Improving the Environment for a Greener Future
New Horizons in Environmental Economics series
Chapter 8: Regional Economic Integration
INTRODUCTION Regional trade agreements (RTAs) continue to proliferate in the world. The General Agreement on Tariffs and Trade (GATT) received 124 notifications of RTAs in the 1948–94 period and the World Trade Organization (WTO) estimates that over 300 will be in effect by 2007 (World Trade Organization, 2004). Free trade blocs have allowed countries to lower trade barriers among their neighbor countries and political allies. Changes in the trade patterns caused by a lowering of trade barriers are ultimately the mechanism by which living standards are influenced. The agreements include the North American Free Trade Agreement (NAFTA) and the European Union (EU). NAFTA between the United States, Canada and Mexico entered into force and incorporated the prior Canada–US Free Trade Agreement (CUSFTA) on January 1, 1994. NAFTA has been described as the most comprehensive free trade agreement and it is the first reciprocal free trade pact between a substantial developing country and developed economies (Hufbauer and Schott, 1993). In 1957, the Treaty of Rome was signed by six European countries (France, the Federal Republic of Germany, Italy, Belgium, Luxembourg and the Netherlands) and this established the European Economic Community (EEC). The drive for deeper integration of European countries has continued and the Maastricht Treaty of 1991 has resulted in the transformation of the EEC to the EU. The EU is by far the largest free trade pact. The international trade literature has largely focused on gravity models to identify determinants of aggregate bilateral trade. The term ‘gravity model’...
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