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Mk Ha

on 20 May 2014

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What is Multilateralism?
Multilateral agreements regimes and organizations emerge in the 19th century

The conduct of the IMF, World Bank and the General Agreement on Tariffs and Trade (GATT) before the 1980s / WTO
WTO system
Section 1
- Multilateralism (WTO system)
- Regionalism (Why Regionalism?)
- How can Regionalism be legal under GATT/WTO system

Section 2
- Regionalism as a millstone to multilateralism
- Studies by OECD and WB
- Trade creation than Trade diversion

Section 3
- A Case Study - ASEAN
Table of Contents
Minkyung HA
Hyejung Shin
Abhineet Raj
Created at the end of the Uruguay Round negotiations. It became operational in 1995
What is the role of the multilateral system with an international economic organization at its center?

-> the dominant economic theory suggests that institution assist in lowering barriers to trade by addressing the temptation of important trading nations to free-ride (Bagwell and Staiger 2002)
Main objective
to avoid or resolve conflicts / reduce gradually obstacles to trade
What is Regionalism?
Multilateralism was dominant until the early 1990s, today, however, regionalism is well acknowledged together with multilateralism

Regional Trade Agreement (RTA) is defined as "Groupings of countries which are formed with the objective of reducing barriers to trade between member countries"
RTA can be divided into five categories
Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), Customs Unions (CUs), Common Markets and Economic Unions
Why Regionalism?
Since the end of Uruguay Round, the world trading system has experienced the emergence of a large group of regional blocs: NAFTA, Mercosur, APEC and the enlargement of the EU
The main reason for WTO member's preference of bilateral FTAs before multilateral FTA -> easier to conclude
Small developing economies are often constrained in participating in the negotiation
GATT system
'regionalism' can be defined broadly as preferential trade agreements
the principle of nondiscrimination is central to the final conception of the GATT, signed on Oct 30, 1947 by 23 countries
Article 1 embodies the strong support for nondiscrimination
Article XXIV permits CUs and FTAs, therefore sanctions preferential trade barrier reductions among GATT members
WTO system(1)
Initially, WTO encouraged the growth of RTAs -> regional integration initiatives can complement the multilateral trade regime
However, high proliferation of RTA is becoming a cause for concern for the multilateral trading system under WTO
According to WTO rules, countries within a RTA can trade among themselves using preferential tariffs and easier market access condition
How Regionalism can be legal in GATT/ WTO system?
WTO system (2)
WTO Annual Report 2003 "RTAs can complement the multilateral system, help to build and strengthen it"

As of 31 Jan, 2014, some 583 notifications of RTAs had been received by GATT/WTO

Of these, 377 were in force
Regionalism Debate
Viner (1950)
Trade creation vs Trade diversion

Bhagwati (1993)
will proliferation of RTAs be a "building block" or a "stumbling block"
Stumbling block Perspective
Trade Diversion> Trade Creation
Detrimental effect on welfare and allocation of resources

Contraction to the philosophy of the GATT
Interest Diversion
- Policy makers' attention
- Less time and motivation for multilateralism

Creating Conflicts
- Confrontation between regions and countries
- Regional Organization vs Global organization
Stepping Stone Perspective
Trade Diversion < Trade Creation
Summer (1991) "Natural Trading Partners"

Expanding Horizons of Free Trade Domino Effect
Exporters in nonmember countries
Enabling Clause
- Adopted under the GATT in 1977
- More favorable to developing countries

Potential Contributor to Detente
- France vs Germany in EU
- Argentina vs Brazil in Mercosur
the 1st phase
the 2nd phase
Reason for the 1st phase of regionalism
Security and Defense
The North Atlantic Treaty Organization (NATO) in 1948

Economic Cooperation
The European Union (EU) in 1958
The North American Free Trade Agreement (NAFTA) in 1985
Reason for the 2nd phase of regionalism
US is no more "guardian of multilateralism"

Demise of Cold war

Difficulties in multilateral negotiations

Domino effect
RTA's helping Multilateralism

Negotiation Skills

Internal Political Process

"Spill over"
A Case Study - ASEAN as stepping stone
ASEAN Free Trade Agreement
ASEAN Free Trade Agreement
ASEAN as stepping stone
Economic Regionalism
A tool to increase trade and investment

A tool to create job opportunities

A tool to revolutionize manufacturing sector

Export and import led economic growth
6 members are negotiating TPP

ASEAN centrality in RCEP

ASEAN countries are making individual FTAs

Both intra-regional and inter-regional trade has increased manifolds in the FTA regime
ASEAN-Australia/NZ Free Trade Area (ANZCERTA) effective from Jan 2010

ASEAN-China FTA effective from 2010

ASEAN-India FTA effective from 2010

ASEAN-Japan FTA effective from 2010

ASEAN-Korea FTA effective from 2010
Signed in1992

6 Southeast Asian countries
Brunei, Indonesia, Thailand, Malaysia, Philippines and Singapore

Vietnam joined in 1995

Laos and Myanmar joined in 1997

Cambodia joined in 1999
Thank you :D
Reference lists
Bhagwati, J. (1993). Regionalism and multilateralism: an overview. New dimensions in regional integration, 22, 51.

Panagariya, A. (1999). The regionalism debate: an overview. The World Economy, 22(4), 455-476.

Sung-Hoon, P. (2006). Increasing FTA Initiatives of East Asia and the World Trading System: Current State of Play and Policy Options for the 21st Century. ASIEN, 100, 44-48.

Urata, S., & Okabe, M. (2010). Trade Creation and Diversion Effects of Regional Trade Agreements on Commodity Trade. Discussion papers, 10007.
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