TheNewWaveofRegionalismEdwardD.Mans - PDF document

TheNewWaveofRegionalismEdwardD.MansŽeldandHelenV.Milner Economicregionalismappearstobegrowingrapidly.Whythishasoccurredandwhatbearingitwillhaveontheglobaleconomyareissuesthathavegeneratedconsiderableinterestanddisagreement.Someobserversfearthatregionaleconomicinstitutions—suchastheEuropeanUnion(EU),theNorthAmericanFreeTradeAgree-ment(NAFTA),Mercosur,andtheorganizationofAsia-PaciŽcEconomicCoopera-tion(APEC)—willerodethemultilateralsystemthathasguidedeconomicrelationssincetheendofWorldWarII,promotingprotectionismandconict.Othersarguethatregionalinstitutionswillfostereconomicopennessandbolsterthemultilateralsystem.Thisdebatehasstimulatedalargeandinuentialbodyofresearchbyecono-mistsonregionalism’swelfareimplications.Economicstudies,however,generallyplacelittleemphasisonthepoliticalcondi-tionsthatshaperegionalism.Lately,manyscholarshaveacknowledgedthedraw-backsofsuchapproachesandhavecontributedtoaburgeoningliteraturethatshedsnewlightonhowpoliticalfactorsguidetheformationofregionalinstitutionsandtheireconomiceffects.Ourpurposeistoevaluatethisrecentliterature.Muchoftheexistingresearchonregionalismcentersoninternationaltrade(al-thougheffortshavealsobeenmadetoanalyzecurrencymarkets,capitalows,andotherfacetsofinternationaleconomicrelations).1Variousrecentstudiesindicatethatwhetherstateschoosetoenterregionaltradearrangementsandtheeconomiceffectsofthesearrangementsdependonthepreferencesofnationalpolicymakersandinter-estgroups,aswellasthenatureandstrengthofdomesticinstitutions.Otherstudiesfocusoninternationalpolitics,emphasizinghowpowerrelationsandmultilateralForhelpfulcommentsonearlierdraftsofthisarticle,wearegratefultoDavidBaldwin,PeterGoure-vitch,StephanHaggard,PeterJ.Katzenstein,DavidA.Lake,RandallL.Schweller,BethV.Yarbrough,andthreeanonymousreviewers.Inconductingthisresearch,MansŽeldwasassistedbyagrantfromtheOhioStateUniversityOfficeofResearchandbytheHooverInstitutionatStanfordUniversity,wherehewasaNationalFellowduring1998–99.1.Onthisissue,seeCohen1997;Lawrence1996;andPadoan1997.InternationalOrganization53,3,Summer1999,pp.589–627r1999byTheIOFoundationandtheMassachusettsInstituteofTechnology institutionsaffecttheformationofregionalinstitutions,theparticularstatescompos-ingthem,andtheirwelfareimplications.Wearguethattheseanalysesprovidekeyinsightsintoregionalism’scausesandconsequences.Theyalsodemonstratetherisksassociatedwithignoringitspoliticalunderpinnings.Atthesametime,however,re-centresearchleavesvariousimportanttheoreticalandempiricalissuesunresolved,includingwhichpoliticalfactorsbearmostheavilyonregionalismandthenatureoftheireffects.Theresolutionoftheseissuesislikelytohelpclarifywhetherthenew‘‘wave’’ofregionalismwillbebenignormalign.2Thecontemporaryspreadofregionaltradearrangementsisnotwithouthistoricalprecedent.Sucharrangementspromotedcom-mercialopennessduringthenineteenthcentury,buttheyalsocontributedtoeco-nomicinstabilitythroughouttheerabetweenWorldWarsIandII.Underlyingmanydebatesaboutregionalismiswhetherthecurrentwavewillhaveabenigncast,likethewavethataroseduringthenineteenthcentury,oramaligncast,liketheonethatemergedduringtheinterwarperiod.Here,wearguethatthepoliticalconditionssurroundingthecontemporaryepisodeaugurwellforavoidingmanyofregional-ism’smoreperniciouseffects,althoughadditionalresearchonthistopicissorelyneeded.Westructureouranalysisaroundfourcentralquestions.First,whatconstitutesaregionandhowshouldregionalismbedeŽned?Second,whyhasthepervasivenessofregionaltradearrangementswaxedandwanedovertime?Third,whydocountriespursueregionaltradestrategies,insteadofrelyingsolelyonunilateralormultilateralones;andwhatdeterminestheirchoiceofpartnersinregionalarrangements?Fourth,whatarethepoliticalandeconomicconsequencesofcommercialregionalism?Regionalism:AnElusiveConceptExtensivescholarlyinterestinregionalismhasyettogenerateawidelyaccepteddeŽnitionofit.AlmostŽftyyearsago,JacobVinercommentedthat‘‘economistshaveclaimedtoŽnduseintheconceptofan‘economicregion,’butitcannotbesaidthattheyhavesucceededinŽndingadeŽnitionofitwhichwouldbeofmuchaid...indecidingwhethertwoormoreterritorieswereinthesameeconomicregion.’’3Sincethen,neithereconomistsnorpoliticalscientistshavemademuchheadwaytowardsettlingthismatter.4DisputesoverthedeŽnitionofaneconomicregionandregionalismhingeontheimportanceofgeographicproximityandontherelationshipbetweeneconomicowsandpolicychoices.AregionisoftendeŽnedasagroupofcountrieslocatedinthesamegeographicallyspeciŽedarea.Exactlywhichareasconstituteregions,however,2.BhagwatidistinguishestwowavesofregionalismsinceWorldWarII.TheŽrstbeganinthelate1950sandlasteduntilthe1970s;thesecondbeganinthemid-1980s.Thesewavesarediscussedatgreaterlengthlaterinthisarticle.SeeBhagwati1993.3.Viner1950,123.4.Onthisissue,seeKatzenstein1997a,8–11.590InternationalOrganization remainscontroversial.Someobservers,forexample,considerAsia-PaciŽcasingleregion,othersconsideritanamalgamationoftworegions,andstillothersconsideritacombinationofmorethantworegions.Furthermore,aregionimpliesmorethanjustclosephysicalproximityamongtheconstituentstates.TheUnitedStatesandRussia,forinstance,arerarelyconsideredinhabitantsofthesameregion,eventhoughRussia’seasterncoastisveryclosetoAlaska.Besidesproximity,manyscholarsinsistthatmembersofacommonregionalsosharecultural,economic,linguistic,orpoliticalties.5Reectingthisposition,KymAndersonandHegeNorheimnotethat‘‘whilethereisnoidealdeŽnition[ofaregion],pragmatismwouldsuggestbasingthedeŽnitiononthemajorcontinentsandsubdividingthemsomewhataccordingtoacombinationofcultural,language,religious,andstage-of-developmentcriteria.’’6Variousstudies,however,deŽneregionslargelyintermsofthesenongeographiccriteriaandplacerelativelylittleemphasisonphysicallocation.Forexample,FranceandtheFrancophonecountriesofNorthwestAfricaareoftenreferredtoasaregionalgroupingbecauseoftheirlinguisticsimilarities.Also,socialconstructivistshavearguedthatcountriessharingacommunalidentitycomprisearegion,regardlessoftheirlocation.7Inthelattervein,PeterJ.Katzensteinmaintainsthatregional‘‘geo-graphicdesignationsarenot‘real,’‘natural,’or‘essential.’Theyaresociallycon-structedandpoliticallycontestedandthusopentochange.’’8MorecommonamongscholarswhodeŽneregionsinnongeographictermsisafocusonpreferentialeco-nomicarrangements,whichneednotbecomposedofstatesincloseproximity(forexample,theUnitedStates–IsraelFreeTradeAreaandtheLome´Convention).SettingasidetheissueofhowaregionshouldbedeŽned,questionsremainaboutwhetherregionalismpertainstotheconcentrationofeconomicowsortoforeignpolicycoordination.SomeanalysesdeŽneregionalismasaneconomicprocesswherebyeconomicowsgrowmorerapidlyamongagivengroupofstates(inthesameregion)thanbetweenthesestatesandthoselocatedelsewhere.Anincreaseinintraregionalowsmaystemfromeconomicforces,likeahigheroverallrateofgrowthwithinthanoutsidetheregion,aswellasfromforeigneconomicpoliciesthatliberalizetradeamongtheconstituentstatesanddiscriminateagainstthirdparties.9Inarecentstudy,AlbertFishlowandStephanHaggardsharplydistinguishbe-tweenregionalization,whichreferstotheregionalconcentrationofeconomicows,andregionalism,whichtheydeŽneasapoliticalprocesscharacterizedbyeconomicpolicycooperationandcoordinationamongcountries.10DeŽnedinthisway,commer-cialregionalismhasbeendrivenlargelybytheformationandspreadofpreferentialtradingarrangements(PTAs).Thesearrangementsfurnishstateswithpreferentialaccesstomembers’markets(forexample,theEuropeanEconomicCommunity[EEC]/5.See,forexample,Deutschetal.1957;Nye1971;Russett1967;andThompson1973.6.AndersonandNorheim1993,26.7.Forexample,Kupchan1997.8.Katzenstein1997a,7.9.See,forexample,Krugman1991a;andFrankel,Stein,andWei1995.Ofcourse,regionalismmaystemfromacombinationofeconomicandpoliticalforcesaswell.10.FishlowandHaggard1992.SeealsoHaggard1997,48fn.1;andYarbroughandYarbrough1997,160fn.1.NewWaveofRegionalism591 EuropeanCommunity[EC]/EuropeanUnion[EU],theEuropeanFreeTradeAssocia-tion[EFTA],NAFTA,andtheCouncilforMutualEconomicAssistance[CMEA]);manyofthemalsocoordinatemembers’tradepoliciesvis-a`-visthirdparties.11AmongthevarioustypesofPTAsarecustomsunions,whicheliminateinternaltradebarriersandimposeacommonexternaltariff(CET);freetradeareas(FTAs),whicheliminateinternaltradebarriers,butdonotestablishaCET;andcommonmarkets,whichallowthefreemovementoffactorsofproductionandŽnishedproductsacrossnationalborders.12SincemuchofthecontemporaryliteratureonregionalismfocusesonPTAs,wewillemphasizetheminthefollowinganalysis.13ExistingstudiesfrequentlyconsiderPTAsasagroup,ratherthandifferentiatingamongthevarioustypesofthesearrange-mentsordistinguishingbetweenbilateralarrangementsandthosecomposedofmorethantwoparties.Tocastouranalysisasbroadlyaspossible,wedosoaswell,althoughsomeoftheinstitutionalvariationsamongPTAswillbeaddressedlaterinthisarticle.EconomicAnalysesofRegionalismMuchoftheliteratureonregionalismfocusesonthewelfareimplicationsofPTAs,bothformembersandtheworldasawhole.Developedprimarilybyeconomists,thisresearchservesasapointofdepartureforthefollowinganalysis,sowenowturntoabriefsummaryofit.Preferentialtradingarrangementshaveatwo-sidedquality,lib-eralizingcommerceamongmemberswhilediscriminatingagainstthirdparties.14Sincesucharrangementsrarelyeliminateexternaltradebarriers,economistscon-sidertheminferiortoarrangementsthatliberalizetradeworldwide.JusthowinferiorPTAsarehingeslargelyonwhethertheyaretradecreatingortradediverting,adistinctionoriginallydrawnbyViner.Asheexplained:Therewillbecommodities...forwhichoneofthemembersofthecustomsunionwillnownewlyimportfromtheotherbutwhichitformerlydidnotimportatallbecausethepriceoftheprotecteddomesticproductwaslowerthanthepriceatanyforeignsourceplustheduty.Thisshiftinthelocusofproductionasbetweenthetwocountriesisashiftfromahigh-costtoalow-costpoint....Therewillbeothercommoditieswhichoneofthemembersofthecustomsunionwillnownewlyimportfromtheotherwhereasbeforethecustomsunionitim-portedthemfromathirdcountry,becausethatwasthecheapestpossiblesource11.See,forexample,Bhagwati1993;BhagwatiandPanagariya1996,4–5;deMeloandPanagariya1993;andPomfret1988.12.SeeAndersonandBlackhurst1993;andthesourcesinfootnote11,above.13.Inwhatfollows,werefertoregionalarrangementsandPTAsinterchangeably,whichisconsistentwithmuchoftheexistingliteratureonregionalism.14.AsdeMeloandPanagariyapointout,‘‘becauseunderregionalismpreferencesareextendedonlytopartners,itisdiscriminatory.Atthesametimeitrepresentsamovetowardsfreertradeamongpartners.’’deMeloandPanagariya1993,4.592InternationalOrganization ofsupplyevenafterpaymentoftheduty.Theshiftinthelocusofproductionisnownotasbetweenthetwomembercountriesbutasbetweenalow-costthirdcountryandtheother,high-cost,membercountry.15Vinerdemonstratedthatacustomsunion’sstaticwelfareeffectsonmembersandtheworldasawholedependonwhetheritcreatesmoretradethanitdiverts.Inhiswords,‘‘Wherethetrade-creatingforceispredominant,oneofthemembersatleastmustbeneŽt,bothmaybeneŽt,thetwocombinedmusthaveanetbeneŽt,andtheworldatlargebeneŽts....Wherethetrade-divertingeffectispredominant,oneatleastofthemembercountriesisboundtobeinjured,bothmaybeinjured,thetwocombinedwillsufferanetinjury,andtherewillbeinjurytotheoutsideworldandtotheworldatlarge.’’16Vineralsodemonstratedthatitisverydifficulttoassesstheseeffectsonanythingotherthanacase-by-casebasis.OverthepastŽftyyears,awidevarietyofempiricaleffortshavebeenmadetodeterminewhetherPTAsaretradecreatingortradediverting.Aswediscusslater,thereiswidespreadconsensusthatthepreferentialarrangementsforgedduringthenineteenthcenturytendedtobetradecreatingandthatthoseestablishedbetweenWorldWarsIandIItendedtobetradediverting;however,thereisastrikinglackofconsensusonthisscoreaboutthePTAsdevelopedsinceWorldWarII.17EvenifaPTAistradediverting,itcannonethelessenhancethewelfareofmem-bersbyaffectingtheirtermsoftradeandtheircapacitytorealizeeconomiesofscale.FormingaPTAtypicallyimprovesmembers’termsoftradevis-a`-vistherestoftheworld,sincethearrangementalmostalwayshasmoremarketpowerthananyconstitu-entparty.Atthesametime,however,PaulKrugmanpointsoutthatattemptsbyaPTAtoexploititsmarketpowermaybackŽreifothersucharrangementsexist,since‘‘theblocsmaybeggareachother.Thatis,formationofblocscan,ineffect,setoffabeggar-alltradewarthatleaveseveryoneworseoff.’’18Hearguesthatthesebeggar-thy-neighboreffectsareminimizedwhenthenumberoftradeblocsiseitherverylargeorverysmall.19Theexistenceofasingleglobalblocisequivalenttoafree-tradesystem,whichobviouslypromotesbothnationalandglobalwelfare.Inaworldcomposedofmanysmallblocs,littletradediversionisexpectedbecausetheoptimaltariffforeachblocisquitelowandthedistortionaryeffectofatariffimposedbyanyoneisminimal.Bycontrast,Krugmanclaimsthatasystemofthreeblocscanhaveanespeciallyadverseimpactonglobalwelfare.Underthesecircumstances,eachblochassomemarketpower,thepotentialowofinterbloccommerceissubstantial,andtradebarriersmarkedlydistortsuchcommerce.15.Viner1950,43.Forcomprehensiveoverviewsoftheissuesaddressedinthissection,seeBaldwinandVenables1995;Bhagwati1991,chap.5;BhagwatiandPanagariya1996;Gunter1989;Hine1994;andPomfret1988.16.Viner1950,44.17.Onereasonforthelackofconsensusonthisissueisthedearthofreliableinformationaboutthedegreetowhichpricechangesinducesubstitutionacrossimportsfromdifferentsuppliers.Anotherreasonisthedifficultyassociatedwithconstructingcounterfactuals(or‘‘antimondes’’)thatadequatelygaugetheeffectsofPTAs.Ontheseissues,seeHine1994;andPomfret1988,chap.8.18.Krugman1991a,16.19.Seeibid.;andKrugman1993,61.NewWaveofRegionalism593 Consistentwiththisproposition,aseriesofsimulationsbyJeffreyA.Frankel,ErnestoStein,andShang-JinWeirevealthatworldwelfareisreducedwhentwoorthreePTAsexist,dependingontheheightoftheexternaltariffsofeacharrange-ment.20T.N.SrinivasanandEricBondandConstantinosSyropoulos,however,havecriticizedtheassumptionsunderlyingKrugman’sanalysis.21Inaddition,variousob-servershavearguedthatthestaticnatureofhismodellimitsitsabilitytoexplainhowPTAsexpandandthewelfareimplicationsofthisprocess.22ThesedebatesfurtherreectthedifficultythateconomistshavehaddrawinggeneralizationsaboutthewelfareeffectsofPTAs.Asonerecentsurveyconcludes,‘‘analysisofthetermsoftradeeffectshastendedtowardthesamedepressingambiguityastherestofcustomsuniontheory.’’23Aregionaltradearrangementcanalsoinuencethewelfareofmembersbyallow-ingŽrmstorealizeeconomiesofscale.Overthreedecadesago,JagdishBhagwati,CharlesA.CooperandBentonF.Massell,andHarryJohnsonfoundthatstatescouldreducethecostsofachievinganygivenlevelofimport-competingindustrializationbyformingaPTAwithinwhichscaleeconomiescouldbeexploitedandthendiscrimi-natingagainstgoodsemanatingfromoutsidesources.24Indeed,thismotivationcon-tributedtothespateofPTAsestablishedbylessdevelopedcountries(LDCs)through-outthe1960s.25Morerecentstudieshaveexaminedhowscaleeconomieswithinregionalarrangementscanfostergreaterspecializationandcompetitionandcanshiftthelocationofproductionamongmembers.26AlthoughtheseanalysesindicatethatPTAscouldyieldeconomicgainsformembersandadverselyaffectthirdparties,theyalsounderscoreregionalism’suncertainwelfareimplications.27Besidesitsstaticwelfareeffects,economistshavedevotedconsiderableattentiontowhetherregionalismwillaccelerateorinhibitmultilateraltradeliberalization,anissuethatBhagwatireferstoas‘‘thedynamictime-pathquestion.’’28Severalstrandsofresearchsuggestthatregionaleconomicarrangementsmightbolstermultilateralopenness.First,MurrayC.KempandHenryWanhavedemonstratedthatitispos-sibleforanygroupofcountriestoestablishaPTAthatdoesnotdegradethewelfareofeithermembersorthirdparties,andthatincentivesexistfortheuniontoexpanduntilitincludesallstates(thatis,untilglobalfreetradeexists).29Second,KrugmanandLawrenceH.Summersnotethatregionalinstitutionsreducethenumberofac-torsengagedinmultilateralnegotiations,therebymutingproblemsofbargainingandcollectiveactionthatcanhampersuchnegotiations.30Third,thereisawidespread20.Frankel,Stein,andWei1995.21.SeeBondandSyropoulos1996a;andSrinivasan1993.22.SeeBhagwatiandPanagariya1996,47;andSrinivasan1993.23.Gunter1989,16.SeealsoBaldwinandVenables1995,1605.24.SeeBhagwati1968;CooperandMassell1965a,b;andJohnson1965.25.Bhagwati1993,28.26.See,forexample,Krugman1991b;andPadoan1997,108–109.27.SeeBaldwinandVenables1995,1605–13;andGunter1989,16–21.28.SeeBhagwati1993;andBhagwatiandPanagariya1996.29.KempandWan1976.30.SeeKrugman1993;andSummers1991.594InternationalOrganization beliefthatregionaltradearrangementscaninducememberstoundertakeandconsoli-dateeconomicreformsandthatthesereformsarelikelytopromotemultilateralopen-ness.31However,clearlimitsalsoexistontheabilityofregionalagreementstobolstermultilateralism.Bhagwati,forexample,maintainsthatalthoughtheKemp-Wantheo-remdemonstratesthatPTAscouldexpanduntilfreetradeexists,thisresultdoesnotspecifythelikelihoodofsuchexpansionorthatitwilloccurinawelfare-enhancingway.32Inaddition,BondandSyropoulosarguethattheformationofcustomsunionsmayrendermultilateraltradeliberalizationmoredifficultbyundercuttingmultilat-eralenforcement.33ButKyleBagwellandRobertStaigershowthatPTAshavecon-tradictoryeffectsontheglobaltradingsystem.Theyclaimthat‘‘therelativestrengthsofthese...effectsdeterminetheimpactofpreferentialagreementonthetariffstruc-tureunderthemultilateralagreement,and...preferentialtradeagreementscanbeeithergoodorbadformultilateraltariffcooperation,dependingontheparam-eters.’’34Theydoconclude,however,that‘‘itispreciselywhenthemultilateralsys-temisworkingpoorlythatpreferentialagreementscanhavetheirmostdesirableeffectsonthemultilateralsystem.’’35Economicanalysesindicatethatregionalism’swelfareimplicationshavevariedstarklyovertimeandacrossPTAs.AsFrankelandWeiconclude,‘‘regionalismcan,dependingonthecircumstances,beassociatedwitheithermoreorlessgeneralliber-alization.’’36Inwhatfollows,wearguethatthesecircumstancesinvolvepoliticalconditionsthateconomicstudiesoftenneglect.Regionalismcanalsohaveimportantpoliticalconsequences,andthey,too,havebeengivenshortshriftinmanyeconomicstudies.Lately,theseissueshaveattractedgrowinginterest,sparkingaburgeoningliteratureonthepoliticaleconomyofregionalism.Weassessthisliteratureafterconductingabriefoverviewofregionalism’shistoricalevolution.RegionalisminHistoricalPerspectiveConsiderableinteresthasbeenexpressedinhowthepreferentialeconomicarrange-mentsformedafterWorldWarIIhaveaffectedandwillsubsequentlyinuencetheglobaleconomy.Wefocusprimarilyonthiseraaswell;however,itiswidelyrecog-nizedthatregionalismisnotjustarecentphenomenon.AnalysesofthecurrentspateofPTAsoftendrawonhistoricalanalogiestopriorepisodesofregionalism.Suchanalogiescanbemisleadingbecausethepoliticalsettingsinwhichtheseepisodesarosearequitedifferentfromthecurrentsetting.Todevelopthispoint,itisusefulto31.See,forexample,Lawrence1996;andSummers1991.32.Bhagwati1991,60–61;and1993.33.BondandSyropoulos1996b.34.BagwellandStaiger1997,27.35.Ibid.,28.36.FrankelandWei1998,216.NewWaveofRegionalism595 beginbydescribingeachofthefourwavesofregionalismthathavearisenoverthepasttwocenturies.TheinitialepisodeoccurredduringthesecondhalfofthenineteenthcenturyandwaslargelyaEuropeanphenomenon.37Throughoutthisperiod,intra-Europeantradebothrosedramaticallyandconstitutedavastportionofglobalcommerce.38More-over,economicintegrationbecamesufficientlyextensivethat,bytheturnofthetwentiethcentury,Europehadbeguntofunctionasasinglemarketinmanyre-spects.39TheindustrialrevolutionandtechnologicaladvancesattendanttoitthatfacilitatedinterstatecommerceclearlyhadpronouncedeffectsonEuropeanintegra-tion;butsodidthecreationofvariouscustomsunionsandbilateraltradeagreements.Besidesthewell-knownGermanZollverein,theAustrianstatesestablishedacus-tomsunionin1850,asdidSwitzerlandin1848,Denmarkin1853,andItalyinthe1860s.ThelattercoincidedwithItalianstatehood,notanatypicalimpetustotheinitiationofaPTAinthenineteenthcentury.Inaddition,variousgroupsofnation-statesforgedcustomsunions,includingSwedenandNorwayandMoldaviaandWal-lachia.40ThedevelopmentofabroadnetworkofbilateralcommercialagreementsalsocontributedtothegrowthofregionalisminEurope.PrecipitatedbytheAnglo-Frenchcommercialtreatyof1860,theywerelinkedbyunconditionalmost-favored-nation(MFN)clausesandcreatedthebedrockoftheinternationaleconomicsystemuntilthedepressioninthelatenineteenthcentury.41Furthermore,thedesirebystatesoutsidethiscommercialnetworktogaingreateraccesstothemarketsofparticipantsstimulateditsrapidspread.AsoftheŽrstdecadeofthetwentiethcentury,GreatBritainhadconcludedbilateralarrangementswithforty-sixstates,Germanyhaddonesowiththirtycountries,andFrancehaddonesowithmorethantwentystates.42ThesearrangementscontributedheavilytotheunprecedentedgrowthofEuropeanintegrationandtotherelativelyopeninternationalcommercialsystemthatcharacter-izedthelatterhalfofthenineteenthcentury,underpinningwhatDouglasA.Irwinreferstoasaneraof‘‘progressivebilateralism.’’43WorldWarIdisruptedthegrowthofregionaltradearrangements.Butasecondwaveofregionalism,whichhadadecidedlymorediscriminatorycastthanitsprede-cessor,begansoonafterthewarended.Theregionalarrangementsformedbetween37.See,forexample,Kindleberger1975;andPollard1974.However,regionalismwasnotconŽnedsolelytoEuropeduringthisera.Priorto1880,forexample,India,China,andGreatBritaincompriseda‘‘tightly-knittradingbloc’’inAsia.Afterward,Japan’seconomicdevelopmentanditsincreasingpoliticalpowerledtokeychangesinintra-Asiantradepatterns.KenwoodandLougheedreportthat‘‘AsiareplacedEuropeandtheUnitedStatesasthemainsourceofJapaneseimports,supplyingalmostone-halfoftheseneedsby1913.BythatdateAsiahadalsobecomeJapan’sleadingregionalexportmarket.’’KenwoodandLougheed1971,94–95.38.Pollard1974,42–51,62–66.39.Kindleberger1975;andPollard1974.Ofcourse,tradegrewrapidlyworldwideduringthisera,buttheextentofitsgrowthandofeconomicintegrationwasespeciallymarkedinEurope.40.SeeIrwin1993,92;andPollard1974,118.41.See,forexample,Irwin1993;KenwoodandLougheed1971;andPollard1974.42.Irwin1993,97.43.Ibid.,114.SeealsoPollard1974,35.596InternationalOrganization WorldWarsIandIItendedtobehighlypreferential.Somewerecreatedtoconsoli-datetheempiresofmajorpowers,includingthecustomsunionFranceformedwithmembersofitsempirein1928andtheCommonwealthsystemofpreferencesestab-lishedbyGreatBritainin1932.44Most,however,wereformedamongsovereignstates.Forexample,Hungary,Romania,Yugoslavia,andBulgariaeachnegotiatedtariffpreferencesontheiragriculturaltradewithvariousEuropeancountries.TheRomeAgreementof1934ledtotheestablishmentofaPTAinvolvingItaly,Austria,andHungary.Belgium,Denmark,Finland,Luxembourg,theNetherlands,Norway,andSwedenconcludedaseriesofeconomicagreementsthroughoutthe1930s.Ger-manyalsoinitiatedvariousbilateraltradeblocsduringthisera.OutsideofEurope,theUnitedStatesforgedalmosttwodozenbilateralcommercialagreementsduringthemid-1930s,manyofwhichinvolvedLatinAmericancountries.45LongstandingandunresolveddebatesexistaboutwhetherregionalismdeepenedtheeconomicdepressionoftheinterwarperiodandcontributedtopoliticaltensionsculminatinginWorldWarII.46ContrastingthiserawiththatpriortoWorldWarI,Irwinpresentstheconventionalview:‘‘Inthenineteenthcentury,anetworkoftrea-tiescontainingthemostfavorednation(MFN)clausespurredmajortariffreductionsinEuropeandaroundtheworld,[ushering]inaharmoniousperiodofmultilateralfreetradethatcomparesfavorablywith...therecentGATTera.Intheinterwarperiod,bycontrast,discriminatorytradeblocsandprotectionistbilateralarrange-mentscontributedtotheseverecontractionofworldtradethataccompaniedtheGreatDepression.’’47Thelatterwaveofregionalismisoftenassociatedwiththepursuitofbeggar-thy-neighborpoliciesandsubstantialtradediversion,aswellasheightenedpoliticalconict.Scholarsfrequentlyattributetheriseofregionalismduringtheinterwarperiodtostates’inabilitytoarriveatmultilateralsolutionstoeconomicproblems.AsA.G.KenwoodandA.L.Lougheednote,‘‘ThefailuretoachieveinternationalagreementonmattersoftradeandŽnanceintheearly1930sledmanynationstoconsiderthealternativepossibilityoftradeliberalizingagreementsonaregionalbasis.’’48Inpart,thisfailurecanbetracedtopoliticalrivalriesamongthemajorpowersandtheuseofregionaltradestrategiesbythesecountriesformercantilistpurposes.49Hence,al-thoughregionalismwasnotnew,boththepoliticalcontextinwhichitaroseanditsconsequenceswerequitedifferentthanbeforeWorldWarI.44.Pollard1974,145.45.Onthecommercialarrangementsdiscussedinthisparagraph,seeCondliffe1940,chaps.8–9;Hirschman[1945]1980;KenwoodandLougheed1971,211–19;andPollard1974,49.Althoughourfocusisoncommercialregionalism,itshouldbenotedthattheinterwarerawasalsomarkedbytheexistenceofatleastŽvecurrencyregions.Forananalysisofthepoliticaleconomyofcurrencyregions,see,forexample,Cohen1997.46.See,forexample,Condliffe1940,especiallychaps.8–9;Hirschman[1945]1980;Kindleberger1973;andOye1992.47.Irwin1993,91.Henotesthatthesegeneralizationsaresomewhatinaccurate,asdoEichengreenandFrankel1995.ButbothstudiesconŽrmthatregionalismhaddifferenteffectsduringthenineteenthcen-tury,theinterwarperiod,andthepresent;andbothviewregionalismintheinterwarperiodasmostmalign.48.KenwoodandLougheed1971,218.49.SeeCondliffe1940;EichengreenandFrankel1995,97;andHirschman[1945]1980.NewWaveofRegionalism597 RegionalismSinceWorldWarIISinceWorldWarII,stateshavecontinuedtoorganizecommerceonaregionalbasis,despitetheexistenceofamultilateraleconomicframework.Toanalyzeregional-ism’scontemporarygrowth,somestudieshaveassessedwhethertradeowsarebecomingincreasinglyconcentratedwithingeographicallyspeciŽedareas.OthershaveaddressedtheextenttowhichPTAsshapetradeowsandwhethertheirinu-enceisrising.StillothershaveexaminedwhethertheratesatwhichPTAsformandstatesjointhemhaveincreasedovertime.Incombination,thesestudiesindicatethatcommercialregionalismhasgrownconsiderablyoverthepastŽftyyears.AsshowninTable1—whichpresentsdatausedinthreeinuentialstudiesofregionalism—theregionalconcentrationoftradeowsgenerallyhasincreasedsincetheendofWorldWarII.50MuchofthisoveralltendencyisattributabletorisingtradewithinWesternEurope—especiallyamongpartiestotheEC—andwithinEastAsia.SomeevidenceofanupwarddriftinintraregionalcommercealsoexistswithintheAndeanPact,theEconomicCommunityofWestAfricanStates(ECOWAS),andbetweenAustraliaandNewZealand,althoughoutsideoftheformertwogroupings,intraregionaltradeowshavenotgrownmuchamongdevelopingcountries.OnecentralreasonwhytradeissohighlyconcentratedwithinmanyregionsisthatstateslocatedincloseproximityoftenparticipateinthesamePTA.51ThattheeffectsofvariousPTAsoncommercehaverisenovertimeconstitutesfurtherevidenceofregionalism’sgrowth.52AsthedatainTable1indicate,theinuenceofPTAsontradeowshasbeenfarfromuniform.SomePTAs,liketheEC,seemtohavehadaprofoundeffect,whereasothershavehadlittleimpact.53Butthedataalsoindicatethat,ingeneral,tradeowshavetendedtoincreaseovertimeamongstatesthataremembersofaPTAandnotmerelylocatedinthesamegeographicregion,suggestingthatpolicychoicesareatleastpartlyresponsiblefortheriseofregionalismsinceWorldWarII.EastAsia,however,isaninterestingexception.Virtuallynocommercialagree-mentsexistedamongEastAsiancountriespriortothemid-1990s,butrapideco-nomicgrowththroughouttheregioncontributedtoadramaticincreaseinintra-regionaltradeows.54InlightofAsia’srecentŽnancialcrisis,itwillbeinterestingtoseewhethertheprocessofregionalizationcontinues.Severeeconomicrecession50.ThesedeŽneregionalisminsomewhatdifferentways.AndersonandNorheimexaminebroadgeo-graphicareas,deMeloandPanagariyaanalyzePTAs,andFrankel,Stein,andWeiconsideracombinationofgeographiczonesandPTAs.SeeAndersonandNorheim1993;deMeloandPanagariya1993;andFrankel,Stein,andWei1995.51.OntheeffectsofPTAsontradeows,see,forexample,Aitken1973;Frankel1993;Frankel,Stein,andWei1995;Linnemann1966;MansŽeldandBronson1997;Tinbergen1962;andWintersandWang1994.52.See,forexample,Aitken1973;Frankel1993;andFrankel,Stein,andWei1995.53.Note,however,thatsomePTAs—especiallyMercosur—havehadalargeeffectontradesince1990.TheireffectsarenotcapturedinTable1.WearegratefultoStephanHaggardforbringingthispointtoourattention.54.SeeAndersonandBlackhurst1993,8;Frankel1993;Frankel,Stein,andWei1995;andSaxon-house1993.598InternationalOrganization TABLE1.Intraregionaltradeowsduringthepost-WorldWarIIera A.IntraregionaltradedividedbytotaltradeofeachregionRegion196519701975198019851990EastAsia0.1990.1980.2130.2290.2560.293WesternHemisphere0.3150.3110.3090.2720.3100.285EuropeanCommunity0.3580.3970.4020.4160.4230.471EuropeanFreeTradeArea0.0800.0990.1040.0800.0800.076Mercosur0.0610.0500.0400.0560.0430.061AndeanPact0.0080.0120.0200.0230.0340.026NorthAmericanFreeTradeAgreement0.2370.2580.2460.2140.2740.246 B.IntraregionalmerchandiseexportsdividedbytotalmerchandiseexportsofeachregionRegion19481958196819791990WesternEurope0.4300.5300.6300.6600.720EasternEurope0.4700.6100.6400.5400.460NorthAmerica0.2900.3200.3700.3000.310SouthAmerica0.2000.1700.1900.2000.140Asia0.3900.4100.3700.4100.480Africa0.0800.0800.0900.0600.060MiddleEast0.2100.1200.0800.0700.060World0.3300.4000.4700.4600.520 C.IntraregionalexportsdividedbytotalexportsofeachregionRegion196019701975198019851990EuropeanCommunity0.3450.5100.5000.5400.5450.604EuropeanFreeTradeArea0.2110.2800.3520.3260.3120.282AssociationofSoutheastAsianNations0.0440.2070.1590.1690.1840.186AndeanPact0.0070.0200.0370.0380.0340.046Canada–UnitedStatesFreeTradeArea0.2650.3280.3060.2650.3800.340CentralAmericanCommonMarket0.0700.2570.2330.2410.1470.148LatinAmericanFreeTradeAssociation/LatinAmericanIntegrationAssociation0.0790.0990.1360.1370.0830.106EconomicCommunityofWestAfricanStatesN/A0.0300.0420.0350.0530.060PreferentialTradingAreaforEasternandSouthernAfricaN/A0.0840.0940.0890.0700.085Australia–NewZealandCloserEconomicRelationsTradeAgreement0.0570.0610.0620.0640.0700.076Source:DatainpartAaretakenfromFrankel,Stein,andWei1995;partB,fromAndersonandNorheim1993;andpartC,fromdeMeloandPanagariya1993.Note:N/Aindicatesdataunavailable.NewWaveofRegionalism599 withinAsiaconcurrentwithrobustgrowthinNorthAmericaandWesternEuropemayredirecttradeowsacrossregions.Thiscaseillustratestheneedwedescribedearliertodistinguishbetweenpolicy-inducedregionalismandthatstemmingprimar-ilyfromeconomicforces.HowimportanttheAssociationofSoutheastAsianNa-tions(ASEAN)andotherpolicyinitiativesareindirectingcommerceshouldbecomeclearerastheeconomiccrisisinAsiaunfolds.Alsoindicativeofregionalism’sgrowtharetheincreasingratesatwhichPTAsformedandstatesjoinedthemthroughoutthepost–WorldWarIIperiod.55Figure1reportsthenumberofregionaltradingarrangementsnotiŽedtotheGeneralAgree-mentonTariffsandTrade(GATT)from1948to1994.Clearly,thefrequencyofPTAformationhasuctuated.Fewwereestablishedduringthe1940sand1950s,asurgeinpreferentialagreementsoccurredinthe1960sand1970s,andtheincidenceofPTAcreationagaintrailedoffinthe1980s.56ButtherehasbeenasigniŽcantriseinsuchagreementsduringthe1990s;andmorethan50percentofallworldcommerceiscurrentlyconductedwithinPTAs.57Indeed,theyhavebecomesopervasivethatallbutafewpartiestotheWorldTradeOrganization(WTO)nowbelongtoatleastone.58Regionalism,then,seemstohaveoccurredintwowavesduringthepost–WorldWarIIera.TheŽrsttookplacefromthelate1950sthroughthe1970sandwasmarkedbytheestablishmentoftheEEC,EFTA,theCMEA,andaplethoraofre-gionaltradeblocsformedbydevelopingcountries.Thesearrangementswereiniti-atedagainstthebackdropoftheColdWar,therashofdecolonizationfollowingWorldWarII,andamultilateralcommercialframework,allofwhichcoloredtheireconomicandpoliticaleffects.VariousLDCsformedpreferentialarrangementstoreducetheireconomicandpoliticaldependenceonadvancedindustrialcountries.Designedtodiscourageimportsandencouragethedevelopmentofindigenousindus-tries,sucharrangementsfosteredatleastsometradediversion.59Moreover,manyofthemwerebesetbyconsiderableconictoverhowtodistributethecostsandbeneŽtsstemmingfromregionalintegration,howtocompensatedistributionallosers,andhowtoallocateindustriesamongmembers.60Similarly,theCMEArepresentedanattemptbytheSovietUniontopromoteeconomicintegrationamongitspoliticalallies,fosterthedevelopmentoflocalindustries,andlimiteconomicdependenceontheWest.Ultimately,itdidlittletoenhancethewelfareofparticipants.61Incontrast,theregionalarrangementsconcludedamongdevelopedcountries—especiallythoseinWesternEurope—arewidelyviewedastrade-creatinginstitutionsthatalsocontrib-utedtopoliticalcooperation.6255.MansŽeld1998.56.SeealsodeMeloandPanagariya1993,3.57.Serraetal.1997,8,Žg.2.58.WorldTradeOrganization1996,38,and1995.59.Forexample,Pomfret1988,138.60.SeeBhagwati1993;andForoutan1993.61.Indeed,somescholarshavegonesofarastocharacterizetheCMEAastradedestroying.See,forexample,Pomfret1988,94–95,143.62.ForanalysesoftradecreationandtradediversioninEurope,seeEichengreenandFrankel1995;FrankelandWei1998;andPomfret1988,128–35.600InternationalOrganization Themostrecentwaveofregionalismhasariseninadifferentcontextthanearlierepisodes.ItemergedinthewakeoftheColdWar’sconclusionandtheattendantchangesininterstatepowerandsecurityrelations.Furthermore,theleadingactorintheinternationalsystem(theUnitedStates)isactivelypromotingandparticipatingintheprocess.PTAsalsohavebeenusedwithincreasingregularitytohelppromptandconsolidateeconomicandpoliticalreformsinprospectivemembers,ararityduringprioreras.Andunliketheinterwarperiod,themostrecentwaveofregionalismhasbeenaccompaniedbyhighlevelsofeconomicinterdependence,awillingnessbythemajoreconomicactorstomediatetradedisputes,andamultilateral(thatis,theGATT/WTO)frameworkthatassiststhemindoingsoandthathelpstoorganizetraderelations.63AsRobertZ.Lawrencenotes,Theforcesdrivingthecurrentdevelopmentsdifferradicallyfromthosedrivingpreviouswavesofregionalisminthiscentury.Unliketheepisodeofthe1930s,thecurrentinitiativesrepresenteffortstofacilitatetheirmembers’participationintheworldeconomyratherthantheirwithdrawalfromit.Unlikethoseinthe1950sand1960s,theinitiativesinvolvingdevelopingcountriesarepartofastrategytoliberalizeandopentheireconomiestoimplementexport-andforeign-investment-ledpoliciesratherthantopromoteimportsubstitution.6463.PerroniandWhalley1996.64.Lawrence1996,6.Onthedifferencesbetweenregionalisminthe1930sandinthecontemporaryera,seealsoEichengreenandFrankel1995;Oye1992;andPomfret1988.FIGURE1.ThenumberofpreferentialtradingarrangementsnotiŽedtotheGATT,1948–94.NewWaveofRegionalism601 Ourbriefhistoricaloverviewindicatesthatregionalismhasbeenanenduringfea-tureoftheinternationalpoliticaleconomy,butbothitspervasivenessandcasthavechangedovertime.Wearguethatdomesticandinternationalpoliticsarecentraltoexplainingsuchvariationsaswellastheoriginsandnatureofthecurrentwaveofregionalism.Inwhatfollows,wepresentaseriesofpoliticalframeworksforaddress-ingtheseissuesandraisesomeavenuesforfurtherresearch.DomesticPoliticsandRegionalismAlthoughitisfrequentlyacknowledgedthatpoliticalfactorsshaperegionalism,sur-prisinglyfewsystematicattemptshavebeenmadetoaddresswhichfactorsmostfullydeterminewhystateschoosetopursueregionaltradestrategiesandtheprecisenatureoftheireffects.Earlyeffortstoanalyzethepoliticalunderpinningsofregion-alismwereheavilyinuencedby‘‘neofunctionalism.’’65JosephS.Nyepointsoutthat‘‘whatthesestudieshadincommonwasafocusonthewaysinwhichincreasedtransactionsandcontactschangedattitudesandtransnationalcoalitionopportunities,andthewaysinwhichinstitutionshelpedtofostersuchinteraction.’’66Lately,ele-mentsofneofunctionalismhavebeenrevived,especiallyinresearchonEuropeanintegration.Manysuchanalysesconcludethatincreasedeconomicowsamongmem-bersoftheEUhavechangedthepreferencesofdomesticactors,leadingthemtopressforpoliciesandinstitutionsthatpromotedeeperintegration.67SocietalFactorsAsneofunctionalstudiesindicate,thepreferencesandpoliticalinuenceofdomesticgroupscanaffectwhyregionalstrategiesareselectedandtheirlikelyeconomiccon-sequences.Regionaltradeagreementsdiscriminateagainstthirdparties,yieldingrentsforcertaindomesticactorswhomayconstituteapotentsourceofsupportforaPTA’sformationandmaintenance.68Industriesthatcouldwardoffcompetitorslo-catedinthirdpartiesorexpandtheirshareofinternationalmarketsiftheywerecoveredbyaPTAhaveobviousreasonstopressforitsestablishment.69Sodoexport-orientedindustriesthatstandtobeneŽtfromthepreferentialaccesstoforeignmar-ketsaffordedbyaPTA.Inaddition,thoughitisallbutimpossibletoconstructaPTAthatwouldnotadverselyaffectatleastsomepoliticallypotentsectors,itisoften65.See,forexample,Deutschetal.1957;Haas1958;andNye1971.66.Nye1988,239.67.Forexample,SandholtzandZysmanarguethatthe1992projectinEuropeto‘‘completethein-ternalmarket’’resultedfromaconuenceofleadershipbytheEuropeanCommissionandpressurefromatransnationalcoalitionofbusinessinfavorofaEuropeanmarket.FriedenadvancesasimilarargumentinexplainingsupportfortheEuropeanMonetaryUnion,stressingthesalienceofthepreferencesofEuropean-orientedbusinessandŽnancialactors.MoravcsikalsoviewstheoriginsofEuropeanintegrationasre-sidinginthepressuresexertedbyEuropeanŽrmsandindustrieswithanexternalorientationforthecreationofalargermarket.SeeSandholtzandZysman1989;Frieden1991;andMoravcsik1998.68.SeeGunter1989,9;andHirschman1981.69.Forexample,Haggard1997.602InternationalOrganization possibletoexcludethemfromthearrangement,atack,forexample,thatledto‘‘theEuropeanEconomicCommunity’sexclusionofagriculture(and,inpractice,steelandmanyothergoods),theCaribbeanBasinInitiative’sexclusionofsugar,andASEAN’sexclusionofjustabouteverythingofinterest.’’70Regionaltradestrategies,therefore,holdsomeappealforpublicofficialswhoneedtoattractthesupportofbothimport-competingandexport-orientedsectors.ThedomesticpoliticalviabilityofaprospectivePTA,theextenttowhichitwillcreateordiverttrade,andtherangeofproductsitwillcoverhingepartlyonthepreferencesofandtheinuencewieldedbykeysectorsineachcountryaswellastheparticularsetofcountriesthatcanbeassembledtoparticipateinit.Unfortunately,existingstudiesofferrelativelyfewtheoreticalorempiricalinsightsintotheseissues,althoughsomerecentprogresshasbeenmadeonthisfront.Publicofficialsmuststrikeabalancebetweenpromotingacountry’saggregateeconomicwelfareandaccommodatinginterestgroupswhosesupportisneededtoretainoffice.GeneM.GrossmanandElhananHelpmanarguethatwhetheracountrychoosestoenteraregionaltradeagreementisdeterminedbyhowmuchinuencedifferentinterestgroupsexertandhowmuchthegovernmentisconcernedaboutvoters’welfare.71TheydemonstratethatthepoliticalviabilityofaPTAoftende-pendsontheamountofdiscriminationityields.AgreementsthatdiverttradewillbeneŽtcertaininterestgroupswhilecreatingcostsbornebythepopulaceatlarge.Ifthesegroupshavemorepoliticalcloutthanothersegmentsofsociety,thenaPTAthatistradedivertingstandsabetterchanceofbeingestablishedthanonethatistradecreating.72GrossmanandHelpmanalsoŽndthatbyexcludingsomesectorsfromaPTA,governmentscanincreasethedomesticsupportforit,thushelpingtoexplainwhymanyPTAsdonotcoverpoliticallysensitiveindustries.Consistentwithearlierresearch,theirresultsimplythattrade-divertingPTAswillfacefewerpoliticalob-staclesthantrade-creatingones.73Ifso,usingpreferentialarrangementsasbuildingblockstosupportmultilateralliberalizationwillrequiresurmountingsubstantialdo-mesticimpediments.Opinionisdividedovertheeasewithwhichthiscanbeaccomplished.KennethA.OyearguesthatdiscriminatoryPTAscanactuallylaythebasisforpromotingmulti-lateralopenness,especiallyiftheinternationaltradingsystemisrelativelyclosed.74Inhisview,discriminationstemmingfromapreferentialarrangementcanmobilizeandstrengthenthepoliticalhandofexport-oriented(andotherantiprotectionist)in-terestslocatedinthirdparties,therebygeneratingdomesticpressureinthesestatesforagreementsthatexpandtheiraccesstoPTAmembers’markets.Suchagreements,inturn,arelikelytocontributetointernationalopenness.However,AnneO.KruegermaintainsthattheformationandexpansionofPTAsmaydampenthesupportofexportersforbroaderliberalization.Assheputsit,‘‘Forthoseexporterswhowould70.EichengreenandFrankel1995,101.71.GrossmanandHelpman1995,668;and1994.72.GrossmanandHelpman1995,681.SeealsoPomfret1988,190.73.Forexample,Hirschman1981,271.74.Oye1992,6–7,143–44.NewWaveofRegionalism603 supportfreetrade,thevalueoffurthermultilateraltradeliberalizationisdiminishedwitheverynewentrantintoapreferentialtradearrangement,sothatexporters’sup-portformultilateralliberalizationislikelytodiminishasvestedinterestsproŽtingfromtradediversionincrease.’’75Hence,itisnotclearwhetherexporterswillsupportregionalisminsteadoforinadditiontomultilateralliberalization.EquallyuncleariswhyexporterswouldprefertoliberalizetradeonaregionalratherthanamultilateralbasisintheŽrstplace.Onepossibilityisthatexporterswillbemorelikelytosupportregionalstrategiesiftheyoperateinindustriescharacter-izedbyeconomiesofscale,since,byprotectingthesesectorsfromforeigncompeti-tionandbroadeningtheirmarketaccess,theformationofaPTAcanbolstertheircompetitiveness.Indeed,MilnerarguesthatŽrmsinsuchindustriesmaybekeyproponentsofregional,ratherthanunilateralormultilateral,tradepolicies.76ButbecausePTAsalsoliberalizetradeamongparticipants,Žrmswithcompetitorsinprospectivemembercountriesmayseektobarthesestatesfromenteringanarrange-mentoropposeitsestablishmentaltogether.Thoughresearchstressingtheeffectsofsocietalfactorsonregionalismoffersvari-oususefulinsights,italsosuffersfromatleasttwodrawbacks.First,thereisalackofempiricalevidenceindicatingwhichdomesticgroupssupportregionaltradeagree-ments,whoseintereststheseagreementsserve,andwhyparticulargroupspreferregionaltomultilateralliberalization.Forexample,Oyemaintainsthatdiscrimina-toryarrangementspiquedtheinterestofexporters,andMilnerclaimsthatexporters—particularlythosewithlargescaleeconomies—mayhavefavoredandgainedfromNAFTA.77Neither,however,demonstratesthatexporterspreferredregionalarrange-mentstomultilateralones.Regionalliberalizationmayhavebeenwhattheyhadtosettleforgiventheexistenceofstrong,opposingdomesticinterests.Second,weknowlittleaboutwhether,onceinplace,regionalarrangementsfosterdomesticsup-portforbroader,multilateraltradeliberalizationorwhethertheyunderminesuchsupport.Theseissuesofferpromisingavenuesforfutureresearch.DomesticInstitutionsIntheŽnalanalysis,thedecisiontoenteraPTAismadebypolicymakers.Boththeirpreferencesandthenatureofdomesticinstitutionsconditiontheinuenceofsocietalactorsontradepolicyaswellasindependentlyaffectingwhetherstateselecttoem-barkonregionaltradeinitiatives.Ofcourse,policymakersandpoliticallypotentsocietalgroupssometimesshareaninterestinformingaPTA.ManyregionaltradearrangementsthatLDCsestablishedduringthe1960sand1970s,forinstance,grewoutofimport-substitutionpoliciesthatwereactivelypromotedbypolicymakersandstronglysupportedbyvarioussegmentsofsociety.7875.Krueger1997,19fn.27.76.Milner1997.SeealsoBuschandMilner1994.77.SeeMilner1997;andOye1992.78.See,forexample,Krueger1993,77,87;andNogue´sandQuintanilla1993,280–88.604InternationalOrganization However,PTAsalsohavebeencreatedbypolicymakerswhopreferredtoliberal-izetradebutfaceddomesticobstaclestodoingsounilaterally.Inthisvein,BarryEichengreenandJeffreyA.Frankelpointoutthat‘‘ColumbiaandVenezueladecidedinNovember1991toturnthepreviouslymoribundAndeanPactintowhatisnowoneoftheworld’smostsuccessfulFTAs.Policymakersinthesecountriesexplaintheirdecisionasapoliticallyeasywaytodismantleprotectionistbarrierstoanextentthattheirdomesticlegislatureswouldneverhaveallowedhadthepolicynotbeenpursuedinaregionalcontext.’’79Evenifinuentialdomesticactorsopposecommer-cialliberalizationaltogether,institutionalfactorssometimescreateopportunitiesforpolicymakerstosidestepsuchoppositionbyrelyingonregionalorbilateraltradestrategies.ConsiderthesituationNapoleonIIIfacedontheeveoftheAnglo-Frenchcommercialarrangement.AnxioustoliberalizetradewithGreatBritain,heencoun-teredaFrenchlegislatureandvarioussalientdomesticgroupsthatwerehighlypro-tectionist.Butalthoughthelegislaturehadconsiderablecontroloverunilateraltradepolicy,theconstitutionof1851permittedtheemperortosigninternationaltreatieswithoutthisbody’sapproval.Napoleon,therefore,wasabletoskirtwell-organizedprotectionistinterestsmuchmoreeasilybyconcludingabilateralcommercialagree-mentthatwouldhavebeenimpossiblehadhereliedsolelyonunilateralinstru-ments.80Similarly,governmentsthatproposeaprogramofliberaleconomicreformsandencounter(orexpecttoencounter)domesticoppositionmayenteraPTAtobindthemselvestothesechanges.81Mexico’sdecisiontoenterNAFTA,forexample,isfrequentlydiscussedinsuchterms.Asonerecentstudyconcludes,‘‘NAFTAshouldbeunderstoodasacommitmentdevice...,[which]combinedwiththeinuenceofnewelitesthatbeneŽtfromexportpromotion,greatlyincreasesthelikelihoodthattradeliberalizationinMexicowillnotbederailed.’’82Forastatethatisinterestedinmakingliberaleconomicreforms,theattractivenessoflockingtheminthroughanexternalmechanism,suchasjoiningaPTA,islikelytogrowifinuentialsegmentsofsocietyopposereformsandifdomesticinstitutionsrenderpolicymakersespe-ciallysusceptibletosocietalpressures.Undertheseconditions,however,govern-mentsmusthavetheinstitutionalmeanstocircumventdomesticoppositioninordertoentersuchagreements,andthecostsofviolatingaPTAmustbehighenoughtoensurethatreformswillnotbeabrogated.Althoughgovernmentsmaychoosetojoinregionalagreementstopromotedomes-ticreforms,theymayalsodosoiftheyresistreformsbutareanxioustoreapthebeneŽtsstemmingfrompreferentialaccesstoothermembers’markets.Existingmem-bersofapreferentialgroupingmaybeabletoinuencethedomesticeconomic79.EichengreenandFrankel1995,101.80.SeeIrwin1993,96;andKindleberger1975,39–40.Moreover,thisisnotanisolatedcase.Irwinnotesthat‘‘Commercialagreementsintheformofforeigntreatiesprovedusefulincircumventingprotec-tionistinterestsinthelegislaturethroughoutEurope.’’Irwin1993,116fn.7.81.SeedeMelo,Panagariya,andRodrik1993;Haggard1997;Summers1991;andWhalley1998.82.TornellandEsquivel1997,54.SeealsoWhalley1998,71–72.ThatthisarrangementhelpedtoconsolidateMexicaneconomicreformsprobablyheighteneditsdesirabilityfromthestandpointoftheUnitedStatesandCanadaaswell.See,forexample,EichengreenandFrankel1995,101.NewWaveofRegionalism605 policiesandthepoliticalinstitutionsofprospectivemembersbydemandingthattheyinstitutedomesticreformspriortoaccession.Alongtheselines,therearevariouscaseswherePTAshavemadetheestablishmentofdemocracyanecessaryconditionformembership.BothSpainandPortugalwererequiredtocompletedemocratictransitionsbeforebeingadmittedtotheEC;indeed,L.AlanWintersarguesthatsolidifyingdemocracyinthesestatesaswellasinGreecewasachiefreasonfortheEC’ssouthernexpansion.83Similarly,ArgentinaandBrazilinsistedthatademocraticsystemofgovernmentwouldhavetobeestablishedinParaguaybeforeitcouldenterMercosur.84Morerecently,theEUhasindicatedthatvariousEasternEuropeancoun-triesmustconsolidatedemocraticreformsasonepreconditionformembership.AsRaquelFerna´ndezmentions,‘‘BoththeEUandtheCEE[CentralEastEuropean]countrieswantedtolockinapoliticalcommitmenttodemocracyintheCEEcoun-tries;sincethepromiseofeventualEUmembershipimpliedintheAgreements...wasconditionalonthecontinueddemocratizationoftheCEEcountries,thecostofexittothesecountriesasaconsequenceofreversiontoauthoritarianismwouldnotjustbethelossofbeneŽts,ifany,oftheAgreements,butthelossoftheprospectofEUmembership.’’85Anotherstudyechoesthisview,notingthatakeymotivebehindanyfutureeastwardexpansionoftheEUwouldbefosteringdemocracyintheformermembersoftheWarsawPact.86Clearly,wearenotsuggestingthatthedesiretogainaccesstoaPTAhasbeenaprimaryforcedrivingdemocratizationinEasternEuropeorelsewhere.However,recentexperiencesuggeststhatitcansometimesbefruitfultoincludesuchaccessinapackageofinducementsdesignedtospurpoliticalreforminnondemocraticstates.UsingPTAmembershiptostimulateliberaleconomicandpoliticalreformsisadistinctivefeatureofthelatestwaveofregionalism.Thatthesereformshavebeendesignedtoopenmarketsandpromotedemocracymayhelptoaccountfortherela-tivelybenigncharacterofthecurrentwave.UnderlyingdemandsfordemocraticreformarefearsthatadmittingnondemocraticcountriesmightundermineexistingPTAscomposedofdemocraciesandthebeliefthatregionscomposedofstablede-mocraciesareunlikelytoexperiencehostilities.Bothviewsremainopentoquestion.Butifenteringapreferentialarrangementactuallypromotestheconsolidationofliberaleconomicandpoliticalreformsandmutestheeconomicandpoliticalinstabil-itythatoftenaccompaniessuchreforms,thenthecontemporaryriseofregionalismmaycontributetobothcommercialopennessandpoliticalcooperation.87Atthesametime,thepoliticalviabilityofsuchPTAs,thecredibilityoftheinstitu-tionalchangestheyprompt,andtheeffectofthesearrangementsoninternationalopennessandcooperationdependheavilyonthepreferencesofpowerfuldomesticgroups.Whereasdomesticanalysesofregionalismhavegenerallyfocusedoneither83.Winters1993,213.84.Birch1996,186.85.Ferna´ndez1997,26.86.EichengreenandFrankel1995,103.87.Ontheseissues,seeHaggardandKaufman1995;HaggardandWebb1994;Lawrence1996;Mans-ŽeldandSnyder1995;andRemmer1998.606InternationalOrganization societalorinstitutionalfactors,moreattentionneedstobecenteredonhowtheinter-actionbetweenthesefactorsinuenceswhetherandwhencountriesenteraregionalarrangementaswellasonthepoliticalandeconomicconsequencesofdoingso.88Greaterattentionalsoneedstobefocusedonwhystateleadershavedisplayedaparticularpreferenceforenteringregionaltradearrangements.Onepossibilityisthattheydosotoliberalizetradewhenfacedwithdomesticobstaclestoreducingtradebarriersonaunilateralormultilateralbasis.TheoriesoutliningtheconditionsunderwhichleadersprefertoliberalizecommerceintheŽrstplace,however,remainscarce.Furthermore,theextenttowhichPTAshavebeenusedasinstrumentsforstimulat-ingeconomicandpoliticalliberalizationduringthecurrentwaveofregionalismisquiteunusualbyhistoricalstandards.Chile,forexample,withdrewfromtheAndeanPactin1976becauseitwantedtocompleteaseriesofeconomicreformsthatthisarrangementprohibited.89Moreover,attemptstospurdemocratizationinprospectivePTAmembersarelargelyuniquetothecontemporarywave.Asnotedearlier,therecenttendencyofexistingPTAstodemandthatnondemocraticstatescompletepoliticalreformspriortoaccessionprobablyreectsthegrowingnumberofpreferen-tialarrangementscomposedofdemocraciesandthewidelyheldbeliefbypolicymak-ersintheseregionalgroupingsthatfosteringdemocracywillpromotepeaceandprosperity.Nonetheless,welackasufficienttheoreticalunderstandingofthecondi-tionsunderwhichPTAmembershipisusedtopromptliberalizingreformsandthefactorsaffectingthesuccessofsuchefforts.Arelatedlineofresearchsuggeststhatthesimilarityofstates’politicalinstitutionsinuenceswhethertheywillformapreferentialarrangementanditsefficacyonceestablished.Manyscholarsviewaregionasimplyingsubstantialinstitutionalhomo-geneityamongtheconstituentstates.Likewise,someobserversmaintainthatthefeasibilityofcreatingaregionalagreementdependsonprospectivemembershavingrelativelysimilareconomicorpoliticalinstitutions.90Iftradeliberalizationrequiresharmonizationinabroadsense,suchasintheSingleEuropeanAct,thenthemorehomogeneousaremembers’nationalinstitutions,theeasieritmaybeforthemtoagreeoncommonregionalpoliciesandinstitutions.Otherspointoutthatcountriesinclosegeographicproximityhavemuchlessimpetustoestablishregionalarrange-mentsiftheirpoliticalinstitutionsdiffersigniŽcantly.InAsia,forexample,thescar-cityofregionaltradearrangementsispartlyattributabletothewidevariationintheconstituentstates’politicalregimes,whichrangefromdemocracieslikeJapantoautocracieslikeVietnamandChina.91Astheinitialdifferencesinstates’institutionsbecomemorepronounced,sodoboththepotentialgainsfromandtheimpedimentstoconcludingaregionalagree-ment.Consequently,thedegreeofinstitutionalsimilarityamongstatesandthepros-pectthatmembershipinaregionalarrangementwillprecipitateinstitutionalchange88.Foronestudyofthissort,seedeMelo,Panagariya,andRodrik1993.89.Nogue´sandQuintanilla1993,285.90.Forexample,ibid.91.Katzenstein1997a.NewWaveofRegionalism607 inthesestatesmaybearheavilyonwhethertheyformaPTA.92Theextantliterature,however,provideslittleguidanceabouthowlargeinstitutionaldifferencescanbebeforeregionalintegrationbecomespoliticallyinfeasible.Nordoesitindicatewhetherregionalagreementscanhelpmemberstolockininstitutionalreformsifthereislittlepreexistingdomesticsupportforthesechanges.InternationalPoliticsandRegionalismThedecisiontoformaPTArestspartlyonthepreferencesandpoliticalpowerofvarioussegmentsofsociety,theinterestsofstateleaders,andthenatureofdomesticinstitutions.Intheprecedingsection,wesuggestedsomewaysthatthesefactorsmightoperateseparatelyandincombinationtoinuencewhetherstatespursuere-gionaltradestrategiesandregionalism’seconomicconsequences.ButstatesdonotmakethedecisiontoenteraPTAinaninternationalpoliticalvacuum.Onthecon-trary,interstatepowerandsecurityrelationsaswellasmultilateralinstitutionshaveplayedkeyrolesinshapingregionalism.Equallyimportantishowregionalismaf-fectspatternsofconictandcooperationamongstates.Wenowturntotheseissues.PoliticalPower,InterstateConict,andRegionalismStudiesaddressingthelinksbetweenstructuralpowerandregionalismhaveplacedprimarystressontheeffectsofhegemony.Variousscholarsarguethatinternationaleconomicstabilityisacollectivegood,suboptimalamountsofwhichwillbepro-videdwithoutastablehegemon.93Discriminatorytradearrangements,inturn,maybeoutgrowthsoftheeconomicinstabilityfosteredbythelackordeclineofsuchacountry.94Offeringoneexplanationforthetrade-divertingcharacterofPTAsduringtheinterwarperiod,thisargumentisalsoinvokedbymanyeconomistswhomaintainthatthecurrentwaveofregionalismwastriggeredoracceleratedbytheU.S.deci-siontopursueregionalarrangementsintheearly1980s,onceitseconomicpowerwanedandmultilateraltradenegotiationsstalled.95Infact,thereisevidencethatoverthepastŽftyyearstheerosionofU.S.hegemonyhasstimulatedariseinthenumberofPTAsandstatesenteringthem.96ButwhywaninghegemonyhasbeenassociatedwiththegrowthofregionalismsinceWorldWarII,whateffectsPTAsformedinresponsetodeclininghegemonywillhaveonthemultilateraltradingsystem,andwhethervariationsinhegemonycontributedtoearlierepisodesofregionalismareissuesthatremainunresolved.9792.Forexample,Hurrell1995,68–71.93.SeeGilpin1975;Kindleberger1973;andLake1988.94.See,forexample,Gilpin1975and1987;Kindleberger1973;andKrasner1976.95.See,forexample,Baldwin1993;Bhagwati1993;BhagwatiandPanagariya1996;Krugman1993;andPomfret1988.96.MansŽeld1998.97.See,forexample,McKeown1991;Oye1992;andYarbroughandYarbrough1992.608InternationalOrganization Someobserversarguethatasahegemon’spowerrecedes,ithasreasontobehaveinanincreasinglypredatorymanner.98Tobuffertheeffectsofsuchbehavior,otherstatesmightformaseriesofpreferentialtradingblocs,therebysettingoffawaveofregionalism.RobertGilpinsuggeststhatthissortofprocessbegantounfoldduringthe1980s,givingrisetoasystemoflooseregionaleconomicblocsthatiscoalescingaroundWesternEurope,theUnitedStates,andJapan.Healsopointsoutthatbecauseoftheinherentproblemsof‘‘pluralist’’leadership,thesedevelopmentsthreatentheunityoftheglobaltradingorder,aprospectthatrecallsKrugman’sclaimsabouttheadverseeffectsonglobalwelfarestemmingfromsystemscomposedofthreetradeblocs.99TheextenttowhichU.S.hegemonyhasactuallydeclinedandwhethersuchasystemisactuallyemerging,however,remainthesubjectsofŽercedisagreement.Furthermore,evenifsuchasystemisemerging,thereareatleasttworeasonswhythesituationmaybelessdirethantheprecedingaccountwouldindicate.First,de-spitethepotentialproblemsofpluralistleadership,itiswidelyarguedthatglobalopennesscanbemaintainedinthefaceofdeclining(ortheabsenceof)hegemonyifasmallgroupofleadingcountriescollaboratestosupportthetradingsystem.100TheerosionofU.S.hegemonymayhavestimulatedthecreationandexpansionofPTAsbyasetofleadingeconomicpowersthatfeltthesearrangementswouldassisttheminmanagingtheinternationaleconomy.101Drawingsmallerstatesintopreferentialgroupingswitharelativelyliberalcasttowardthirdpartiesmightreducethecapacityofthesestatestoestablishaseriesofmoreprotectionistblocsandbindthemtodecisionsaboutthesystemmadebytheleadingpowers.Especiallyifthereisamultilateralframework(liketheGATT/WTO)towhicheachleadingpower(includ-ingthedeclininghegemon)iscommittedandthatcanhelptofacilitateeconomiccooperation,thegrowthofregionalismduringperiodsofhegemonicdeclinecouldcontributetothemaintenanceofanopentradingsystem.Second,Krugmanarguesthatthedangersposedbyasystemofthreetradeblocsaremutedifeachblociscomposedofcountriesincloseproximitythatconductahighvolumeofcommercepriortoitsestablishment.BothheandSummersconcludethatthese‘‘natural’’tradingblocsreducetheriskoftradediversionandthattheymakeupalargeportionoftheexistingPTAs.102Regardlessofthisargument’smerits,98.Forexample,Gilpin1987,88–90,andchap.10.99.Seeibid.;andKrugman1991aand1993.Ontheproblemsassociatedwithpluralistleadership,seealsoKindleberger1973.100.See,forexample,Keohane1984;andSnidal1985.101.Onthisissue,seeYarbroughandYarbrough1992.102.Krugman1991aand1993;andSummers1991.Ofcourse,thesefactorsmayberelated,sinceaninverserelationshiptendstoexistbetweentransportationcostsandtradeows.However,somestrandsofthisargumentfocusonhighlevelsoftrade,whichmaybeaproductofgeographicalproximity,whereasothersfocusontransportationcosts,whichareexpectedtobelowerforstatesinthesameregionthanforotherstates.SeeBhagwatiandPanagariya1996,7fn.7.WonnacottandLutz,whoŽrstcoinedtheterm‘‘naturaltradingpartners,’’arguethattheeconomicdevelopmentofstates,theextenttowhichtheireconomiesarecomplementary,andthedegreetowhichtheycompeteininternationalmarketsalsoinu-encewhethertradingpartnersarenatural.Thesefactors,however,havereceivedrelativelylittleattentionandwethereforedonotexaminethemhere.SeeWonnacottandLutz1989.NewWaveofRegionalism609 whichhavebeenhotlydebatedbyeconomists,103itbegsanimportantsetofques-tions:Whydosome‘‘natural’’tradepartnersformPTAswhileothersdonot?Andwhydosome‘‘unnatural’’partnersdosoaswell?Thereisamplereasontoexpectthattheanswerstothesequestionshingelargelyondomesticpoliticalfactorsandthenatureofpoliticalrelationsbetweenstates.CentraltothelinksbetweeninternationalpoliticalrelationsandtheformationofPTAsaretheeffectsoftradeonstates’political-militarypower.104JoanneGowapointsoutthattheefficiencygainsfromopentradepromotethegrowthofnationalincome,whichcanbeusedtoenhancestates’political-militarycapacity.105Countriescannotignorethesecurityexternalitiesstemmingfromcommercewithoutjeopardiz-ingtheirpoliticalwell-being.Shemaintainsthatcountriescanattendtotheseexter-nalitiesbytradingmorefreelywiththeirpolitical-militaryalliesthanwithotherstates.SincePTAsliberalizetradeamongmembers,Gowa’sargumentsuggeststhatsucharrangementsareespeciallylikelytoformamongallies.InPTAscomposedofallies,thegainsfromliberalizingtradeamongmembersbolsterthealliance’soverallpolitical-militarycapacity,andthecommonsecurityaimsofmembersattenuatethepoliticalrisksthatstatesbeneŽtinglessfromthearrangementmightotherwisefacefromthosebeneŽtingmore.ReturningtotheclaimsadvancedbyKrugmanandSummers,certainblocs(forexample,thoseinNorthAmericaandWesternEurope),therefore,mayappearnatu-ralpartlybecausetheyarecomposedofallies,whichtendtobelocatedincloseproximityandtotradeheavilywitheachother.106Furthermore,alliesmaybequitewillingtoformPTAsthatdiverttradefromadversarieslyingoutsidethearrange-ment,iftheyanticipatethatdoingsowillimposegreatereconomicdamageontheirfoesthanonthemselves.Inthesamevein,adversarieshavefewpoliticalreasonstoformaPTA,andalliesthatestablishoneareunlikelytopermittheiradversariestojoin,thuslimitingthescopefortheexpansionofpreferentialarrangements.Eithersituationcouldunderminethesecurityofmembers,sincesomeparticipantsarelikelytoderivegreatereconomicbeneŽtsthanothersevenifallofthemrealizeabsolutegainsinwelfare.Itisnocoincidence,forinstance,thatpreferentialagreementsbe-tweentheEC/EUandEFTA,ontheonehand,andvariousstatesformerlyintheSovietorbit,ontheother,wereconcludedonlyaftertheendoftheColdWarandthe103.BhagwatiandPanagariya,forexample,havelodgedseveralcriticismsagainstit.First,therearenoclearempiricalstandardsforgaugingwhetheragivenpairoftradepartnersisnatural.Second,theychallengetheassumptionthathightradevolumesamongnaturaltradepartnersimplythatlowtradevolumesexistamong‘‘unnatural’’partners,therebylimitingthescopefortradediversion.Third,ahighinitialleveloftradebetweenstatesneednotemanatefromeconomiccomplementarities;instead,itmightstemfrompreexistingpatternsofdiscrimination.Ifso,thesestatesmaynotbenaturaltradepartners,andanyPTAtheyestablishmaynotbetradecreating.SeeBhagwati1993,34–35;andBhagwatiandPana-gariya1996.104.Ontherelationshipbetweentradeandpoliticalpower,seeBaldwin1985;Gowa1994;Hirschman[1945]1980;andKeohaneandNye1977.105.Gowa1994.106.Ontherelationshipbetweenalliancesandproximity,seeFarberandGowa1997,411.Ontherelationshipbetweenalliancesandtrade,seeGowa1994;andMansŽeldandBronson1997.610InternationalOrganization collapseoftheWarsawPact.107Also,althoughdeeppoliticaldivisionscontinuetoexistinvariouspartsoftheworld,thelackofcompetingmajorpoweralliancesmayhelptoaccountfortherelativelybenigneconomiccastofthelatestwaveofAnotherwaythatregionalarrangementscanaffectpowerrelationsisbyinuenc-ingtheeconomicdependenceofmembers.IfstatesthatderivethegreatesteconomicgainsfromaPTAaremorevulnerabletodisruptionsofcommercialrelationswithinthearrangementthanotherparticipants,thepoliticalleverageofthelatterislikelytogrow.Thispointhasnotbeenlostonstateleaders.Prussia,forexample,establishedtheZollvereinlargelytoincreaseitspoliticalinuenceovertheweakerGermanstatesandtominimizeAustrianinuenceintheregion.108Asaresult,itrepeatedlyopposedAustria’sentryintotheZollverein.Simi-larly,bothGreatBritainandPrussiaobjectedtotheformationofaproposedcustomsunionbetweenFranceandBelgiumduringthe1840sonthegroundsthatitwouldpromoteFrenchpowerandundermineBelgianindependence.AsVinerpointsout,‘‘PalmerstontookthepositionthateveryunionbetweentwocountriesincommercialmattersmustnecessarilytendtoacommunityofactioninthepoliticalŽeldalso,butthatwhensuchcommunityisestablishedbetweenagreatpowerandasmallone,thewillofthestrongermustprevail,andtherealandpracticalindependenceofthesmallercountrywillbelost.’’109Furthermore,AlbertO.HirschmanandothershavedescribedhowvariousmajorpowersusedregionalarrangementstobolstertheirpoliticalinuenceduringtheinterwarperiodandhowcertainarrangementsthatseemedlikelytobearheavilyontheEuropeanbalanceofpower(liketheproposedAustro-Germancustomsunion)wereactivelyopposed.110SinceWorldWarII,strongerstateshavecontinuedtousePTAsasameanstoconsolidatetheirpoliticalinuenceoverweakercounterparts.TheCMEAandthemanyarrangementsthattheECestablishedwithformercoloniesofitsmembersarecasesinpoint.TheCaribbeanBasinInitiativelaunchedbytheUnitedStatesin1982hasbeendescribedinsimilarterms.111ArelatedissueisraisedbyJosephM.Grieco,whoarguesthat,overthepastŽftyyears,theextentofinstitutionalizationinregionalarrangementshasbeeninuencedbypowerrelationsamongmembers.112Inareaswherethelocaldistributionofcapabilitieshasshiftedorstateshaveexpectedsuchashifttooccur,weakerstateshaveopposedestablishingaformalregionalinstitution,fearingthatitwouldreecttheinterestsofmorepowerfulmembersandunderminetheirsecurity.Anotherview,however,isthatregionalinstitutionsfosterstabilityandconstraintheabilityofmemberstoexercisepower.ArecentstudyoftheEU,forexample,concludesthatalthoughGermany’spowerhasenabledittoshapeEuro-107.Foralistofthesearrangements,seeWorldTradeOrganization1995,85–87.108.Viner1950,98.109.Ibid.,87.110.See,forexample,Condliffe1940;Hirschman[1945]1980;Viner1950,87–91;andEichengreenandFrankel1995,97.111.Forexample,Pomfret1988,163.112.Grieco1997.NewWaveofRegionalism611 peaninstitutions,Germany’sentanglementwithintheseinstitutionshastakenthehardedgeoffitsinterstatebargaininganderodeditshegemonyinEurope.113ThelinksbetweenpowerrelationsandPTAsremainimportantinthecontempo-raryera,althoughtheyhavenotbeenstudiedinsufficientdepth.Butincontrasttotheinterwarperiod,thereisrelativelylittleindicationthatregionalismhasbeentheproductofactiveattemptsbystatestopromotetheirpolitical-militarypowersinceWorldWarII.BarryBuzanattributesthischangetotheemergenceofbipolarity,thedeclineofempires,andtheadventofnuclearweapons.114Thelatestwaveofregion-alismhasbeenmarkedbyespeciallyfewinstancesofstatesusingPTAstobolstertheirpolitical-militarycapacity.ThatisprobablyonereasonwhyregionalismhasdonelesstodiverttradeoverthepastŽftyyearsthanduringtheinterwarperiod.115ItalsomayhelptoexplainwhyPTAmembershiphasinhibitedarmedconictthrough-outthepost–WorldWarIIera.116Gilpinhasdistinguishedbetweenbenignandma-levolentstrainsofregionalism.Ontheonehand,regionalismcanpromoteinterna-tionaleconomicstability,multilateralliberalization,andpeace.Ontheotherhand,itcanhaveamercantilisttenor,degradingeconomicwelfareandfosteringinterstateconict.117Theavailableevidencesuggeststhat,fromaninternationalpoliticalstand-point,regionalismhasbeenrelativelybenignsinceWorldWarII,whichmayhavedampeneditspotentiallyperniciouseconomicconsequences.118PowerandsecurityrelationshaveinuencedtheformationandspreadofPTAs.Thatsuchrelationsarealsolikelytoaffectthewelfareimplicationsofpreferentialarrangementsposesacentralchallengetothemanyeconomicstudiesthatanalyzeregionalisminaninternationalpoliticalvacuum.However,littlecontemporaryre-searchhasdirectlyaddressedthesetopics.Moreover,theexistingliteraturedoesnotfurnishanadequateunderstandingofhowpowerandsecurityrelationshaveshapedregionalismovertime;nordoesitresolvequestionsabouthowrecentchangesinbothregionalandglobalpoliticshaveaffectedtheriseandcastofthelatestwaveofPTAs.MultilateralInstitutions,StrategicInteraction,andRegionalismOneofthemostdistinctivefeaturesofthetwowavesofregionalismoccurringsinceWorldWarIIisthemultilateralframeworkinwhichtheyarose.MostcontemporaryPTAshavebeenestablishedundertheauspicesoftheGATT/WTO,whichhasat-113.Katzenstein1997b.114.Buzan1984.115.Foranempiricalanalysisoftradecreationandtradediversioncoveringtheseperiods,seeEichen-greenandFrankel1995.116.See,forexample,Nye1971;andMansŽeld,Pevehouse,andBearceforthcoming.117.Gilpin1975,235.118.Atthesametime,verylittleevidencehasbeenaccumulatedonthisscore.Althoughaconsiderableamountofrecentworkhasaddressedtheeffectsoftradeowsoninterstateconict,farlessattentionhasbeenpaidtotheinuenceofinstitutions(bothregionalandmultilateral)designedtoguidetrade.Forsomeearlierresearchbearingontherelationshipbetweenregionaleconomicarrangementsandconict,seeHaas1958;andNye1971.Foranoverviewoftheliteratureontherelationshipbetweentradeowsandconict,seeMcMillan1997.612InternationalOrganization temptedtodampentradediversionbylimitingmembers’abilitytodiscriminateagainstthirdparties.119ButtheGATT’ssuccessinfosteringtrade-creatingPTAshasbeenqualiŽed.Manyarrangementsformedbyitseconomicallyless-developedmembershavebeenhighlyprotectionist,andeventheextenttowhichthosepreferentialgroup-ingsestablishedamongitsdevelopedmembershavebeenwelfareenhancingisthesubjectofconsiderabledispute.Furthermore,theabsenceofmultilateralmanagementhasnotalwaysledtotheformationofdiscriminatoryregionalarrangements.Theliberaltradingorderofthenineteenthcenturywasconstructedonabilateralandregionalbasislackinganymultilateralfoundation.Also,Irwinpointsoutthattheeconomicandpoliticaldam-agecausedbytradeblocsformedinthe1930smighthavebeenamelioratediftheLeagueofNationshadnotinsistedontryingtopromotethemultilateralorganizationofcommerce.120Inthesamevein,Oyearguesthatregionalism‘‘preservedzonesofopenness’’earlyinthatdecadeandthatdecentralizedand‘‘discriminatorybargain-ingwasanimportantforceforliberalization’’duringitsmiddleandend.121ArticleXXIVoftheGATToutlinestheconditionsunderwhichstatesarepermit-tedtoestablishregionalintegrationarrangements.ItsstipulationthatPTAseliminateinternaltradebarriersanditsprohibitiononincreasesintheaveragelevelofmem-bers’externaltariffsdonotprecludethepossibilityoftradediversion.122ButEichen-greenandFrankelnotethatthelatterprohibition‘‘explicitlyrulesoutKrugman’sconcern’’aboutabeggar-thy-neighbortradewararisinginsystemscomposedofafewlargePTAs.123Totheextentthatsuchasystemhasbeenemerging,theGATT/WTO,therefore,mayhaveanimportantroletoplayinavertingwhatcouldotherwisebeadestructivewaveofregionalism.ProvisionsforformingPTAsweremadeatthetimeoftheGATT’sestablishmentbecauseitwasapparentthatthisbodywouldbehard-pressedtoforbidstatesfromdoingso.Inaddition,somedecisionmakersseemedtobelievethattheprovisioninArticleXXIVtocompletelyeliminatetradebarrierswithinPTAswouldcomplementGATTinitiativestopromotemultilateralopenness.124Indeed,partiestotheGATTmayhaveestablishedPTAsatsucharapidrateduringthepastŽftyyearsbecausetheyviewedregionalliberalizationasastepping-stonetomultilateralliberalization,acentralpremiseofthosewhobelievethatpreferentialgroupingswillserveasbuild-ingblockstoglobalopenness.Alternatively,GATTmembersmayhaveformedsucharrangementstohelpoffsetprogressivelydeepercutsinprotectionmadeatthemul-tilaterallevelandtoprotectuncompetitivesectors.AchieffearofthosewhoviewPTAsasstumblingblockstomultilateralliberalizationisthatarrangementsformedforthesereasonswilldiverttradeandunderminefutureeffortsatmultilateralliberal-ization.119.SeeBhagwati1991,chap.5,and1993;EichengreenandFrankel1995;andFinger1993.120.Irwin1993.121.Oye1992,9.122.Bhagwati1993,35–36.123.EichengreenandFrankel1995,100.124.SeeBhagwati1993;andFinger1993.NewWaveofRegionalism613 BesidesattemptingtoregulatetheformationofPTAs,theGATThasmadeeffortstomanagestrategicinterdependenceamongthem.Preferentialarrangementshaveformedinreactiontooneanotherthroughouteachwaveofregionalism.Duringthenineteenthcentury,thistendencywaspromptedbystates’desiretoobtainaccesstoMFNtreatment.Doingsorequiredthemtoenterthenetworkofbilateralcommercialarrangementsundergirdingthetradingsystem,whichgeneratedincreasesinthenum-berofthesearrangementsandcountriesthatwerepartytoone.125Throughouttheinterwarperiod,PTAsformedinreactiontoeachotherduelargelytomercantilistpoliciesandpoliticalrivalriesamongthemajorpowers.126StrategicinteractionhascontinuedtoguidethedevelopmentofPTAssinceWorldWarII.127Ithasbeenargued,forexample,thatEFTAwascreatedinresponsetotheEEC;thelatteralsospurredvariousgroupsofLCDstoformregionalarrange-ments.128Furthermore,NAFTAhasstimulatedtheestablishmentofbilateraleco-nomicarrangementsintheWesternHemisphereandintheAsia-PaciŽcregionaswellasagreementstoconcludeothers.129YetcontemporaryPTAshaveformedinreactiontoeachotherfordifferentreasonsthanbefore:GATTmembershavenotestablishedthemtoobtainMFNtreatment,andtheyarenottheproductsofmercan-tilistpolicies.AmongtheexplanationsofferedforthisrecenttendencyisthataPTA’sestablish-mentcanpromptfearsbythirdpartiesthatitwillunderminetheircompetitiveness,therebyinducingthemtoformarivalbloc.Similarly,astateenteringanexistingPTAmayprovokeconcernonthepartofitseconomicrivalsthattheywillbeplacedatacompetitivedisadvantageininternationalmarkets,unlesstheyrespondinkind.Evenifstatesarenoteconomicrivals,theperceptionthataregionaleconomicarrange-mentisbeneŽtingmemberscanleadotherstatesthatareanxioustoreapsimilargainstojoinaPTA.130Inaddition,PTAsmightformandexpandinreactiontooneanotherbecausetheyusuallyhavemoreaggregatemarketpowerandthusmorebargainingpowerthantheirconstituentmembers.131VariousLatinAmericancoun-tries,forexample,establishedPTAsoverthepastdecadetoimprovetheirleverageinnegotiationswiththeUnitedStatesandNAFTA.Likewise,theEEC’soriginalmem-bersbelievedthatitscreationwouldenhancetheirbargainingpowerinnegotiationswiththeUnitedStates,andparticipantsintheCentralEuropeanFreeTradeArea125.Irwin1993,97.126.See,forexample,Buzan1984;Condliffe1940;andEichengreenandFrankel1995.127.SeedeMeloandPanagariya1993,5–6;Ferna´ndez1997;MansŽeld1998;Oye1992;Pomfret1988;andYarbroughandYarbrough1992.128.Pomfret1988,161,178.129.Forexample,Serraetal.1997,8–9.AlsoconsistentwiththeseviewsisevidencelinkingthedepthofintegrationwithinPTAstotheestablishmentofcompetingeconomicblocs.Forexample,BhagwatiandFerna´ndezsuggestthatheightenedEuropeanintegrationcontributedtothecreationofNAFTA;andOyeandSandholtzandZysmanpointoutthatNAFTA’sformationpromptedadditionalintegrationwithintheEU.SeeBhagwati1991,72;Ferna´ndez1997,16–19;Oye1992,164–65;andSandholtzandZysman1989.130.SeePomfret1988;andYarbroughandYarbrough1992.131.SeeFerna´ndez1997;andOye1992.614InternationalOrganization hopeditsformationwouldbolstertheirabilitytonegotiateentranceintotheEC/EU.132Althoughthegrowthofregionalarrangementshasbeenmarkedbya‘‘contagion’’effectthroughouteachwavewehaveanalyzed,farlessdamagehasaccruedtotheinternationaltradingsystemasaresultduringthepost–WorldWarIIerathanduringthe1930s.Besidescertainfactorsdiscussedearlier,theGATThelpedtolimitsuchdamagebyrestricting(albeitwithvaryingdegreesofsuccess)theabilityofpartici-pantstoformhighlydiscriminatorytradeblocs.Moreover,becausethereislittlechanceofcreatingasystemcomposedof‘‘open’’bilateralagreements,likethatwhichexistedduringthenineteenthcentury,theWTO’scapacitytomanagetherecentcascadeofPTAswillcontinuetobeanimportantdeterminantofregionalism’scast.JusthowimportanttheGATThasbeenandtheWTOwillbeisthetopicofsubstantialdisagreement.SoiswhethertheproliferationofPTAsisplacingincreas-ingpressureontheWTO,anissuethathasstimulatedmuchoftherecentresearchonArelatedsetofissuespertaintowhetherthemultilateralframeworkthathasguidedinternationaleconomicrelationssinceWorldWarIIhascoloredtheeffectsofpowerrelationsonregionalism.WouldtheUnitedStateshavebehavedinamorepredatoryfashionandwouldPTAsconsequentlyhaveamorediscriminatorytenorifitseco-nomicdeclinehadoccurredoutsideamultilateralsetting?TowhatextenthastheGATT/WTOreducedthescopefortradediversionandconictbetweenPTAsbymutingitsmembers’abilitytouseregionalarrangementsasmercantilistinstru-ments?Answeringthesequestions(andmanyothersraisedearlier)requiressystem-aticempiricalresearchonthelinksbetweeninternationalpoliticsandregionalismthathasbeensorelylackingtodate.VariationsAmongRegionalInstitutionsThusfar,wehaveanalyzedPTAsasawhole,withoutfocusingonthedifferencesamongthem.Yetitisclearthatallregionaltradeinstitutionsareneithercreatedequalnorequallysuccessfulinmeetingtheirstatedobjectives.SigniŽcantvariationsexistinboththeinstitutionaldesignofPTAsandthedepthofintegrationtheyfoster.Anumberofrecenteffortshavebeenmadetoassessthepoliticalcausesandconse-quencesofthesedifferences.ThedepthofintegrationwithinaPTAdependsoneconomicfactors,includingmembers’levelsofeconomicdevelopmentandtheextenttowhichtheireconomiesarecomplementary.133ItalsohingesonmanyofthepoliticalfactorsthatinuencetheformationofPTAs,aswehavesuggestedthroughoutthisarticle.Butinaddition,theinstitutionaldesignofaregionalarrangementaffectsthedegreeofintegrationamongparticipants.Forexample,someobserversarguethataninverserelationship132.SeeHaggard1997;andWhalley1998,72.133.SeeBalassa1961;Fischer1993;Foroutan1993;andNogue´sandQuintanilla1993.NewWaveofRegionalism615 existsbetweenthenumberofpartiestoaPTAandthedepthofeconomicintegrationwithinit.Deeperintegrationismoreeasilyattainedifstatesshareaninterestineconomicliberalization;allelseequal,theheterogeneityofmembers’preferencesislikelytoincreaseasthenumberofmembersgrows.134Forthisreasonandbecauseofcollectiveactionproblems,formingasmallPTAiseasierthanformingalargeone,regardlessofthelevelofintegrationeventuallyattained.135Large,highlyintegratedPTAscanbeestablished.However,ratherthantryingtodosofromscratch,GeorgeW.Downs,DavidM.Rocke,andPeterN.BarsoomsuggestthatitismoreeffectivetocreateasmallerPTAcomposedofstateswithapreferenceforliberalizingeco-nomicrelationsandthentakeonadditionalmembersincrementally—preciselythestrategytheEC/EUhasfollowed.136AnothersetofdesignfeaturesthatdiffersacrossPTAsistheextentofthecommer-cialpreferencesgrantedtomembers,whethertheyimposeaCET,andwhetherthearrangementexplicitlycoversissueareasotherthantrade(forexample,monetaryrelationsandimmigrationandenvironmentalpolicy).Economistshavehighlightedthewelfareconsequencesoftheseinstitutionalvariations.137Butsuchdifferencesalsohavebeenlinkedtosomeofthepoliticalfactorswediscussedearlier,thoughtheexistingliteratureontheseissuesremainsquitesmall.BernardHoekmanandMichaelLeidy,forexample,arguethatcustomsunionsarelikelytoyieldgreaterprotectionthanFTAs.138CustomsunionssetaCET,anditmaybeeasierforprotec-tionistgroupstoallyacrossstatestoraiseitthantoforgeanalliancetoraisetariffsindependentlysetbyeachmember.Inaddition,partiestoanFTAhaveanincentivetoengageincompetitivetradebarrierreductions,sincedoingsowillpromoteforeigninvestmentandexports.Thus,manyanalystsarguethatdynamicprocessespropelreductionsinexternaltariffsunderanFTA,whereasacustomsunionislikelytosetitsCETjusthighenoughtoprotectitsleast-efficientmembers.139Ontheotherhand,politicalfactorsmayrendercustomsunionspreferabletoFTAsandotherpreferentialarrangementsthatdonotimposeaCET.Countriessettingtradebarrierscollectivelycandilutethepoliticalinuenceofprotectionistinterestgroupsinanygivenmember.BothadministrativecostsandthelevelofprotectionmaybehigherinanFTAthaninacustomsunion,sinceelaboraterulesoforiginandcontentrequirementsarenecessarytoenforcetheformertypeofagreement.140Like134.Onthispoint,seedeMelo,Panagariya,andRodrik1993;Downs,Rocke,andBarsoom1998;andHaggard1997.135.SeedeMelo,Panagariya,andRodrik1993;andOlson1993.136.Downs,Rocke,andBarsoom1998.137.See,forexample,deMelo,Panagariya,andRodrik1993,171–75;andFrankel,Stein,andWei1995.OneespeciallyinterestingŽndingisthat,althougheliminatingtradebarriersamongmembersislikelytopromoteeconomicintegration,lessdramaticreductionsofthesebarriersoftenarepreferableoneconomicgrounds.138.HoekmanandLeidy1993,239.139.SeedeMelo,Panagariya,andRodrik1993,171–74;andWonnacott1996,92–95.140.AsWonnacottexplains,‘‘becauseanFTAallowseachmembertosetitsowntariffonoutsidecountries,itrequiresrulesoforigin(ROOs).Otherwise,therewouldbeanincentivefortradedeec-tion—thatis,importswouldcomeintotheFTAthroughthelow-tariffcountryandbetransshippedduty-freeintothehigh-tariffcountry.’’FordiscussionsofwhycustomsunionsaremoredesirablethanFTAsbecauseROOsinthelattertendtobeprotectionist,seeWonnacott1996,90–91;andKrueger1995.616InternationalOrganization theformationofPTAs,moregenerally,boththedomesticandtheinternationalpoliti-calenvironmentarelikelytoshapewhichtypeofarrangementstateschoosetoform.Howtheydosohashardlybeenexploredandisafruitfulavenueforfurtherresearch.AŽnaldesignfeaturethatvariesamongPTAsistheirinstitutionaldensity.Griecomaintainsthattheinstitutionalizationofeconomicrelationscanbecomparedacrossthreedimensions:(1)thelocusofinstitutionalization,(2)thescopeofactivity,and(3)thelevelofinstitutionalauthority.141Recently,scholarshaveexpressedparticularinterestinwhycertainregionsdisplayahighdegreeofinstitutionalization(forex-ample,WesternEurope)butothersdonot(forexample,Asia).Onepossibilitystressedbyeconomistsandpoliticalscientistsfordecades—andwidelycriticizedoflate—isthatmorehighlyinstitutionalizedarrangementsariseasfunctionalresponsestointen-siŽedintegrationamongtheconstituentstates.142Anotherpossibility,suggestedbyMilesKahler,isthattheextentofinstitutionalizationdependsonthepreferencesofpolicymakersandinterestgroupsaswellasbargainingamongPTAmembers.143Griecoadvancesathirdpossibility.Asnotedearlier,hearguesthatinstitutionaliza-tionwillbeforestalledwhen‘‘lesspowerfulcountriesinaregionhaveexperiencedorareexperiencingasigniŽcantdeteriorationintheirrelativecapabilities’’becauseoftheirconcerns‘‘thattheenhancementofregionaleconomictiesbroughtaboutbyinstitutionalization[will]accentuateregionalimbalancesincapabilitiesevenfurtherinfavoroftherelativelystrongerpartners.’’144Inhisview,forexample,theweakercountriesofSoutheastAsiaarelikelytoopposetheestablishmentofformaleco-nomicinstitutions,whereasthestrongerpowers,especiallyJapan,arelikelytopressfortheirdevelopment.IncontrasttoGrieco’sargument,however,Katzensteinpointsoutthat‘‘todayitisChinaandJapanwhoopposerapidmovestowardaformalinstitutionalizationofregionalintegration,’’whereasweakerpowerslikethemembersofASEANseekstrongerinstitutions.145Moreover,awidevarietyofscholarsattributethelackofformalinstitutionsinEastAsiatofactorsotherthanlocalpowerrelations.PeterA.Petrinotesthat‘‘thedevelopmentofregionalinstitutions[inAsia]iscomplicatedbyboththegreatdiversityoftheregion’scountriesandbythepreferencesofmanyoftheregion’scountriesforinformal,negotiated(asopposedtoformal,legalistic)ap-proachestopolicy.’’146HaggardandKatzensteinemphasizeAsia’scommitmentto‘‘openregionalism,’’whichimpliesadesirefornondiscriminatorytradepracticesandawillingnesstoacceptnewmembers,differingsharplyfromthemoreclosedvarietyofregionalismthatmarksEuropeandtheAmericas.147Thiscommitmentisoftenseenasafunctionofthehighlevelsofeconomic,political,andculturalhetero-geneityinAsiaandtheregion’srelationshipwiththeUnitedStates.141.Grieco1997.142.Foradiscussionofthisliterature,seeKahler1995.143.Ibid.144.Grieco1997,176.145.Katzenstein1997a,23.146.Petri1993,43.147.SeeHaggard1997;andKatzenstein1997a.NewWaveofRegionalism617 KatzensteinproposessomeadditionalreasonsfortheweakinstitutionalizationofAsianeconomicrelations.148First,afterWorldWarIItheUnitedStatespromotedtheprinciplesofbilateralisminAsiaandmultilateralisminEurope.Second,theconstruc-tionofacollectiveidentityfacilitatestheestablishmentofformalregionalintegra-tion,andpoliticalactorsinAsiahavenotsubscribedtotheideaofcreatingadistinctcommunity.Finally,thedistinctivecharacterofAsianstateshindersthecreationofregionalinstitutions.Hemaintainsthatthe‘‘networkcharacter’’ofthesestates,theiremphasisonconsensusbuilding,andtheconvergencebetweenpublicandprivatespheresindomesticpoliticsdifferentiatethemfromEuropeancountriesandrenderthemlesslikelytodevelopformalregionalinstitutions.Althoughaspectsoftheseinstitutionalvariationshavebeenstudiedintensively,theirinternationalpoliticalandeconomicimplicationshavereceivedfarlessatten-tionthaniswarranted.Thatthereareeconomicgainsfromintegrationisobvious.ButeconomistsremaindividedoverwhetherpartiallyreducingtradebarrierswithinaPTAyieldsgreaterstaticbeneŽtsthancompletelyeliminatingthem,andverylittleresearchhasbeenconductedontheconsequencesofdifferencesinthedegreeofliberalizationwithinPTAsforthestabilityofthemultilateraltradingsystem.More-over,whilegreaterintegrationmightinhibithostilitiesamongPTAmembers—forexample,byraisingthecostsofdisruptingtraderelations—theeffectsofvariationsinintegrationonpoliticalconictandcooperationhavenotbeenexaminedinsuffi-cientdepth.Thedegreeofregionalinstitutionalizationmaybearonbothissues.Ifdifferentpreferentialgroupingsdevelopuniquesetsofrulesandpracticesthatareatoddswithmultilateralarrangements,thentheliberaltradingordercoulderodeandcommercialconictsbetweenPTAscoulderupt.Thisprospectshouldnotbedismissedoutofhand,sincecountriessometimesprefertoorganizeeconomicrelationsonaregionalratherthanamultilateralbasispreciselybecauseitallowsthemtoselectaninstitu-tionaldesignthatmeetstheirspeciŽcneeds.149Butitalsoshouldnotbeoverstated.Todate,thereislittleevidencethatinstitutionaldifferencesamongPTAshavecon-tributedtosigniŽcantcommercialconictsorsubstantiallyweakenedtheinterna-tionaltradingsystem.TherecentproliferationofPTAshasspurredconsiderableinterestineconomicregion-alism,butexistingresearchhasproducedlittleconsensusonitssourcesandimplica-tions.EffortstoresolvetheseissueshavebeenhamperedbydisagreementsaboutthedeŽnitionofaregionandofregionalismaswellascross-regionalandintertemporalvariationsthatlimithowwidelygeneralizationscanbedrawn.However,manysucheffortshavealsobeenhinderedbythewidespreadtendencytoplacelittlestresson148.Katzenstein1997a.149.Forexample,YarbroughandYarbrough1997.618InternationalOrganization thepoliticalunderpinningsofregionalism.Overthepastdecade,therehasbeenagrowingrecognitionthatthepropensityofcountriestoenterPTAs,thepaceofregion-alism,anditswelfareimplicationsdependonpoliticalconditions.Althoughthebur-geoningliteratureemergingonthesetopicshasnotestablishedeitherwhichpoliticalfactorsaremostimportantortheexactnatureoftheireffects,ithasestablishedthatanalysesoperatinginapoliticalvacuumriskarrivingatmisleadingconclusionsaboutthecausesandconsequencesofregionalism.WhataresomeofthekeyŽndingsarisingfromthisresearchandthekeyquestionsthatremainunresolved?First,existingworkindicatesthatthepreferencesandpoliti-calinuenceofdifferentsocietalgroupsarelikelytoaffectwhetherastateentersaPTAaswellaswhichsectorsarecoveredbythearrangementandwhetheritcreatesordivertstrade.ProtectionistgroupshaveanincentivetopressfortheestablishmentofPTAsthatdiscriminateintheirfavor,andgovernmentofficialsthatdependonprotectionistinterestsforpoliticalsupporthaveanincentivetorespondtosuchpres-sures.Export-orientedinterestsmayalsosupportenteringaPTA,ifdoingsograntsthemexpandedaccesstovitalforeignmarketswithintheblocorreducestheprospectthattheiraccesstothesemarketswillbedisruptedinthefuture.Inpractice,however,itmaybedifficulttoconstructPTAsthatmeetthedemandsofbothimport-competingandexport-orientedinterestsinprospectivemembers,therebylimitingthescopefortheirformation.Furthermore,thoughrecentstudiesofregionalismemphasizingsocietalfactorssuggestthattheeconomiccastofPTAswilldependheavilyontheinterestsandpoliticalinuenceofgroupsinmemberstates,thetheoreticalandempiricaltoolsneededtomaketheseassessmentsrequirereŽne-ment.Moregenerally,thisbodyofresearchhasnotyetresolvedexactlywhichseg-mentsofsocietyaremostlikelytosupportregionaltradeinitiativesasopposedtounilateralormultilateralones,whoseintereststheseinitiativesserve,andwhethercommercialregionalismheightensorunderminesthesupportofvariousgroupsformultilateralliberalization.Second,thepreferencesofgovernmentofficialsandthenatureofdomesticinstitu-tionsinuencetheestablishmentandeconomiceffectsofPTAs.Oflate,certaingovernmentshaveoptedtoenteraPTAbecausedoingsoseemedlikelytofacilitatemoreextensivecommercialliberalizationthanunilateralormultilateralstrategieswouldpermit,giventhenatureofdomesticinstitutionsandtheinterestsofpotentsegmentsofsociety.Inthesamevein,thelatestwaveofregionalismhasbeenmarkedbycaseswhereaccessiontoaPTAwasusedtofacilitateliberaleconomicandpoliti-calreformsandtodilutethepoliticalefficacyofsocietalgroupsthatopposedsuchchanges.Butthoughthepreferencesofgovernmentofficialsandthenatureofdomes-ticinstitutionsclearlyhaveaffectedeffortsatregionalintegration,preciselywhichinstitutionalconditionspromoteregionalismhasnotbeenestablished.Norhaveex-istingstudiesidentiŽedtheconditionsunderwhichPTAmembershipismostlikelytostimulatedomesticreform.Equallyimportantistheneedtomorefullyintegratesocietalandstatistmodelsofregionalism.Mostanalysesoftherelationshipbetweendomesticpoliticsandregionalismhaveemphasizedeithersocietalorinstitutionalfactors.However,theeffectsofeachfactorontheestablishmentandeconomicimpli-NewWaveofRegionalism619 cationsofaPTAarelikelytodependheavilyontheother,anissuethathasreceivedlittleattention.Third,boththeformationofregionaltradearrangementsandtheirconsequenceshingeoninternationalpoliticalconditions.MuchrecentinteresthasbeenexpressedinwhetherdecliningU.S.hegemonyhascontributedtothelatestwaveofregional-ism.AlthoughtheavailableevidencesuggeststhatPTAsdidbecomemorepervasiveashegemonyeroded,whatunderliesthisrelationship,howitbearsonregionalism’swelfareconsequences,andwhetherrecedinghegemonyaffectedpriorepisodesofregionalismremainmattersofdispute.Lesswidelyanalyzedoflate,butcentraltovariousearlierstudies,arethelinksbetweenPTAsandinterstatepowerrelations.Duetotheseeffects,forexample,stateshavegreaterincentivestoenterPTAswiththeiralliesthanwiththeirfoes,whichmayhelptoexplainwhytheColdWar’sendandtheattendantchangesininternationalsecurityrelationshavecoincidedwithregionalism’sgrowthduringthepastdecade.Furthermore,duringearliereras,PTAswereoftenusedbylargerstatestoheightentheeconomicandpoliticaldependenceofsmallercountriesandbygroupsofstatestoreducetheircollectivedependenceonthirdparties.TheraritywithwhichPTAshavebeenactivelyusedforsuchmercantil-istpurposesduringthecontemporarywaveofregionalismisnoteworthyandwar-rantsfurtherattention.Fourth,theperiodsinceWorldWarIIistheŽrsttoexperiencethegrowthofregionalismwithinthecontextofamultilateraltradesystem.AllbutafewmembersoftheWTOcurrentlybelongtoaPTAanditiscentrallyimportanttodeterminewhyitsmembersoftenchoosetopursueregionaltradeinitiativesratherthanrelyingsolelyonmultilateralinitiatives.OnepossibilityisthattheyviewPTAsasacomplementtomultilateralliberalization;anotheristhattheyviewregionalandmultilateralliberal-izationassubstitutes.ThisissueliesattheheartofcontemporarydebatesaboutwhetherPTAswillbebuildingblocksorstumblingblockstogreatermultilateralopenness,andexistingresearchonthepoliticaleconomyofregionalismhasdonelittletoresolveit.EquallyimportantarequestionspertainingtowhatroletheGATT/WTOhasplayedinmanagingthespreadofregionalism.ThereisfairlywidespreadagreementthattheGATT/WTOhashelpedtolimittheemergenceofhighlydiscrimi-natoryblocsandtomanagestrategicinteractionamongPTAs.Butexactlyhowim-portanttheGATT/WTO’srolehasbeeninthesemattersandwhetherPTAswouldhavebeensubstantiallymorediscriminatoryinitsabsencearemorecontentioustopics.Fifth,importantinstitutionaldifferencesexistamongPTAs,includingthenumberofmembersinvolved,theextentofthepreferentialtreatmenttheygrantmembers,whethertheyimposeaCET,andtheirinstitutionaldensity.Someanalysesofthesevariationscenterondomesticfactors,suchastheprevailingcharacterofpolicynet-worksathomeandthepreferencesofinterestgroupsandnationalpolicymakers.Othersfocusoninternationalfactors,includingpowerrelations,strategicinteractionamongmembers,andtheirpoliticalandeconomicrelationswiththirdparties.How-ever,existingresearchonthepoliticalconditionsshapingthedesignofregionalinstitutionsislargelysuggestive.Moreover,thepoliticalconsequencesofdifferent620InternationalOrganization institutionalformsaresurroundedmorebydebatethanbytheoryorevidence.ThepoliticalsourcesandeffectsofinstitutionalvariationsacrossPTAsrepresentanunderstudiedandespeciallyfertilegroundforfutureresearch.Inthisarticle,wehaveoutlinedsomeofthewaysthatpoliticalfactorshaveinu-encedtheformationandeffectsofPTAs.Therecentliteraturesurveyedhereofferssomekeyinsightsintotheserelationships.Thepoliticalunderpinningsofregional-ism,however,remainmurky,andtheneedforadditionalresearchonthistopicisglaring.Notonlywillsuchresearchproduceabetterunderstandingofregionalism,itisalsolikelytocontributetobroaderissuesintheŽeldofinternationalrelations,includingthepoliticaleconomyofnationalsecurity,thedomesticandinternationalsourcesofforeigneconomicpolicy,andthefactorsinuencingthedesignandstrengthofinternationalinstitutions.OneareawehavenotdiscussedbutthatmeritsgreaterattentionisŽnancialregion-alism.Astradeowshaveincreasedoverthepostwarperiod,sohaveinternationalcapitalows.AlthoughitiscommonlyacceptedthatinternationalcapitalmobilityhasgrownsigniŽcantly,theextentofregionalisminŽnancialmarketsismorecontro-versialandlesswidelystudied.150TherelationshipbetweenŽnancialandcommer-cialregionalismisanotherunderstudiedissue.TheexperienceoftheEU,whereacommonmarketprecededthecreationofasinglecurrency,suggeststhatthetwomightbetightlyrelated.151AdditionalworkisneededtodeterminewhetherthesamepoliticalfactorsthatshapecommercialregionalismalsoaffectŽnancialregionalism.Thecurrentwaveofregionalismhasariseninadifferentcontextthanearlierones.Unlikepriorepisodes,themostinuentialstateintheglobalsystem(theUnitedStates)isactivelypromotingtheformationofPTAs.Furthermore,thecurrentwavehasoccurredinthefaceoftheColdWar’sconclusionandvariousaccompanyingchangesintheinternationalpoliticalsystem.Sofar,regionalarrangementshaveseldombeenusedasinstrumentsofpowerpolitics;instead,theyhaveoftenbeenusedtopromoteandconsolidatedomesticreformsthatliberalizemarketsandfosterdemocracy.Andthepaceofregionalismhasacceleratedduringaperiodmarkedbysubstantialeconomicinterdependence,adesirebycountriestomediatetradedis-putes,andamultilateralframeworkthatfacilitatessuchmediationandtheorganiza-tionofcommercialrelations.Inourview,thissetofpoliticalconditionshascontrib-utedsigniŽcantlytotherelativelybenigncharacterofthecurrentwaveofregionalism.Thereisawidespreadbeliefthatthiscurrentwavewillpersist.Farlessconsensusexistsonwhetheritshouldbeembraced.Manyscholarsandpolicymakersviewregionalismasastepping-stonetogreaterglobalopenness,anoutcomenotwithouthistoricalprecedent:Duringthesecondhalfofthenineteenthcentury,anopeninter-nationaltradingsystemwasforgedlargelythroughbilateralagreementsandowedlittletomultilateralcooperation.152Variousobserversalsoviewcomparisonswiththeinterwarperiodasbeingoverdrawn.Butfearsthatregionalismwillstrainthe150.See,forexample,Frankel1993;EichengreenandFrankel1995;andCohen1998.151.Forexample,Milner1997,102.152.Forexample,Irwin1993,91.NewWaveofRegionalism621 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