Perspectives on Regionalism in Trade Relations

By Jackson, John H. | Law and Policy in International Business, Summer 1996 | Go to article overview
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Perspectives on Regionalism in Trade Relations

Jackson, John H., Law and Policy in International Business

Almost any reflection on the rapid increase in international economic interdependence leads to recommendations for increasing international cooperation in order to cope with the problems that interdependence thrusts upon us.(1) No longer can nations effectively implement their own national economic regulations (addressing areas such as interest rates, prudential banking measures, labor standards, and fairness in the stock markets), because too often there are international constraints and implications affecting such national measures--even those of the largest economies. The more one turns to institutions of international cooperation, the more one must pay attention to the "constitutions" of these institutions, just as citizens give extensive attention to their national "constitutions."

This conflict between international institutions and national regulation raises a myriad of issues about "governance," including the ability to prevent abuse of power, effectively channel important information to decision-makers, give constituencies the opportunity to be heard, and allow those constituencies to have influence over the decisionmaking process. These issues inevitably raise questions: What is the appropriate distribution of power over economic affairs in the world? To what degree should power be located in a multilateral international institution, a regional institution, bilateral accommodations, a national/federal institution, or in sub-federal or even local governmental units? The word "subsidiarily" is sometimes used to describe these general concepts of distribution of power. It also describes the competing goals of urging government decision-making at the lowest level possible so as to be close to the affected constituents, while at the same time empowering higher levels of government to respond to issues that can only be effectively implemented at a higher level.

Regional approaches can contribute constructively to international economic relations by allowing smaller groupings of economies to establish more significant levels of cooperation than is permitted by a broad multilateral agreement among more than a hundred nations. Regional approaches can also be used to enact rules that respond to specific regional needs. In addition, they can allow some experimentation that may influence later multilateral efforts at cooperation. For example, the European Union's relatively deep cooperation and harmonization of hundreds of economic problems provides a rich lode of experience that may be tapped during broader multilateral negotiations.

The danger, however, is the tension that may develop between regional blocs. Another problem is that many important trading relationships (like those between the United States end Japan or Canada and Japan) are not embraced within any adequate regional treaty framework. Therefore, it is important that a credible and effective multilateral "mediator," with multilateral rules, exists to inhibit dangerous temptations in regional blocs.

These issues force us to consider whether the world is better served by a broad multilateral system (such as the General Agreement on Tariffs and Trade (GATT) and World Trade Organization system) or by regional trading blocs. The trend is toward the creation of three major blocs: Europe, the Western Hemisphere, and the Pacific region. This raises concern that the development of these blocs could create tensions and conflict. It is in this light that we will discuss the relationship between a broad multilateral system and the various actual or potential trading blocs.

Although we often consider "regionalism" to be concerned primarily with economic matters, we must recognize that there are many "tie-ins" to non-economic policies. We often identify the links between the rules of trading blocs and investment, monetary policy, and environmental quality, for example, but clearly there are also links to political issues such as human rights, democratization, demilitarization, and arms control.

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