T Ra~E Blocs

WALTER STERLING SURREY MEMORIAL SERIES Tra~e Blocs: ARe~ionally ~ ecific P~enomenon or a Go~al Tren~1 .Richard L. Bernal WALTER STERLING SURREY MEMORIAL SERIES Tra~e Bloc~: ARe~ionallr ~ ~ecific P~enomenon or a Go~al Tren~? Richard L. Bernal This publication has been made possible in part by support from the U.S. Agency for International Development and the Carnegie Corporation of New York. NATIONAL POLICY ASSOCIATION Trade Blocs A Regionally Specrl'ic Phenomenon or a Global Trend? NPA Report #287 Pnce $8 00 ISBN 0-89068 140-6 Copyright 1997 by the National Pohcy Associat10n A voluntary associat10n mcorporated under the laws of the D1stnct of Columbia 1424 16th Street, NW , Smte 700 Washmgton, DC 20036 Pnnted m the Umted States of Amenca Contents• Walter Sterlmg Surrey Fund for Internat10nal Cooperat10n Advisory Council IV About the Author IV Walter Sterlmg Surrey Memorial Series v Foreword vi Marilyn Zuckerman, S Dahlia Stem, and Nita Christine Kent Trade Blocs A Regtonally Specific Phenomenon or a Global Trend? Richard L Bernal Introduction 1 Part I Trade Blocs 3 Part II Dimensions and Dispersal of Trade Blocs 15 Part III Factors Explammg the Formation of Trade Blocs 22 Part IV Conclusion 34 Part V lmphcations 35 Appendix I 3 7 National Pohcy Associat10n 39 NPA Officers and Board of Trustees 40 Publications of NPA's Aid and Development Project 42 Ill Walter Sterling Surrey Fund for International Cooperation Advisory• Council HUGH CULLMAN MALCOLM R LOVELL JR Vice Chairman (Retired) President and Phihp Morns Compames Inc Chief Executive Officer Nat10nal Pohcy Associat10n BENJAMIN P FISHBURNE III Partner EDWARD E MASTERS Wmston & Strawn President Edward Masters & Associates THEODORE GEIGER D1stmgmshed Research Professor CHARLES McC MATHIAS JR of Intersoc1etal Relations Jones Day Reavis & Pogue School of Foreign Service Georgetown Umvers1ty RICHARD J SCHMEELK Chairman CAI Advisors & Co SAMUEL GOEKJIAN Chairman and RICHARD S SURREY Chief Executive Officer Partner Intracon Associates L L C Squire Sanders & Dempsey JOSEPH H GUTTENTAG NORMAN VANDER CLUTE International Tax Counsel Partner US Department of the Treasury Wmston & Strawn About the• Author Richard L Bernal is Ambassador of Jamaica to the Umted States and Permanent Representative to the Orgamzat10n of American States (OAS) He is a lead partlClpant m bilateral and multilateral negotiat10ns on Jamaica's behalf and presently serves as Chairman of the Workmg Group on Smaller Economies m the Free Trade Area of the Americas process Ambassador Bernal is also a member of the Special Trade Committee of the OAS and of the Committee on Hemispheric Fmancial Issues He has authored more than 75 articles on mternat10nal economic issues, mcludmg the debt problem, economic adjustment m developmg countries regional mtegration, and U S Caribbean relat10ns Ambassador Bernal holds B S MA , and Ph D degrees m economics He also earned a Masters m Inter national Pubhc Pohcy from the School for Advanced Internat10nal Studies Johns Hopk.ms University IV Walter Sterling Surrey Memorial Series HROUGHOUT HIS LIFE Walter Sterlmg Surrey, former Chair of NPA's T Board of Trustees, worked tirelessly to promote mternat10nal trade and commerce, particularly among nat10ns having different cultural, eco nomic, and political systems He strongly believed that mternat10nal trade is the most equitable and efficient means to create and distribute wealth throughout the world He mamtamed that an open and competitive mter nat10nal tradmg system leads to greater understandmg and mutual respect among countries and that lastmg world peace can be achieved only after such understandmg and respect are established Mr Surrey, a promment Washmgton, DC, attorney, was associated with the Nat10nal Policy Associat10n, then known as the Nat10nal Planmng Associat10n, for almost 40 years He first came to NPA m the early 1950s as a member of its Internat10nal Committee He JOmed NPA's Committee on Changmg Internat10nal Realities-which has smce become NPA's Global Economic Council-when it was established m 1975 and remamed actively mvolved until his death m 1989 He was elected to NPA's Board of Trustees m 1965 and served as its Chair from 1977 until 1989 Followmg Mr Surrey's death, NPA, with the aid of the Surrey family established the Walter Sterling Surrey Fund for Internat10nal Cooperat10n The purpose of the Fund is to expand NPA's research m mternat10nal economic, social, and political policies Previous Surrey publicat10ns have looked at emergmg markets, the role of the private sector m advancmg the economies of the so-called third world countries, how capital markets are changmg mternat10nal growth, the role ofmternat10nal regimes and agree ments m promotmg development, and the ongomg changes m the former Soviet Republics and Eastern Europe This series is produced through the Walter Sterling Surrey Fund for Internat10nal Cooperat10n m conJunction with NPA's Global Economic Council This volume of the Surrey Series is made possible through support provided by the Office of Private and Voluntary Cooperation, Bureau for Humamtarian Response, US Agency for Internat10nal Development, un der Cooperative Agreement #FA0-0230-A-00-3065-00, and the Carnegie Corporat10n of New York The views expressed m this monograph are those of the author and not necessarily those of the Government of Jamaica, USAID, the Carnegie Corporation, or the Nat10nal Policy Association v Foreword• OR THE PAST FOUR YEARS the N at10nal Pohcy Assoc1at10n, through its Aid F and Development ProJect, has exammed the complex and ever chang mg factors that mfluence global development Increasmgly hberahzed trade and the contmumg expans10n of open market regimes throughout the world have made the private sector role m promotmg economic growth m devel opmg countnes an even more important one than ever before Trade blocs, by allowmg the freer flow of goods w1thm a region, are one option that developmg nat10ns can pursue to mcrease their economic growth Many argue that the paradigm of development should move from the mteract10ns of a donor/rec1p1ent relationship to a mutually beneficial partnership through trade and mvestment Those concerned with mternat10nal devel opment mcreasmgly emphasize the government's role m creatmg an ena blmg atmosphere for pnvate mvestment by openmg markets promotmg pnvatization, and developmg transparent pohc1es Trade Blocs A Regionally Specific Phenomenon or a Global Trend? analyses the impact of trade blocs on today's global economy The number and size of blocs have grown explosively m recent years m both developed and developmg countnes Moreover, these agreements often lmk the two This monograph discusses trade regimes from the perspective of Dr Rich ard L Bernal, Ambassador of Jamaica to the Umted States After examm mg the history and current status of a range of existmg and emerging trade blocs, Ambassador Bernal-who delivered the sixth Walter Sterling Surrey Memonal Lecture m May 1997-looks at the forces that shape these agreements Dr Bernal also exammes the profound 1mphcat10ns for developmg countnes of the expans10n of trade blocs He cites the potentially ser10us consequences to economic growth 1fthese countnes are excluded from trade blocs but recogmzes the forces that often mh1b1t their partic1pat10n Several approaches to mtegrate countnes with d1ffermg levels of development are proposed to enable the developmg world to share m the benefits ofth1s new trade regime NPA Aid and Development ProJect Marilyn Zuckerman NPA Vice President and ProJect Codirector S Dahlia Stem NPA Semor Fellow and ProJect Codirector Nita Christine Kent NPA Research Associate and ProJect Coordmator NPA would hke to thank Professor Robert M Dunn Jr for his review of this monograph Vl Introduction• RADE BLOCS ARE an important feature of the world economy, but they are T not an entirely new phenomenon Their antecedents can be traced back to the mercantihst tradmg systems operated by Western European powers1 from the 16th century to colorual empires that ended m the mid-20th century It can even be argued that colomal empires constituted trade blocs After World War II, colomal empires or trade blocs were dismantled by anticolorual nat10nahsm and the deliberate openmg of these "closed" trad mg systems through pressure from the Umted States 2 This d1smembenng of colomal empires occurred as the Soviet Umon was estabhshmg the Council for Mutual Assistance (COMECON) Begmnmg m the late 1950s and contmumg mto the 1960s, regional trade groups and regional economic mtegrat10n came mto vogue By the end of the 1960s, such groups existed m Europe, Latin America, Central Amenca, the Canbbean, and Africa But dunng the 1970s and early 1980s, most of these trade groups and mtegra tion schemes declmed or collapsed, except the European Economic Commu mty (EEC), COMECON, and the Canbbean Common Market CCARICOM) The contemporary world economy, it has been suggested, is already well advanced toward bemg dommated by three major trade blocs-Europe, a US -dommated North Amenca, and a Japan-centered Asia,3-although some have disputed the format10n of an Asian bloc or mamtamed that Europe is the only trade bloc 4 This so-called Tnad could be mvolved m fierce competit10n, economic nvalry, and even political conflict 5 In this m1heu, one of the most important quest10ns is whether trade blocs are a systemic feature of the world economy or whether they are simply a series of regionally specific developments This report discusses this issue Part I documents existmg and proposed or

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