouth agreements. In the first case,
South countries afford big costs, like a
little
tariff
reduction
by
North
countries against a huge reduction of
their high tariffs and the compliance
with North standards, in order to
attract de-location of North industries
and foreign direct investments. On the
5
ASERI Focus
International Trade
No. 1, September 2008.
2008.
Source: ZEI Regional Integration Observer, Vol. 1, No. 1, November 2007.
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