The Irresistibility of Preferentiality: Why the Rise in Regional Trade Agreements?

Abstract

Since Jacob Viner wrote the seminal work in 1950 on trade agreements, regional trade agreements (RTA) have stimulated economic discussion and debate. Multilateral trade negotiations and multilateral tariff reductions, however, were the primary tool for economic liberalization, while regional trade agreements remained a secondary consideration. The multilateral trade regime, in the form of the General Agreement on Tariffs and Trade, successfully resulted in a high level of economic openness, but in the mid 1980s countries began to increasingly use RTAs as their primary choice for further economic liberalization. From the 1990s to the present RTAs have proliferated at a dramatic rate, some argue at the expense of multilateral trade negotiations. The causes of the impressive increase, while often case specific, are likely due to member countries seeking greater welfare gains than with multilateral tariff reductions, retaliatory formation of RTAs from countries fearing a loss in welfare due to exclusion, the real or perceived decreasing efficiency of MTN, and an advantage in negotiation for large countries. While economists continue to disagree upon the cause of the shift in preference and the effects it will have on the world economy, countries are continuing to find the allure of regional trade agreements irresistible.