GO 357 The Political Economy of Regionalism Walter Hatch Colby College Lecture One

Trend One Economic activity increasingly concentrated in regions Economic activity increasingly concentrated in regions Europe Europe North America North America Asia Asia

Intra-Regional Exports (US$ billion) European Union North America East Asia

Trend Two Proliferation and expansion of regional trade agreements and institutions Proliferation and expansion of regional trade agreements and institutions EU EU NAFTA, CAFTA, FTAA NAFTA, CAFTA, FTAA ASEAN, APEC, EAEC, ASEAN, APEC, EAEC,

Growth in RTAs (average number of notifications to GATT/WTO per year)

Growth in RTAs

A World of Regions

Does regionalism undermine the post-war liberal international economic order?

Liberal Economic Order General Agreement on Tariffs and Trade (GATT)/ World Trade Organization (WTO)General Agreement on Tariffs and Trade (GATT)/ World Trade Organization (WTO) GATT created in 1947; became WTO in 1995 GATT created in 1947; became WTO in members; one country = one vote 150 members; one country = one vote Multilateral approach via “most favored nation” clause (non-discrimination) Multilateral approach via “most favored nation” clause (non-discrimination) Article 24 of GATT allows regional trade agreements – but only if they eliminate or substantially reduce barriers in virtually all sectors Article 24 of GATT allows regional trade agreements – but only if they eliminate or substantially reduce barriers in virtually all sectors Bretton Woods system/IMF and World BankBretton Woods system/IMF and World Bank U.S. exercises veto power (17% of quota) U.S. exercises veto power (17% of quota) Discourages regional institutions Discourages regional institutions

Views on Regionalism Economists Economists Some fret that regional negotiations jeopardize multilateral negotiationsSome fret that regional negotiations jeopardize multilateral negotiations Some gush that they serve as a stepping stone on road to global trade regimeSome gush that they serve as a stepping stone on road to global trade regime Political scientists Political scientists Some see a safer world. Look at Europe.Some see a safer world. Look at Europe. Some recall the 1930s: a world of inward- looking blocsSome recall the 1930s: a world of inward- looking blocs

Who else cares?

Anti-globalization activists Regionalization as “mini-globalization,” more corporate power

Non-American Policy-makers Regionalism as a check on IMF, WTO, US power

Defining Terms: What’s a Region? An area encompassing two or more relatively proximate nations that have An area encompassing two or more relatively proximate nations that have Shared sense of political or cultural identity and/orShared sense of political or cultural identity and/or Potential for economic complementarity and/or interdependencyPotential for economic complementarity and/or interdependency

Defining Terms Redux Defining Terms Redux Regionalization (an economic process) Regionalization (an economic process) market integration associated with the cross-border flow of capital, labor, and technology within a specific area or region Regionalism (a political process) Regionalism (a political process) cooperation among states to create institutions to help bring about or support economic integration in a region

Which comes first? Who knows? (It doesn’t matter…)

Two Big Questions Why do states agree to give up (or pool) sovereignty? Why do states agree to give up (or pool) sovereignty? gains from trade?gains from trade? political power?political power? shared identity?shared identity? Why do regional projects vary so much (especially in terms of depth of legalization/institutionalization)? Why do regional projects vary so much (especially in terms of depth of legalization/institutionalization)?

Hierarchy of RTAs Preferential Trade Agreement Preferential Trade Agreement Free Trade Agreement Free Trade Agreement Customs Union Customs Union Common Market Common Market Economic Union Economic Union