The question is then whether this action could be re-created on a multilateral level.
Although this theory is used to describe how to effectively integrate regionally, we can see that through the processes of the “positive spillover effect”, the increased number of transactions, and the transfer of domestic allegiances predicted by the theory, that increased integration should lead to greater allegiance to a regional market. Sandholtz and Stone Sweet describe the neo-functionalist theory of regionalism (2010).
The next argument that we will look at is the suggestion that regional trade agreements (RTAs) erode vested opposition to multilateral liberalization and reduce the value of preference, reducing their discriminatory impact over time (Best and Christiansen 2008, p.437).
The experience they have had in the past and the gains from liberalization within a region may dissipate fear and lend weight to the argument for further region-to-region liberalization. In this context it is possible that region-to-region arrangements, such as those between the EU and GCC or Mercosur, could be considered to be the next step along the path to multilateral liberalization (Lamy 2002, p.1407). People are afraid of liberalization due to a number of factors, including the possibility of unwanted competition in the local market, the outsourcing of work to other countries, and the loss of control over the market by the government. “Both in Europe and North America, governments tend to espouse the views of pro-integrationist business leaders (and labor leaders as well in most of Europe), while the populace tends to be more wary” (Baldwin 1993, p.10). One of the major benefits that the process of regionalization offers is the sensitization of constituencies to liberalization.
Regionalism as a Stepping Stone to Multilateral Trade Liberalization We will look at these, as well as studies from the World Trade Organization (WTO) and the US congress on the issue over the course of this essay. In this school we have writers such as Panagariya arguing that regional arrangements lead to division and build future problems. The opposing school of thought is Bhagwati’s theory that discriminatory liberalization will only lead to problems in the future with trade discrimination. Also of the pro-liberalization school, Lamy suggests a ‘multilateralism first’ strategy. Bergsten propounds the idea that ‘open regionalism’ is not harmful to multilateral trade, while Ethier argues that it is in fact beneficial to the process. Baldwin has his ‘Domino effect’ theory of regionalism, stating that as profits for one trading bloc grow, so does the outsiders’ desire for membership. However, there is much variation within this school. One is Summers’ view that regionalization is trade liberalization. There are two main schools of thought within this debate. The second section will consider the arguments that regard regionalism as a threat to multilateral trade and where possible undermine them. The first will present the arguments supporting looking at regionalism as a stepping stone, defend them against their critics, and accept their limitations where necessary. This point will be argued by dividing the essay into two main sections. The essay will argue that regionalism is in fact a step forward on the road to multilateral trade liberalization. In this essay it will be defined as their description of Fishlow and Haggard’s explanation of it, “a political process characterized by economic policy co-operation and co- ordination among countries” (Mansfield and Milner 1999, p.592).
Mansfield and Milner briefly discuss the many different ways that regionalism can be defined. This essay will be looking at the issue of regional trade agreements and evaluating the effect they have on the prospects for multilateral trade liberalization. Is Regionalism Really a Threat to Trade Liberalization?