Regionalism and the Global Trade Regime

As countries showed their support for GATT, regionalism also emerged as a significant force with
the creation of regional trade agreements (RTAs). There are many opinions about RTAs, some scholars
believe that it as a stepping stone while other scholar argues that it is an obstacle to global free trade.
Economist states that RTAs is existing at five stages or levels of integration; the first stage is free trade
area where member states eliminate tariffs and other restrictions on substantially all trade with each
other, but each member can retain its own trade policies toward nonmember states; custom union is
the second stage in where it has the same characteristics as a free trade area, the only difference is that
there is an additional common external tariff (CET) toward outside states. A custom union normally
creates institutions to administer the common tariff, and the common union members have less ability
to make independent decisions; the third stage is common market wherein it is similar characteristics to
custom union but with an additional free mobility of factors of production namely labor and capital
among members. The increased labor mobility induces members to establish similar health, safety,
educational, and social security standards so that no country’s workers have a competitive advantage;
Economic union is the second to the last level of integration where it is the same with common market,
additionally it harmonizes members’ industrial, regional, transport, fiscal, and monetary policies. A full
economic union also includes a monetary union with a common currency; last but not the least is
political union, it has the same characteristics of an economic union and also harmonizes members’
foreign and defense policies.

REGIONALISM AND THE IPE THEORETICAL PERSPECTIVES

Multilateralism and regionalism are two rival approaches to trade. Wherein multilateralism
contributes to global trade liberalization and regionalism may divide the world into competing trade
blocs. With the exception of open regionalism, where it can break down national trade barriers and
serve as a stepping stone rather than an obstacle to global free trade. Normally RTAs follow open
regionalism abolish barriers on substantially all trade within the RTA and their production in states with
the lowest wages, environmental standards, and taxes and export freely to other states in the RTA.

REGIONALISM AND GLOBALIZATION

Defining regionalism is a complicated matter because it conveys both geographic proximity and
a sense of cultural, economic, political, and organizational cohesiveness. About one-third of the FTA
currently being negotiated are cross-regional, and the WTO includes these in its list of RTAs, this adds to
the confusion of regionalism. Scholars argue that the term preferential trade agreements better
captures this wide range of agreements among states in different geographic regions. But we can use
RTAs for cross regional cross-regional as well as regional agreements because it is the preferred term of
the WTO. Some Asian countries have strong regional economic ties that are not associated with RTAs,
therefore it can be discussed that trade regionalism that is not limited to RTAs.

Globalization limits the growth of regionalism as interdependence increases, financial crises,

trade wars, and environmental degradation require management at the global level. Multilateral
institutions such as the WTO, IMF, and World Bank are better equipped than regional organizations to
deal with these problems. Globalization also promotes linkages among regions as well as states, and in
this sense it can undermine both national and regional cohesiveness. However, globalization may also
stimulate the growth of regionalism. States often rely on institutions above the national level to deal
with global interdependence issues, but international organizations with large, diverse memberships
may be unable to identify common interests and sanction defectors. Thus, regional institutions
composed of like-minded states may be more effective than larger multilateral institutions in dealing
with cross-national problems. Globalization also contributes to increased competition, and states and
MNCs can often improve their global competitiveness by organizing regionally. Globalization is closely
associated with neoliberalism, which favors a shift in authority from the state to the market. The market
pressures weaken state barriers and contribute to the growth of private and public linkages at both the
regional and global levels. Therefore, regionalism and globalization can be both conflictual and
complementary.