Multilateralism and Regionalism: A Still Difficult Coexistence

Regionalism, defined as the tendency of a select group of countries to liberalize trade amongst themselves while discriminating against the rest of the world (the non-members),1 has a relatively long history (Machlup, 1977). One may recall that nation-building in Germany began with, or at least was brought forward by, the establishment in 1834 of a Deutscher Zollverein, or German Customs Union. Regional integration in modern Western Europe can be traced to the Benelux Customs Union, which came into force in 1948 (after a failed attempt in 1932). Regionalism continued to spread widely, notwithstanding the emergence after the Second World War of a multilateral system of trade relations based on the principles of non-discrimination and reciprocity embodied in the GATT. Between 1947 and 1985 GATT was notified of 70 preferential trade arrangements (Schott, 1989). Since 1986 another 25 agreements of this type have been reported to it. According to the Director General of the GATT, at the beginning of 1994 ‘almost all of the [then] 115 contracting partners were members of at least one preferential trade agreement’ (Sutherland, 1994). Another way of highlighting the phenomenon is to note that trade among members of various arrangements (what is called sometimes intraregional trade) accounted in 1991 for 34.5 per cent of world trade, up from 25.3 per cent in 1970 and 17 per cent in 1960.2