Regionalism: An Impediment to Globalisation

Regionalism: An Impediment to Globalisation
Aruni Mukherjee

It is not an exaggeration to declare that the Doha round of negotiations at the World Trade Organisation has comprehensively failed. Whether the inflexibility of the American position contributed primarily to this failure matters little, for whoever is to be blamed, the fact of the matter is that there is no deal on the table. The key issue lies elsewhere, and is noted by WTO Director General Pascal Lamy- “We have missed a very important opportunity to prove that multilateralism works.”

The failure of multilateral trade negotiations has been followed by announcements from a number of WTO member countries suggesting that they intend to pursue bilateral deals instead, while paying lip service to the long-term agenda of the global body. For instance, India- one of the chief perpetrators of the breakdown in talks- is already mulling free trade deals with the European Union and Japan. France- another culprit supreme- has already shown receptiveness to more openness in trade between the EU and India on a bilateral level.

Such instances are not one-offs. After the breakdown of each round of meetings, such deals are often announced between countries. Often the developed countries have used offers for bilateral deals as a carrot to break the unified agenda of the developing countries at the WTO.

There have been arguments put forward by scholars such as Kenichi Ohmae that regionalism frees up at least some of the world trade and is hence a facilitator to large-scale globalisation. However, it hardly seems a coincidence that most recent regionalist projects have been mulled precisely after the failure of a wider and much more ambitious global agenda. Examples include the US-Middle East Partnership Initiative and the EU-Mediterranean FTA. Moreover, there are certain characteristics of regionalist projects that make it a bulwark against globalisation, and not a catalyst for quickening it.

First, many of the preferential trading regimes across the world are highly selective in nature. The Association of South Asian States (ASEAN) has recently suspended free trade talks with India on grounds that the latter was being highly selective about removing import tariffs. Under the Common Agricultural Policy of the EU, certain subsidised items were excluded from the FTA it signed with South Africa. Under the North American Free Trade Area (NAFTA), Canada has opted out of freely trading in sugar, poultry and dairy products.

Second, whether regionalism has resulted in a globalisation of trade is highly doubtful. For instance, in 2004 the intra EU trade stood at $2.5 trillion vis-à-vis $180 billion for the EU-Africa trade. Taking a cue from the world systems theory of Immanuel Wallerstein, we can argue that the world is increasingly being divided into “cores and peripheries” as far as concentration of trade is concerned.

Third, we must always ask ourselves whether regionalism facilitates trade, or whether it encourages a fortress type mentality among the participants- to shut out wider competition through the agreement. From WTO figures, we can calculate that while the trade between the ANDEAN group of countries grew by 461% between 1990 and 2004, their trade with the rest of the world only grew by a mere 136% over the same period. Similarly, while intra-Mercosur trade grew by 318% over this period, its trade with the extra-Mercosur world grew by 188% only.

We could make the point without citing statistics. Take a look at the defensive nature of key sectors in countries within the EU and NAFTA (e.g., the French farm lobby) and the issue will be quite clear. Inter-regional disputes such as between the US and the EU over subsidies is another point to note here.

What can be agreed is that globalisation has managed to thwart pro-active protectionism. But regionalism has provided ample opportunities for self-interested, inward looking states (that liberals wish they could wish away) to introduce re-active protectionism. The hostile reaction of the EU to China’s allegedly “dumping tactics” is a recent example. What has taken place, therefore, is not ‘globalisation of trade’ but ‘globalisation of trade regionalisation’. The basic defensive character of these trading blocs remains. As Columbia University Professor Jagdish Bhagwati has argued, the regionalisation tendency is “a Trojan horse masquerading as a gift horse.”

So when India, China, Brazil or the US ink the next FTA with a country or a group of countries, look for the small print- look for areas where these countries are planning to exclude competitors from extra-regional countries.