Discuss whether regionalism (PTA) is helping or hindering the achievement of global

free trade.
Introduction
The central issue in this helping or hindering debate is whether the increased tendency
towards regionalism (PTA) jeopardizes the established principles of multilateralism and
therefore threatens to hinder the growth of global free trade. This is the issue whether they are
building blocs or stumbling blocs.
Conflict occurs from the very nature of a trading system based on regional trading
arrangements and multilateralism. Regionalism runs with the definition of discriminatory
while the multilateral system is based on a non-discriminatory most-favoured-nation (MFN)
principle. Apart that, regionalism depends on smaller or bilateral reciprocity while the
multilateral undertake much broader reciprocity by the commitment in stating the level of
restriction on imports and applying to imports from any member.
However, regionalism and multilateralism have coexisted throughout the GATT
governance under the assumption that they create more new trade than they destroy with their
discriminatory practices. While the conflicts are often used as a basis to conclude regionalism
contradicts multilateralism and therefore hinders, there are still some grounds for arguing that
these two can and should act as complements to help towards global free trade.

PTA as Building Blocs

Momentum-generating mechanism
A preferential trade agreement accelerates multilateral process by granting countries
access in engaging in regional or exclusive free trade cooperation. It is easier for a few
countries to reach agreement than it is for all the countries in the WTO. Thus, PTA forms a
condition where countries can reduce their barriers without having to negotiate with all 153
members for an agreement (Punyakumpol n.d.). This implies that PTAs encourage countries
to open up more than they actually would if not under PTA. For example, charge very low
tariffs and exempt its trading partners from the importing quota. According to Portugal-Perez

(2011), PTA can alter the member governments stance in MFN, making it politically optimal
to cut MFN tariffs to levels that would not have been politically optimal without the PTA.
Therefore, PTAs is seen as a faster route to global free trade as it is easier to form agreements
among a small number of neighbouring countries.
Coalescence
Trading blocs can in fact extend progress towards the freeing of global trade by
expanding country coverage and in some cases by the merging of the blocs or through joint
membership (Mikic 1998). This is a process defined as coalescence (Lloyd, cited in Mikic
1998). For example, EC expanded from six original members to ten, twelve, then fifteen and
also the creation of EEA by merging with EFTA. Therefore, one or several trading blocs
could be seen as expanding both geographically and in terms of trade categories until the
world economy is one single bloc.
Trade Volume
PTAs bring a new aspect of international trade to WTO members as mentioned by
Punyakumpol (n.d.). Smaller countries that signs PTAs with large, industrialized countries
can enjoy access to larger markets. In turn, industrialized countries use PTAs to grasp cheaper
intermediate goods and manufacturing. Based on Bagwell and Staiges (1998) theory, it states
that PTAs works well when the degree of trade cooperation is low in the region and is
supported by Lakes (2011) empirical study. An example is the U.S Thailand FTA, where
Thailand gains from the U.Ss large consumer market for its rice export, while U.S. access the
cheap labour in Thailand.
Moreover, countries use PTAs as an exchange for compliances from developing
countries with regard to non-trade issues such as intellectual properties, labour and
environment standard, investments, and human rights.
Therefore, the worlds trade volume has increased significantly as a result of
increasing PTAs in the last ten years (Crawford & Fiorentino 2005). Economists such as
Summers (1991) and Baldwin (1996) support PTAs as a complementary tool to encourage
more liberalization in the multilateral trade system under the WTO.

Basis for multilateral negotiations

That apart, rules at the PTA level then can form basis for wider multilateral
negotiations. PTA countries can experiment with new agreements that are impossible among
a large number, such as the opening of certain types of services that have been traditionally
closed such as the agricultural industry. In this case, the small developing nations can expand
their agriculture market to their PTA countries.
PTAs and FDI
Lower costs arising from economies of scale by forming trade blocs encourage
countries to move towards free trade. There are increased opportunities for business
investment under PTAs which encourage more FDI into the member countries as the PTA has
expanded its market size.

One group of economists (Limao, 2007; Karacaovali and Limao, 2005) conclude that PTAs do
hinder multilateral trade liberalization. The other group (Estevadeordal, Freund, and Ornelas,
2008; Calvo-Pardo, Freund, and Ornelas, 2009) conclude that PTAs actually accelerate
multilateral liberalization. Yet, other economists (Riezman, 1999) combine the two arguments and
suggest that the connection between PTAs and multilateral trade liberalization depends on the
types of PTAs, namely whether they are FTAs or CUs. Because of FTAs flexibility and
openness, they are more likely to benefit multilateral trade liberalization than CUs are. Countries
that are engaged in CUs tend to collectively retain preferential margins 5

 the differences between tariffs imposed on non-member and member

trading partners and are less likely to open up trade for non-members.

The welfare analysis shows that the current WTO rules allowing this type of
PTAs may be optimal for economically large countries
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Is a usefull supplement were only walking on two legs.

Limao, N 2007, 'Are Preferential Trade Agreements with Non-trade Objectives a Stumbling
Block for Multilateral Liberalization?', Review Of Economic Studies, no. 74, vol. 3, pp. 821855, Business Source Complete, EBSCOhost, viewed 10 May 2014.
Portugal-Perez, A 2011, 'Regional Rules in the Global Trading System', World Trade Review,
no. 10, vol. 2, pp. 280-285, Business Source Complete, EBSCOhost, viewed 10 May 2014.
Crawford, J & Fiorentino, F 2005, The Changing Lanscape of Regional Trade Agreements,
viewed 9 May 2014, <http://www10.iadb.org/intal/intalcdi/PE/2010/05132.pdf>.
Mikic, M 1998, International Trade, Journal of Economic Literature, no. 36, vol. 4, p. 517,
Business Source Complete, EBSCOhost, viewed 10 May 2014.