Why Are Those Who Favor Free Trade Concerned About Regional Trade Agreements

Another dimension of international and regional trade policy and trade agreements is at the national level. The United States, for example, imposes import quotas on sugar because it is concerned that such imports will reduce the price of sugar and thus violate domestic sugar producers. One of the tasks of the U.S. Department of Commerce is to determine whether imports from other countries are dumped. The United States International Trade Commission – a government agency – determines whether domestic industry has been seriously harmed by dumping and, if so, the president can impose tariffs to compensate for unjustified low prices. The lack of progress in multilateral trade negotiations does not mean that global integration is stagnating. Governments around the world are more active than ever in negotiating new regional trade agreements (ATTs). For example, until October 2009, when the global financial crisis raged, 25 new ATRs were notified to the WTO. With the new agreements, the total number of ATRs in force will increase to almost 300. This has led many economists to fear that regionalism will undermine the multilateral trading system (Bhagwati 2008, Limao 2006). The benevolent view that trade creation dominates trade diversion does not mean that regional trade agreements are necessarily welcome. Some commentators argue that the reason multilateral negotiations are stalled in the WTO is that ATRs are spreading. One concern is that officials engaged in the negotiation of bilateral agreements will not be able to focus on ongoing multilateral negotiations.

Another concern is that RTAs can create interest groups that block other liberalization initiatives. Thus, the last half-century has seen both a dramatic reduction in trade barriers created by the state, such as tariffs, import quotas and non-tariff barriers, as well as a number of technological developments that have facilitated international trade, such as advances in transport, communications and information management. The result was a sharp increase in international trade. As far as we can measure it, the rise of regionalism has been largely beneficial to the global trading system. Most empirical analyses suggest that it is the creation of trade, not trade diversion, that is the norm, both because governments choose to create ATRs and because they are adapting other trade policies to moderate distortions due to discrimination. The World Trade Organization (WTO) was officially established in 1995, but its history is much longer.