General Issues and Regional Groups
Edited by Miroslav N. Jovanović
Chapter 4: Contemporary Regionalism
Wilfred J. Ethier 1 INTRODUCTION Contemporary regionalism burst into being following twin late-1980s announcements, by the US and Canada of negotiations for a free trade area, and by the European Community (EC) of an attempt to complete its internal market. Well over 200 regional arrangements, involving most nations, now exist. The 1950s and 1960s had likewise witnessed many ‘old regionalism’ initiatives. Except for Western Europe, these in the end amounted to little, however, and efforts for preferential trade became relatively quiescent, until the dramatic advent of contemporary regionalism. The old regionalism stimulated two fundamental results in international trade theory.1 First, the Vinerian distinction between trade creation and trade diversion: a free trade area or customs union replaces one distortion with another distortion. Second, the Ohyama–Kemp–Wan proposition: any group of countries can always form a customs union in such a way that no country is made worse off. International trade theorists have responded to the new regional initiatives by investigating two questions. Will the formation of regional trading blocs raise or lower welfare? Will regionalism help or hinder multilateral trade liberalisation? Answers have been mixed.2 These investigations have adopted a Vinerian perspective augmented, in many cases, by a significant use of game theory (reflecting developments in economic thought since the days of the old regionalism). Less attention has been devoted to investigation of the more fundamental question of why contemporary regionalism has emerged – it has simply been treated as exogenous. Also absent has been appreciation of the fact that...
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