A Political Economy Survey of Regionalism’s Effect on Global Liberalization

Are trade blocs stumbling blocks or building blocks? This chapter reviews many political economy arguments. First come those that suggest that regionalism undermines support for more generalized liberalization. Then we consider arguments that say that regional initiatives help build political momentum for global liberalization. Arguments as to how the adoption of a regional trading area might politically undermine unilateral or multilateral liberalization fall under the following headings: incentives to protect industries, manipulation of the process by special interests, use of scarce negotiator resources, and creation of a political dead end. Other arguments more optimistically offer ways in which regional trading areas might undermine protectionism and reinforce liberalization more generally: by locking in unilateral liberalization, by creating larger units that can negotiate more efficiently, through mobilization of regional solidarity, by building export constituencies to create domestic political momentum, and through competitive liberalization. At the end, we return to the gravity model for a verdict on whether the antiliberalization or proliberalization forces appear to have been dominant among the trading blocs of 1970-92. The evidence seems to tilt in the latter direction—building blocks rather than stumbling blocks. Although the multilateral system has made large strides toward freer trade, most recently with the conclusion of the Uruguay Round negotiations in December 1993, political constraints inevitably prevent the immediate attainment of the economist’s nirvana of worldwide free trade. Since influential producer interest groups in each country typically stand to lose from free trade, full unilateral liberalization rarely occurs, and