Cooperation in a Changing World: A Discussion on New Regionalism and Globalisation

The two main trends that have shaped the World Economic Order are 1) multilateralism, which sets global rules for international trade without favouritism, and 2) new regionalism, which sets up several zones of regional free trade and cooperation that can apply development and economic growth more quickly and flexibly but have a limited geographic scope.

Hettne (1995) says that “new regionalism” is not a single policy but a set of policies that focus on economics or other factors. “Regionalism” refers to a complex change process involving state and non-state actors at the global, regional, and national levels. Since actors and processes interact at many different levels and their relative importance changes over time and space, it is impossible to say which level is the most important (Soderbaun, 2001).

This article highlights the discussions between the experts on regional cooperation and integration and the supporters of multilateralism and globalisation. The objective is not to extend arguments that can be endless due to rich literature, however, it is to show the major points of contention that can lead to more research and discussions.

Gilson (2002) and other scholars argue that regionalism divides the international system into different and separated competitive blocks, despite arguments to the contrary from authors and analysts like Hettne (1998, 2005), Beeson (2009), and Dent (2004). Regionalism, especially forms of closed regionalism, acts as an obstacle on the path to globalisation (Dent, 2008).

Authors in the first category argue that globalisation and regionalism are not mutually exclusive concepts. Their reasoning rests on the GATT-WTO conception of regionalism and regionalisation as integral to and predating globalisation. As of 2022, the WTO had informed about 356 Regional Trade Agreements (RTAs) in force (and its predecessor, the GATT), while several others are thought to be in effect but have yet to be reported (see: WTO, 2022 database).

 Regional trade liberalisation and cooperation arrangements have been considered important intermediate measures, enabling nations to cope with the risks and opportunities of the global market and embrace new multilateral regulations (Katzenstein, 1997). The developing tensions between economic regionalism and economic multilateralism directly result from the mutually reinforcing nature of regionalism and globalisation. As seen with the end of the Uruguay Round, when integration into the EU prompted some member states to adopt the GATT deal, and with NAFTA’s significant impact on the liberalisation of investments, regional cooperation can be a good stepping stone to an accessible international economy. According to Summers (1991), regionalism affects the multilateral international trade system and will increasingly serve as a driving factor towards liberalisation. Summers contends that regional liberalisation is the best approach towards liberalisation and globalisation.

In contrast, the second category of experts’ places greater emphasis on the notion that discriminatory regional and sub-regional accords are a response to globalisation. As an example, Bhagwati (1993) argues that protectionism, mercantilism and other regionalism delay global liberalisation and threaten the multilateral trading system. Bergsten (1997) says that the European Monetary Union (EMU) shows how it sets priorities that differ from those of the world. Furthermore, regional blocs can contribute to geo-economics conflicts, which may have political implications.

Three key issues are raised by those who want complete dependence on the multilateral approach (Bhagwati and Panagariya, 1996):

1. Trade is diverted by regional cooperation.
2. The distraction of attention.
3. The geopolitical consequences of regionalism.

 First, they point out that trade is diverted by regional cooperation that provides members favourable treatment over non-members. Members may also profit from favourable policies and regulations for restricted content in addition to differential tariffs. According to opponents, the disadvantage of regional liberalisation can be more than overcome by the impact of preferences, resulting in a diversion of the trade balance.

Also, they are worried that transferring tariff revenues under a preferential arrangement could hurt the way one member’s income is split. The distraction of attention is the second point raised by critics. They say that if countries get involved in regional projects, they might lose interest in the multilateral system, which could stop its growth and possibly make it less effective.

The United States’ rapid change in trade policy since the early 1980s has drawn particular attention. The international system had previously received top attention from the United States. It declined to take part in regional economic integration. The main reasons the U.S. agreed to the creation and growth of European integration were political and security issues. The U.S. wanted to keep Europe safe and out of war.

The geopolitical consequences of regionalism are the third issue. Regional trade agreements (and economic groupings more generally) may have caused political and even military conflicts between governments in former times. While modern regionalist critics do not expect such severe results, analysts are concerned that close and intense regional links may cause aggravations and even conflicts that extend beyond economics to more generalised domains of global affairs.

Regionalism proponents hold opposing viewpoints on each of these topics (Bergsten, 1996). First, they contend that regional agreements advance free trade and multilateralism in at least two ways: first, that trade expansion has typically surpassed trade contraction, and second, that regional agreements support both domestic and global dynamics that increase rather than diminish the likelihood of global liberalisation. For developing nations, the internal dynamic is particularly crucial since regional agreements, which can be negotiated considerably more quickly than global accords, lock in domestic reforms against the possibility that succeeding governments will attempt to reverse them. Internationally, regional agreements frequently set the stage for liberalisation concepts that can then be broadly applied in the multilateral system.

Second, regionalism critics pointed out that it frequently has considerable, verifiable impacts. Regional integration will likely lead to further multilateral initiatives when officials, governments, and nations adapt to the liberalisation process.

Third, proponents of regionalism argue that it has had more positive than negative political consequences. Because of trade and closer economic cooperation, a new war between Germany and France was almost unthinkable in the European Union. Argentina and Brazil have used it to end their long-running rivalry, which has recently taken on nuclear implications.

APEC’s primary objectives include establishing the United States as a stabilising power in Asia and creating institutional ties between nations that were once adversaries, like Japan, China, and the rest of East Asia. Therefore, the potential of carrying up peace through cooperation is greater than the likelihood of generating conflicts.

Defenders of regionalism point out that regional agreements are permitted explicitly by Article 24 of the GATT and, more recently, the WTO, recognising their consistency with the global trading system. Three requirements must be met for these agreements to be effective:

1. They must substantially encompass all trade between member nations;
2. They must not erect new barriers for outsiders;
3. They must accomplish free trade among members by a specific date (usually to be at most ten years from the starting date).

Although it is generally acknowledged that the most significant regional agreements (the EU and NAFTA) have fully or largely met these criteria, the GATT and WTO have been largely ineffective in certifying and overseeing their implementation. Because of this, the important regions have had many reasons to say that they work well with the multilateral system.

In conclusion, regionalism and globalism are linked, but only if the major countries involved in the process manage it well. History shows they can succeed if they try to improve things for both sides. The outcome in former eras shows that this is also reasonably achievable if they desire to pursue one at the expense of the other. The process’s inherent dynamics are sufficiently balanced for the participants’ policy choices to be decisive.