The relationship between the World Trade Organization (WTO) and regional integration arrangement (RIAs) is problematic. Although RIAs need to comply with WTO rules, there is no fruitful interaction. It is therefore promising that leading economists have made efforts to try to resolve the malfunctioning relationship (Baldwin & Thornton, 2008). Richard Baldwin (2008) states that:
If the WTO is to survive and flourish, it must adapt because regionalism is here to stay. Embarking on a WTO Action Plan on Regionalism would be a strong step towards adapting to the new reality.
This plan is supposed to contribute to enabling the WTO to change from an ‘innocent bystander’ to active ‘engagement’ with RIAs.
Although the proposed Action Plan is laudable, it has two fundamental weaknesses: first, although it acknowledges certain benign aspects of regionalism, regionalism is mainly considered a ‘threat’, in need of regulation and control; second, elevating WTO standards, under which RIAs are subordinated to WTO multilateralism, prevents RIAs from reaching their full potential. Baldwin's argument for active ‘engagement’ by the WTO appears to require the subordination of regionalism to multilateralism.
The view advanced in this briefing is that there is a need for a more equal balance between the WTO and RIAs. In contrast to the notion of ‘multilateralising regionalism’, there is a need to set regions free and contribute to a more fair and functioning global trading system. Having such a balanced relationship between the WTO and RIAs is necessarily more complicated to achieve than the solution where regionalism is subordinated to the rules and interest resulting from multilateralism. If the regionalist movement continues to deepen in the world system, then it may even be more viable to ‘regionalise multilateralism’, rather than vice versa.
Regionalism as Response to Asymmetric Multilateralism
When the multilateral trading system is analysed through a public goods lense it appears as a public ‘good in form’, but not in substance. The welfare gains, net benefits as well as the rules of the multilateral trading system are extremely imbalanced and skewed in favour of the industrialised countries (Mendoza, 2003:469). As a consequence, the WTO is neither legitimate nor effective, as illustrated by the failure of the Doha Round of negotiations.
Even if the multilateral trading system is rather successful when viewed in a historical perspective, the GATT/WTO has proved to be not only unfair but also ineffective in dealing with the economic and political challenges since the 1990s. As stated by an authority on economic regionalism in Africa, Percy Mistry (2003:135), the WTO has been ‘hijacked’ by the G8 and OECD governments to protect their interests in a world where their economic and military power is being challenged by emerging developing countries. It should be recognised that much of today's regionalism, especially but not only in the South (mainly Africa, Asia and Latin America), has often gained its strength in response to the dominance of WTO and globalisation. Even if multilateralism is seen as a first-best strategy for enhancing the gains from trade from the point of view of economic theory, regionalism is the first-best policy option in practice. Thus, one of the problems with economic theory is that it does not automatically lead to good public policy (Higgott, 2002:22). Indeed, new regionalism is being embraced because multilateralism no longer works (Mistry, 2003:136). Regionalism has become the best risk-management and coping strategy. The new challenges facing countries cannot be handled through national action, so they are pooling sovereignty. RIAs provide an opportunity of the market access they always wished for but never really extracted from multilateral negotiations. Furthermore, many countries have been helped by the unilateral liberalisation of neighbours and the commitments undertaken in the context of RIAs.
Here it needs saying that there is a proliferation of bilateral as well as regional trading agreements all over the world, especially in the Americas and East Asia where scholars refer to the spaghetti bowl and the noodle bowl respectively, but also in Africa. The proliferation of bilateralism is also happening in the context of frustrated multilateralism and because of low trust in the WTO. One important explanation is that many bilateral trading agreements are emerging because policy makers want ‘to create an illusion of control over one's own policy processes and policy choices’ (Higgott, 2002:22). There are instances when bilateralism improve the conditions and ultimately converge into regionalism or multilateralism, or both. However, to a large extent bilateral agreements can be seen as statements of sovereignty, and result in a fragmentation not only of multilateralism but also of regionalism. One of the more important problems is that strong states often seek bilateral agreements with weaker states. Regionalism implies a more rule-based order, which is also more inclusive since some countries will not be able to conclude bilateral agreements. For many reasons there is more strength in the regionalist solution.
The Comparative Advantage of Regionalism
There is no doubt about the fact that multilateralism and regionalism needs to strengthen one another in order to create a more functional global trading system. The fundamental question is how regionalism and multilateralism should be related. In accordance with the notion of ‘multilateralizing regionalism’ advocated by Baldwin and colleagues, the rules of the WTO may set the conditions for regional trading arrangements, which may enhance their benign and prevent their malign effects. RIAs may certainly create distortions or be designed by strong regional powers to exploit weaker neighbours. Under such and other circumstances WTO rules and discipline may serve to ‘police’ regional relations and contribute to healthy regional relations (Tussie, 2003). But rather than subordinating regionalism under WTO multilateralism, as Baldwin and colleagues argue, the reversed argument holds more promise: regionalism can be a prerequisite for reconstructing multilateralism on a more equal regional basis – a regional multilateralism.
There is a comparative political advantage of regionalism compared to multilateralism, at least as it is presently being practiced. Regionalism is here to stay and also likely to become a stronger force over the coming decades. Regions are good vehicles for smaller countries to increase their bargaining power and voice in multilateral trade and in the context of globalisation. Regionalism offers a better approach than unilateralism, bilateralism and even multilateralism. Regionalism will often work more easily and effectively compared to multilateralism, which is dependent on 200 or more unequal nation-states. The most pragmatic and effective solution is a ‘regional multi-lateralism’ compared to a dysfunctional and asymmetric multilateralism based on nation-states. Regionalism will cede to multilateralism only when multi-lateralism is rebuilt on foundations of successful regionalism and a fairer world order (Mistry, 2003:137–8).
Needless to say, there are many risks with regionalism. The case of Africa clearly shows that regionalism can be an instrument for sustaining and reinforcing neo-patrimonialism or even be a strategy in the political economy of violence (Bach, 1999). Hence, a positive regionalism as the one advocated here cannot be built on predatory or neopatromimonial political regimes. Furthermore, there is a risk that the most powerful regional countries may dominate the regional arrangements in accordance with their myopic national benefits and at the expense of weaker countries. There needs to be a change of attitude towards regionalism and cooperation, away from a westphalian and neo-patrimonial logic towards a post-westphalian co-operative logic.
The history of regionalism in Africa suggests that a fair distribution of costs and benefits is perhaps both the most decisive but also most difficult factor in economic regionalism. Still, regionalism is more effective in dealing with fairness (than multilateral) such as the smaller number of members in RIAs; that inequalities and differences of interests are often smaller within a region compared to the global system as a whole; that the redistributive and corrective mechanisms that most regional ventures are able to utilise, and that regional markets can be perceived as single units within the global economy, which will then be beneficial for the region as a whole. Even if the EC/EU must certainly not be copied as a ready-made step of reforms or as an institutionalised template, it serves as a general example or generic model of regionalism when political regimes have learnt to co-operate according to a post-westphalian logic.
The EU Model vs. the WTO Model
The WTO's ontology is a liberal view of globalisation and multilateralism, which stresses the homogenising influence of market forces towards an open society in a linear perspective. The purpose of political order, according to the liberal tradition, is thus to facilitate the free movement of economic factors (under a rules-based order – seen not only as a natural but also as the most beneficial condition. The optimum size of an economy (and therefore its ultimate form) is the world market. RIAs are only second best, but acceptable to the extent that they are ‘stepping stones’ rather than ‘stumbling blocks’ to the world market.
According to a more sceptical view, however, the liberal project of globalism is not realistic; the unregulated market system is analogous to political anarchy, and consequently there is a need to ‘politicise the global’ (Hettne, 2003), or to promote the ‘reinvention of politics’ (Beck, 1997).
This view is congruent with the trend that many scholars and policy-makers have begun to press for: a broader and more ‘political’ approach, which emphasises the need for some intervention by political institutions and for policy manoeuvres to generate innovative development policies, which are ultimately more important than trade liberalisation, left alone (i.e. the WTO's main emphasis) (Mendoza, 2003:473). For instance, Dani Rodrik (1998) emphasises that the benefits of trade reforms for economic growth and development are often overestimated and ‘can backfire if it diverts the scarce energies and political resources … from growth fundamentals’, such as human resources, macroeconomics and fiscal policy.
In this context it must be stressed that the benefits stemming from conventional trade liberalisation are much less significant than what they used to be. Somewhat paradoxically, the ‘success’ of GATT/WTO to contribute to the reduction of tariffs and quotas imply that the potential benefits of continued multilateral trade liberalisation have decreased. In response the WTO has now adopted a broader approach, and tried to manage trade-issues related to investments and property-rights and so on. But the WTO is still heavily trade focused and it cannot take a more holistic approach to growth and development, which goes beyond trade per se. This explains the importance of the term regional integration arrangements rather than the more narrow regional trading arrangements.
‘Development’ is a multidimensional phenomenon which depends on positive spillover and linkages between different sectors. The point is that such a comprehensive and multidimensional approach is not viable on the global/ multilateral level or within the WTO. It can only work on a regional level where it is possible and viable to link trade with other sectors and issues. The comprehensive approach posits that trade issues and trade integration should be coupled with other forms of economic and factor market integration (such as investment, payments, monetary integration and harmonisation) as well as various types of economic cooperation in specified sectors (such as transport and communications) (Robson, 1993; also see Higgott, 2003). Although the multidimensional approach is more complex than trade liberalisation, it is both fairer and politically more feasible on a regional level. As discussed above, from a political standpoint, it is easier to liberal-ise towards neighbours than on a multilateral basis, and it is also easier to deal with distribution issues within a region. Regional trade clubs can respond and deal more effectively with non-trade economic and political challenges such as environmental protection and migration (Birdsall & Lawrence, 1999:146).
This line of thinking can be said to be part of the EU model. It has started to have effect in different versions in other parts of the world. The strategy is only possible to manage through multidimensional and comprehensive regional organisations, such as EU, SADC, ECOWAS, UEMOA, ASEAN and increasingly Mercosur, since these regional organisations and polities can exploit spill-over effects and linkages between trade and economic and political sectors, which is much more difficult or even impossible to do in frameworks restricted to trade matters, such as WTO and NAFTA. As already mentioned, it also depends on a change of attitude of involved political regimes, away from old-fashioned westphalian thinking towards a more co-operative post-westphalian political rationality.
Conclusion
Insistence on a vertical WTO-led approach will only reinforce competition between multilateralism and regionalism in the global trading system. Likewise, an ideological regionalism that ignores wider multilateralism cannot facilitate a more symbiotic relationship. Thus, some kind of horizontal and more balanced combination of WTO and RIAs, each having its own basis of authority, should provide the predominant future form of global governance in international trade. Both the WTO and RIAs need each other and must assume shared responsibility for resolving economic de-velopment problems related to international trade. The WTO has suffered a decline in power and authority and therefore needs support from regional bodies. Multilateralism will work more effectively when it is built on interaction among fewer regional blocs that are more equal in economic and political size compared to present-day WTO with 200 nation-states. The WTO would still be needed, but it would be a rather different organisation compared to the present one. Meanwhile, many RIAs are still embryonic and need support from the WTO. A combined multilateral-regional strategy provides the most feasible solution for the future.
It is somewhat difficult to conceive how the WTO can maintain primacy if RIAs continue to deepen and strengthen around the world. As formal macro-regions emerge and take a political actor role, there will necessarily also be a need for more organised contacts between these regions (i.e. interregionalism). The strong regions are likely to be able to manage their own development and trading problems in a similar manner as the EU has done historically. For example, further consolidation of economic regionalism in Africa as well as Asia and Latin America may arguably reduce the relevance of the WTO. If so, it would be more appropriate that WTO serves the needs of RIAs rather than vice versa.