GO 357GO 357The Political Economy of The Political Economy of

RegionalismRegionalism

Walter HatchWalter HatchColby CollegeColby CollegeLecture OneLecture One

Trend OneTrend One

Economic activity increasingly Economic activity increasingly concentrated in regionsconcentrated in regions

EuropeEurope North AmericaNorth America AsiaAsia

Intra-Regional ExportsIntra-Regional Exports(US$ billion)(US$ billion)

European European UnionUnion

North North AmericaAmerica

East AsiaEast Asia

19851985 353353 143143 4949

19901990 828828 226226 137137

19961996 12491249 437437 390390

NAFTAOther

AmericasEuro-12

Other

EuropeCIS

MENASSA

Asia-

Pacific

0.E+00

1.E+08

2.E+08

3.E+08

4.E+08

5.E+08

6.E+08

7.E+08

8.E+08

9.E+08

1.E+09

INTRA-REGIONAL TRADE VALUE

1980

1990

2001

Trend TwoTrend Two

Proliferation and expansion of Proliferation and expansion of regional trade agreements and regional trade agreements and institutionsinstitutions

EUEU NAFTA, CAFTA, FTAANAFTA, CAFTA, FTAA ASEAN, APEC, EAEC, ASEAN, APEC, EAEC,

Growth in RTAsGrowth in RTAs(average number of notifications to GATT/WTO per year)(average number of notifications to GATT/WTO per year)

0

5

10

15

20

25

1948-94 1995-2000

Growth in RTAsGrowth in RTAs

A World of RegionsA World of Regions

Does regionalism undermine the Does regionalism undermine the post-warpost-war

liberal international economic liberal international economic order?order?

Liberal Economic OrderLiberal Economic Order

• General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade (GATT)/ World Trade Organization (WTO)(GATT)/ World Trade Organization (WTO)

GATT created in 1947; became WTO in 1995GATT created in 1947; became WTO in 1995 150 members; one country = one vote150 members; one country = one vote Multilateral approach via “most favored nation” Multilateral approach via “most favored nation”

clause (non-discrimination)clause (non-discrimination) Article 24 of GATT allows regional trade agreements – Article 24 of GATT allows regional trade agreements –

but only if they eliminate or substantially reduce but only if they eliminate or substantially reduce barriers in virtually all sectorsbarriers in virtually all sectors

• Bretton Woods system/IMF and World BankBretton Woods system/IMF and World Bank U.S. exercises veto power (17% of quota)U.S. exercises veto power (17% of quota) Discourages regional institutionsDiscourages regional institutions

Views on RegionalismViews on Regionalism

EconomistsEconomists• Some fret that regional negotiations jeopardize Some fret that regional negotiations jeopardize

multilateral negotiationsmultilateral negotiations• Some gush that they serve as a stepping stone Some gush that they serve as a stepping stone

on road to global trade regimeon road to global trade regime Political scientistsPolitical scientists

• Some see a safer world. Look at Europe.Some see a safer world. Look at Europe.• Some recall the 1930s: a world of inward-Some recall the 1930s: a world of inward-

looking blocslooking blocs

Who else cares?Who else cares?

Anti-globalization activistsAnti-globalization activists

Regionalization as “mini-globalization,” more corporate power

Non-American Policy-makersNon-American Policy-makers

Regionalism as a check on IMF, WTO, US power

Defining Terms:Defining Terms:What’s a Region?What’s a Region?

An area encompassing two or more relatively An area encompassing two or more relatively proximate nations that haveproximate nations that have

• Shared sense of political or cultural identity and/orShared sense of political or cultural identity and/or• Potential for economic complementarity and/or Potential for economic complementarity and/or

interdependencyinterdependency

Defining Terms Redux Defining Terms Redux

Regionalization (an economic process)Regionalization (an economic process)market integration associated with the cross-border market integration associated with the cross-border flow of capital, labor, and technology within a flow of capital, labor, and technology within a specific area or regionspecific area or region

Regionalism (a political process)Regionalism (a political process)cooperation among states to create institutions to cooperation among states to create institutions to help bring about or support economic integration help bring about or support economic integration in a regionin a region

Which comes first?Which comes first?

Who knows? (It doesn’t matter…)

Two Big QuestionsTwo Big Questions

Why do states agree to give up (or Why do states agree to give up (or pool) sovereignty?pool) sovereignty?• gains from trade?gains from trade?• political power?political power?• shared identity?shared identity?

Why do regional projects vary so Why do regional projects vary so much (especially in terms of depth of much (especially in terms of depth of legalization/institutionalization)?legalization/institutionalization)?

Hierarchy of RTAsHierarchy of RTAs Preferential Trade AgreementPreferential Trade Agreement

Free Trade AgreementFree Trade Agreement

Customs UnionCustoms Union

Common MarketCommon Market

Economic UnionEconomic Union