Abstract
Regional economic blocs are compatible with the General Agreement on Tariffs and Trade (GATT) multilateral trading system through Article XXIV, which provides for customs unions and free trade agreements. However, both the European Community and the North American Free Trade Agreement (NAFTA) raise questions about the GATT criterion that the level of import restrictions to nonmembers is not higher than before the bloc formation. The actual trade impact of regional economic blocs is likely to be strongly trade-creating, while trade flows within the overall trading system are approaching parity between preferential and nonpreferential trade. NAFTA and the Enterprise for the Americas Initiative have unleashed a dynamic toward further bloc formation, especially for the Asian-Pacific region, which will have to be resolved during the 1990s. Questions on whether regional free trade arrangements will ultimately converge toward multilateral free trade, and in what form, cannot yet be answered and will depend on future political as well as economic relationships.
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