The Faster Lane of Regionalism

Abstract

The second wave of regionalism that materialized in the 1990s raised fears that the world could split into major economic blocks, more or less self- contained. RIAs are seen as a threat to a global, multilateral system of free trade (Bhagwati, 1993), since they are inherently discriminatory, giving more favourable treatment to member countries. Whether RIAs facilitate or hamper trade and investment flows within the region and with third parties provides a litmus test for assessing the direction of regional integration: is it a move towards more openness or one towards more closedness? Open regionalism can be defined as the process by which the regional opening of markets as well as the benefits of the regulations can be extended to third countries on a reciprocal or Most Favoured Nation basis (OECD, 1995: 82). It is often very difficult to assess whether this is the case, due to a variety of non-tariff barriers. This chapter will suggest that in some conditions the process of regionalism is considered to lead to more openness, since the process means that the region becomes indeed more open to extra-regional trade and investment. Yet in other circumstances, the region is de facto becoming more closed or more inward-looking — despite there being no official barriers to trade for countries not belonging to the region.² Closed regionalism can be defined as regionalism in which third countries have relative difficulties in reaping equal benefits of integration — for instance, when intra-regional trade substitutes for extra-regional trade. The establishment of a ‘regional automobile space’ implies that supply and demand structures become increasingly linked at the regional level (see the introduction to this volume). A first macroeconomic proxy for the development of regional automobile spaces can be found in researching the trade data of the countries included in RIAs and also those countries that have not been included in RIAs.