Complementarity between Regional Trade Agreements and Multilateral Trade Liberalization: Economic consideration and future challenges

Author Name MUKUNOKI Hiroshi  (Associate Professor, Faculty of Economics, Gakushuin University)
Creation Date/NO. February 2006 06-J-006
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This paper attempts to examine the complementarity between trade liberalization by means of regional trade agreements (RTAs), the presence of which has remarkably increased in the recent years, and nondiscriminatory trade liberalization on a multilateral basis (so-called multilateral trade liberalization), from an economics point of view while sorting out the relevant existing studies. As suggested by the Theory of the Second Best, not only are RTAs not the optimal means for improving the economic efficiency of trade liberalization, there is a possibility that they may be extremely detrimental to the efficiency of trade liberalization by inviting the "unintended" formation of a bloc economy. However, given the current state of multilateral trade negotiations where the momentum is all too often lost, RTAs may have an ex-post-facto effect in boosting "demand" for multilateral trade liberalization by promoting industrial adjustments in each country involved in an RTA and inducing policy reforms in developing countries by way of the effect of commitment. In particular, expansion of free trade through overlapping free trade agreements (FTAs) may serve as a major driving force for coping with political economic pressure to resist liberalization and solving the question of substitutability with multilateral trade negotiations. In order to utilize the advantage of RTAs to the fullest extent, it is necessary to eliminate additional costs caused by the rules of origin and other requirements under RTAs by establishing adequate rules, while at the same time putting a priority on the conclusion of RTAs with developing countries.