The Difference Between Globalization and Regionalism

Ironically, as society drifts towards globalization, regionalism also seems to take place in almost every corner of the globe. In fact, most countries in the world, on all continents, are members of regional trade agreements through either customs unions, free trade areas, or other preferential arrangements. Over 200 regional trade agreements (RTAs) exists and have been notified to the World Trade Organization (WTO) and over 150 of those agreements are in force.

Most of these agreements have been concluded in the past ten years and cover mainly trades in goods or services, or a combination of both. To further complicate the issue of RTAs, many countries are members of several agreements; oftentimes these multiple agreements have differing rules. Europe seems to be taking the lead in regards to RTAs with sixty percent of the notified RTAs in force at the end of 2000 whereas developing countries only account for about fifteen percent of the total RTAs in 2000.

The question that arises is whether the growth of regional groups helps or hinders the development of multilateral trading systems. Many countries are trying to balance between global and regional trade organizations. To understand the relative advantages of regional versus global organizations you must consider why international organizations are created. According to Yale University"s Bruce Russett, some organizations have single or multiple purposes, however, according to Russett, all international trade organizations have these purposes or functions.

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First, to secure peace among their members; second, to provide for external security vis-a-vis other states; third, to carry out a variety of economic-related tasks, such as development, managing or promoting interdependence; fourth, to address problems of environmental protection, and lastly, to secure human rights. These purposes or functions are normally carried out by a wide range of international organizations, including international non-governmental organizations (INGOs) and intergovernmental organizations (IGOs).

Many scholars feel that the United Nations serves three distinct purposes, security against violence, economic security, and to promote human rights. It is the second purpose of the UN, economic security, which ties into regional and global economic organizations. The UNs economic security is, no doubt, a global and not a regional solution. It is the Bretton Woods institutions of the World Bank, International Monetary Fund (IMF), and the WTO along with the UN Development Program that the UN uses to rebuild economies and develop poor and underdeveloped countries.

These institutions have been concerned with promoting economic interdependence, reducing poverty, and stimulating economic development. Because of these functions, these global institutions have underpinned economic interdependence and have become major advocates for the spread of free markets. The problem is that as the UN and these aforementioned organizations propagate free trade and globalization, many regions feel they are losing there autonomy and are looking towards more regional agreements, hence the move towards regionalism in the 1990s.

There are two basic schools of thought in regards to the relationship between multilateral (globalization) and regional trading arrangements. According to Bhagwati and Panagariya, those who advocate the total reliance on the multilateral economic process express three main concerns against regional economics. These reasons are: First, regional agreements divert trade by creating preferential treatment for member countries vis-a-vis nonmembers, the term for this used by anti regionalism critics is preferential trade agreements (PTAs).

Second, critics argue that countries may lose interest in the multilateral system when they engage actively in regional initiatives; they feel that regionalism will stall and even threaten global trading. Third, regional trading agreements may contribute to political and even military clashes among nations, this though is the extreme. Still and all, contemporary critics of regionalism do worry that extensive and regional ties may lead to conflicts that range beyond economics to broader areas of international relations.

The champions of regionalism address and counter each one of the aforementioned issues. C. Fred Bergsten nicely sums up the points that counter the critics of regionalism. Bergsten lists these three opposite views on the issues presented by the critics of regionalism: First, regional arrangements promote freer trade and multilateralism in at least two areas, trade creation has generally exceeded trade diversion and regionalism contribute to both internal and international dynamics that enhance rather than reduce the prospects for global liberalization.

Second, regionalism oftentimes has important demonstration effects; that is to say, that regional initiatives can accustom officials, governments, and nations to the liberalization process and increase the probability that they will subsequently move on to similar multilateral actions. Lastly, regionalism has had positive rather then negative political effects; the European Union (EU), because of economic interdependence, is unlikely to see any serious conflicts between the member states. As the last two paragraphs show, it is impossible to decisively resolve the regionalism versus multilateralism issue.

Most analysis of free trade agreements (FTAs) conclude that trade creation has dominated trade diversion but that conclusion is not without foolproof results and the future cannot guarantee that regional arrangements will have similarly benign results. However, most economic scholars agree that regional and global liberalization have proceeded together and have tended to reinforce each other; the US would be a good example of this, the US has continued to provide global leadership for multilateral liberalization while simultaneously pursuing it"s regional initiatives.

In the end, the evidence suggests that the interactions have been largely positive but this conclusion is based on judgmental rather then definitive results. The only irrefutable conclusion is that the interrelationship between regionalism and globalism depends on the management of the process by the key countries involved. If those countries seek constructive synergism between regionalism and globalism, then the historical record shows that that synergism can be achieved.

If those countries wish to pursue either regionalism or globalism at the expense of the other, then the outcome could be different. What has evolved is a term called "open regionalism," open regionalism represents an effort to resolve one of the central problems of global trade policies; how to achieve compatibility between the explosion of regional trading agreements erupting around the world and the global trading system as embodied in the WTO.

The "open regionalism" concept seeks to assure that regional agreements will in practice be building blocks for further global liberalization rather then stumbling blocks that deter progress. "Open regionalism" has been adopted by the three largest economies in the world, the United States (US), Japan, and China, when those economies established an international trade organization, the Asia Pacific Economic Cooperation (APEC).

According to Bergsten, APEC is the largest regional trade organization in the world and is potentially the most far-reaching trade agreement in history, therefore, APEC is a major factor in the world trading system and its embrace of "open regionalism" has propelled this concept into the global marketplace. The concept of "open regionalism" represents an effort to achieve the best of regionalism and globalism, the benefits of regional liberalization, of which even the critics acknowledge, without jeopardizing the continued vitality of the multilateral system.

Proponents of open regionalism view it as a device through which regionalism can be employed to accelerate the progress towards global liberalization and rule making. Ross Garnaut gives five possible definitions of "open regionalism" and these can be implemented simultaneously as well as independently, the five definitions that Garnaut gives are: One, "open regionalism" has open membership in the regional arrangement. Any country that indicates a credible willingness to accept the rules of the institution would be invited to join.

Second, the most favored nation (MFN) treatment concept would be utilized; trade liberalization would be extended unconditionally to all of the members" trading partners. Third, conditional MFNs would be instituted to counter the unconditional MFNs mentioned in the second definition. Outsiders would accept offers from regional trade organizations in order to avoid being discriminated against by countries that account for half the world"s economy. Fourth, regional organizations will continue reducing their barriers on a global basis while pursuing their regional goals.

Continuing the practice of unilateral liberalization and multilateral negotiations in the WTO would do this; both approaches avoid creating a new discrimination and could be viewed as faithful renditions of "open regionalism. " Finally, trade facilitation through non-tariff and non-border reforms. Such initiatives would be narrowly focused, though still valuable in enhancing trade, such as customs harmonization and mutual recognition of product standards.

Economic regionalism and globalism can co-exist, in fact, as can be seen with the US, a state can practice both and flourish. Most countries will accept the idea of "open regionalism" and will want to promote liberalization in both their region and globally, "open regionalism" allows those states to do this. These countries must indicate publicly both their regional liberalization program and their willingness to extend that liberalization to all members of global organizations, such as the WTO, on a reciprocal basis.

Such a strategy is feasible, as noted earlier, over sixty percent of world trade already takes place within regional arrangements that have either achieved free trade, are getting close to that position, or have committed to do so. The advantage of overcoming current preferential discrimination offered to MFNs would be enticing enough to convince most countries to take the additional step of freeing trade with all partners rather then a selected few while still maintaining regional ties, this is exactly what "open regionalism" does.

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