One of the major areas of disagreement about the increasingly common regional trading arrangements (RTAs) is whether they constitute stepping stones towards liberal multilateral trading arrangements, or millstones around the neck of such progress. In Discussion Paper No. 1525, Alan Winters examines the theoretical arguments and historical evidence relevant to this question.

After considering the definition of multilateralism, Winters surveys recent contributions to the literature, proposing a classification of models by four criteria: 1) their assumed objective functions, i.e. whether governments seek to maximize national welfare or pressure-group interests; 2) whether RTAs are always functionally identical (symmetric models) or not (asymmetric models); 3) whether the interaction between countries is one-off or repeated; and 4) how RTAs determine their post-integration policies. Finally, he looks at actual experience – a limited exercise, because relatively few RTAs have been successful for long enough to have observable effects. Winters finds significant theoretical arguments and historical evidence, on both sides of the debate. His tentative conclusions are that regionalism may help to liberalize very restrictive trade regimes; that it may increase the vulnerability of less restrictive regimes to breakdown; and that it is more likely to be harmful if governments are subject to sector-specific lobbying forces.

Regionalism Versus Multilateralism
L Alan Winters