Regionalism in the World Economy since the 1950s

Abstract

While multilateralism is the most salient force in the postwar world economy, economic regionalism has consistently existed since the early 1950s. As a matter of fact, provided certain strict criteria are met and a procedure of notification is followed, regional trade agreements (RTAs) in the form of customs unions and free trade areas are openly sanctioned by GATT and its successor the WTO through three sets of rules, which include Article XXIV of GATT,1 the Enabling Clause,2 and Article V of the General Agreement on Trade in Service (GATS).3 According to these rules of GATT and the WTO, if a free trade area or customs union is formed, duties and other trade barriers should be reduced or removed in substantially all sectors of trade in the group. Non-members should not find trade with the group any more restrictive than before the group is set up. The major rationale for the permission of regional preferential trade arrangements is that the regional integration would bring trade creation effects for the world economy as a whole. More significantly, RTAs, according to this rationale, could serve as a supplemental, practical route to the universal free trade that GATT and the WTO advocate as the ultimate goal, as complete removal of trade barriers on a worldwide basis would not likely be achieved in anytime soon largely due to huge political obstacles.