Regionalism vs multilateralism

SHRI SIDH THAKURNATH COLLEGE OF ARTS

& COMMERCE,
ULHASNAGAR 421 004
2015-2016

NAME: payal .m. bhagtani

CLASS: M-COM (PART I)(SEM-1)
ROLL NO: 1561131
SUBJECT: economics
PROJECT TOPIC: regionalism vs
multilatralism
SUBMITED TO: Pramod dagde

CERTIFICATE
1

Regionalism vs multilateralism

This is to certify that the project report titled Regionalism vs

Multilatralism has been completed satisfactorily in partial
fulfillment of M.COM PART I course of the University of Mumbai,
for the academic year 2015-2016 by PAYAL MEGHRAJ
BHAGTANI a student of S.S.T College of Arts and Commerce,
Ulhasnagar 400 004.

-----------------------------------------------------------------Signature

of

External

Guide

Signature of Internal Guide

Regionalism vs multilateralism

ACKNOWLEDGEMENT

The most pleasant part of any project is to express Thankfulness and Give
Honor towards all those who contributed to the smooth flow of the project work
and this being the good opportunity; I dont want to miss it.
Sincere thanks to the institution of S.S.T. COLLEGE which endow me
with the valuable opportunity so interesting and critical topic is the subject of
the present report.
I thank my project guide PRAMOD DAGDE Sir for his valuable
inputs in the Research and spending so much of their valuable time and efforts
in helping with my topic.
I also wish to express gratitude to the respondents of the project without
the kind co-operation of whom this one would not have been possible.

Regionalism vs multilateralism

INDEX

SIR

CONTENT

NO.

1.

2.

Regionalism :

Introduction of regionalism

Causes of regionalism

Advantages & Disadvantages of regionalism

Challenges

11

Multilateralism :

14

Introduction of multilateralism

14

Causes of multilateralism

15

Advantages & disadvantages of multilateralism

19

Challenges
3.

Regionalism versus multilateralism:

22

Comparison between:
1. 20th century old regionalism vs. old multilateralism
2. 21st century new regionalism vs. new

22
25

multilateralism

4.

Conclusion

27

5.

Bibliography

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Regionalism vs multilateralism

CHAPTER 1. REGIONALISM

1.1REGIONALISM:
The term regionalism has been often used in relation to the growth of
regional trade agreements. The emergence of new regional formations and
international trade agreements like the north American free trade agreement
(NAFTA), and the development of a European single market and the
European union, etc., demonstrate the importance of a region-by-region
basis political co-operation and economics competitiveness.Regionalism
refers to any policy designed to reduce trade barriers between a subset of
countries regardless of whether those countries are actually contiguous or
even close to each other. Regionalism refers to the expression of a common
sense of identity and purpose combined with the creation and
implementation of institutions that express a particular identity and shape
collective action within a geographical region.
According to Joseph Nye ) regionalism

refers to

"the formation of

interstate associations or groupings on the basis of regions".

In simple words regionalism means:

Regionalism vs multilateralism

Regionalism means countries joining with one another to promote their

national and mutual economic interests. They form alliances,
confederations, and trading blocs to free the flow of trade among
membernations. The choice of regionalism was to unite developing countries
to make them more powerful against the developed countries. Regionalism
was considered a necessary condition to industrializations. It was believed
that infant industries should first export within a small set of countries,
before opening itself up for the rest of the world.

1.2 MAJOR CAUSES FOR REGIONALISM:

1. Apprehension on the part of linguistic ethnic or religious minorities in
view of uniform system of administration and policies. Many of these groups
dominant in specific region became suspicious as to whether their cultural
ties, ethos and symbols would be taken care by the Indian state. Perhaps, this
explains the fact that most regional forces have strike roots in non-Hindi belt
(Tamil Nadu, Andhra etc.).
2. Uneven pattern of socio-economic development have created regional
disparities. What is worst is the naming of these states as BIMARU (Bihar,
Madhya Pradesh, Rajasthan and Uttar Pradesh) etc. The categorization and

Regionalism vs multilateralism

sub-categorization of the states on the basis of socio-economic indicators

have generated resentment against the central leadership.
3. The elitist character of leadership and unwarranted intervention by the
centre in the affairs of the state has rendered the state vulnerable to regional
forces. The strategic political calculations at the centre and failure of
regional political parties to bargain with them have also been a cause of
concern.

1.3 ADVANTAGES OF REGIONALISM:

1. More practical and feasible:
Everybody would agree that multilateral agreements are the preferred
instruments for liberalizing international trade. Such agreements ensure a
non- discriminatory approach, which provides political and economic
benefits for all. However, there are many important and unresolved issues in
the WTO negotiations and hence affect multilateral trade.
2. Promote freer trade:
Regional arrangements promote freer trade and multilateralism. According
to them, on account of regional integration trade creation has generally
exceeded trade diversion. Further, regionalism has contributed to both
internal and international dynamics that enhance rather than reduce the
prospects of global liberalisation.
3. Contribute to multilateralism :
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Regionalism vs multilateralism

They seem to be contradictory, but often regional trade agreements can

actually support the WTOs multilateral trading system. Regional
agreements have allowed groups of countries to negotiate rules and
commitments that go beyond what was possible at the time multilaterally. In
turn, some of these rules have paved the way for agreements in the WTO.
Services, intellectual property, environmental standards, investment and
competition policies are all issues that were raised in regional negotiations
and later developed into agreements or topics of discussion in the WTO.
Thus, regional integration should complement the multilateral trading
system and not threaten it.
4. Demonstration Effects:
Regional initiative can accustom officials, governments and nations to the
liberalization process. Subsequently they can move on to similar multilateral
actions. learning by doing applies to trade liberalization as well as to
economics development itself, and can often be experienced both more
easily and more extensively in the regional context with far fewer
negotiating partners.
5. Positive political effects:
Trade and broader economic integration has brought about peace between
neighbouring countries and thus has positive rather than negative political
effects. Trade and broader economics integration has created a European
Union in which another war between Germany and france is literally
impossible. Thus, RTAs can help to reduce political conflicts.
6. Compatibility:
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Regionalism vs multilateralism

The supporters of regionalism note that article 24of the GATT, and now the
WTOs explicitly permits regional agreements and thus acknowledges their
compatibility with the multilateral trading system. To be WTO-legal, such
agreements must meet three criteria: they must cover substantially all trade
of member countries , They must avoid raising new barriers to nonmembers, and they must achieve free trade among members by a date
certain.

1.4DISADVANTAGES OF REGIONALISM:
1. Trade diversion:
The regional agreements divert trade by creating preferential treatment for
member countries vis--vis non-members. In addition to differential tariffs,
members may benefits from preferential rules of origin and regional content
requirements.
2. Undermine the multilateral system:
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Regionalism vs multilateralism

Countries may lose interest in the multilateral system when they engage
actively in regional their discriminatory nature. The slow pace of multilateral
system because of has given a greater impetus to bilateral and regional trade
negotiations. The very success of those negotiations can make liberalisation
on a multilateral scale more difficult as governments devote greater time and
time to RTAs which can be quickly negotiated.
3. Geopolitical Impact:
Extensive and intensive regional ties may lead to conflicts that range
beyond economics to broader spheres of international relations.

4. Prevents developing countries from active participating:

There are concerns that RTAs are active stretches negotiation capacities to
their limit, and in the case of developing countries, prevents them from with
the united nations and the world bank to build capacity in smaller countries
and give aid money to support participation in trade negotiations.
5. Hurt the interest of others:
Under some circumstances regional trading arrangements could hurt the
trade interests of other countries. Normally, setting up a customs union or
free trade would violate the WTOs principle of equal treatment for all
trading partners , that is most-favoured-nation agreement.
1.5 NEW CHALLENGES:
The growing success of European regionalism in particular led scholars in the
late 1950s to what Ernst called "the new challenge of regionalism, . . . the
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Regionalism vs multilateralism

potentialities of the field for insights into the process of community formation
at the international level". By the late 1950s, "the organization of the world's
ninety-odd states into various systems of competing and overlapping regional
associations [had been] a fact of international relations for over ten years".
Regionalism had already given rise to a floodtide of literature critical of its
development or determined to justify it as a necessity for world security. Some
critics were arguing that economic unions and common markets distorted the
logic of a universal division of labor, and that regional military planning was
made both impossible and obsolete. On the other hand, the defenders of the
pattern were invoking the necessities of the cold war. By the 1960s a number of
important changes in international politics the easing of the intensity of the
Cold War, the independence of new states that had been part of colonial
empires, the successful initiation of the European integration experience gave
rise to a new range of questions about regionalism. According to Nye the new
international environment made "the collective security and military defense
focus of the writings in the early 1950s seem at best quaint and at worst
misleading".
After the 1980s:
Since the late 1980s globalization has changed the international economic
environment for regionalism. The renewed academic interest in regionalism,
the emergence of new regional formations and international trade agreements
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Regionalism vs multilateralism

like the North American Free Trade Agreement (NAFTA), and the development
of a European Single Market demonstrate the upgraded importance of a regionby-region basis political co-cooperation and economic competitiveness.
The African Union was launched on July 9, 2002 and a proposal for a North
American region was made in 2005 by the Council on Foreign Relations'
Independent Task Force on the Future of North America.
In Latin America, however the proposal to extend NAFTA into a Free Trade
Area of the Americas that would stretch from Alaska to Argentina was
ultimately rejected in particular by nations such as Venezuela, Ecuador and
Bolivia. It has been superseded by the Union of South American Nations
(UNASUR) which was constituted in 2008.

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Regionalism vs multilateralism

CHAPTER 2. MULTILATERALISM

2.1 MULTILATERALISM:
Multilateralism is a characteristic of the world economy or world economic
system. It ultimately depends on the behaviour of individual countries, that
is. The extent to which they behave in a multilateral fashion. For any one
country, the multilateralism is a positive function of:
a) The degree to which discrimination is absent , that is, the proportion of trade
partners that receive identical treatment , and
b) The extent to which the trading regime approximates free trade.
Sometimes, multilateralism is referred to as process whereby countries
solve problems in an interactive and cooperative fashion. Such interactions
could clearly affected by regionalism.
Multilateralism refers to the practice of promoting trade among several
countries through agreements concerning quantity and price of commodities.

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Regionalism vs multilateralism

According to the preamble of the UN charter multilateralism means

establishing conditions under which justice and respect for the obligations
arising from treaties and other sources of

international law can be

maintained. Multilateralism thus involves, justice, obligation, and a sort of

international rules of law.
Multilateralism is a term in international relations that refers to multiple
countries working in concert on a given issue. Multilateralism was defined
by miles kahler as international governance of the many and its central
principle was opposition to bilateral discriminatory arrangements that were
believed to enhance the leverage of the powerful over the weak and to
increase international conflict.
Multilateralism is the key, for it ensure the participation of all in the
management of world affairs. It is a guarantee of legitimacy and democracy,
especially in matters regarding the use of force or laying down universal
norms.Multilateral trade was discussed at the Uruguay Round of Multilateral
Trade Negotiations in 1994 and the establishment of the WTO. At the same
time there was a trend towards regionalization of the world economy. There
has been an increase in regional trade agreements (RTAs) notified to the
former General Agreement on Tariffs and Trade (GATT) and subsequently to
the WTO.

2.2 CAUSES AND IMPORTANCE OF MULTILATERALISM:

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Regionalism vs multilateralism

Multilateral diplomacy owed its growing popularity to the fact that

conferences in the European States-system were essentially conferences of
Great

powers

(Berridge,

2010,

144).

Multilateral diplomacy or conferences is a phenomenon of the 20th century.

According to the Foreign Policy Centre (FPC), governments can no longer
afford to ignore the value of multilateral diplomacy as a strategic tool for
solving problems.Therefore multilateral diplomacy address the following
issues: human rights, humanitarian assistance, labour rights, national and
transnational environmental issues, fair trade and in all of these cases,
national sovereignty is challenge.
But today, the increase member of richer nations from G8 to G20 shows how
multilateral diplomacy is important on raising important issues like the
world financial crisis which in 2008/2009 affect lesser developed nations.
For example the EU plays a structurally driven great power role in the UNFF
(The EU in International Forestry Negotiations) and has a common trade
policy (The Common Commercial Policy) and is unanimously viewed as a
great power in trade diplomacy.
2.3 MULTILATERALISM ADVANTAGES:
There are problems in the world that cannot be confronted with any
success by a single state, no matter how powerful. Big environment issues
and world hunger and poverty, along with many regional peacekeeping

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Regionalism vs multilateralism

needs and most economics and trade- related problems. etc. can tackled
effectively through the process of multilateralism.
ADVANTAGES:
1. Cannot be dominated by the major players:
In the multilateral process when priorities are set, they cannot be dominated
by the major players. For examples, take the issue of the transfer of
environmentally friendly technologies from rich countries to poor was one of
the secondary issues at the bonn meetings. It was considered very important.
But if the richest 10 or 20 economies in a room had discussed all this alone,
this issue would never come up.
2. Best for liberalizing an economy:
A free and fair multilateral trading system serves best the interests of any
liberalizing economy. Although there has been a huge proliferation of
bilateral/regional free trade agreements in recent years, no one questions the
primacy of the multilateral trading system. According to jagdishbhagwati,
the internationally renowed trade trade economist, preferential trade
agreements (PTA) have undermined the prospects for multilateral freeing of
trade, serving as stumbling blocks, instead of building blocks.
3. Contributed to indias growth:
Indias engagement with the multilateral trading arrangement helped it to
sustain the trade liberalisation process which was started in 1991. The
inclusion of agriculture in the WTO agreement helped india bring about
some policy changes even in the agricultural sector, which had remained
highly protected after the initial round of reforms. While the agricultural
sector is still reasonably protected with high tariffs, the phasing out of
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Regionalism vs multilateralism

quantitative restrictions has arguably been the single most successful area of
trade liberalisation in this sector and has happened mainly because of indias
WTO commitments. The reforms initiated in the early 1990s and indias
WTO triggered policy changes have had a positive impact on export and in
turn resulted in higher economic growth.
3.Better economic performace:
The protagonists of trade liberalisation claim that open trade policies lead to
better economic performance. Virtually all growth miracles are associated
with rapid expansion of trade rather than wholesale substitution of imports
by domestics production.
4. Other advantages:
Beyond the welfare gains achieved through the reduction of tariffs in
manufacturing and agriculture, additional gains tend to accrue with the
introduction of scenarios that incorporate trade liberalisation in the services
sector, reduction of non tariff barriers, trade facilitation, effective utilisation
of dispute settlement mechanism etc.

2.4 DISADVANTAGES OF MULTILATERAL:

1. Slow down the process:

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Regionalism vs multilateralism

The biggest disadvantage to multilateralism is that in the process every

country has the right to have their opinions taken into account, they usually
take advantage of it. It can slow down things a lot.
2. Increased use of NTBs:
Another important problem in the WTO is the increasing use of Non-tariff
barriers has not been defined under the WTO but its usage and
understanding broadly refers to any border measure other than a tariff,
which acts as a barrier to trade. This includes internal measures that, despite
in several instances being in line with WTO rules and serving legitimate
policy objectives may discriminate or unnecessarily restrict access to
markets, translating in additional costs for the exporters or importers.
2.5 CHALLENGES:
Compared to unilateralism and bilateralism where only the country itself
decides on what to do or make decisions between two nations, multilateralism
is much more complex and challenging. It involves a number of nations which
makes reaching an agreement difficult. In multilateralism, there may be no
consensus; each nations have to dedicate to some degree, to make the best
outcome for all. The multilateral system has encountered mounting challenges
since the end of the Cold War. The United States has become increasingly
dominant on the world stage in terms of military and economic power, which
has led certain countries (such as Iran, China, and India) to question the United
Nations' multilateral relevance. Concurrently, a perception developed among
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Regionalism vs multilateralism

some internationalists, such as former UN Secretary General Kofi Annan, that

the United States is more inclined to act unilaterally in situations with
international implications. This trend began when the U.S. Senate, in October
1999, refused to ratify the Comprehensive Test Ban Treaty, which President
Bill Clinton had signed in September 1996. Under President George W. Bush
the United States rejected such multilateral agreements as the Kyoto Protocol,
the International Criminal Court, the Ottawa Treaty banning anti-personnel
land mines and a draft protocol to ensure compliance by States with the
Biological Weapons Convention. Also under the Bush administration, the
United States withdrew from the Anti-Ballistic Missile Treaty, which the Nixon
administration and the Soviet Union had negotiated and jointly signed in 1972.
In a direct challenge to the actions of the Bush administration, French president
Jacques Chirac directly challenged the way of unilateralism: "In an open world,
no one can live in isolation, no one can act alone in the name of all, and no one
can accept the anarchy of a society without rules." He then proceeded to tout
the advantages of multilateralism.
Global multilateralism is presently being challenged, particularly with respect
to trade, by emerging regional arrangements such as the European Union or
NAFTA, not in themselves incompatible with larger multilateral accords. More
seriously, the original sponsor of post-war multilateralism in economic
regimes, the United States, has turned to unilateral action and bilateral

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Regionalism vs multilateralism

confrontation in trade and other negotiations as a result of frustration with the

intricacies of consensus-building in a multilateral forum. As the most powerful
member of the international community, the United States has the least to lose
from abandoning multilateralism; the weakest nations have the most to lose,
but the cost for all would be high.
Multilateralism is the key, for it ensures the participation of all in the
management of world affairs. It is a guarantee of legitimacy and democracy,
especially in matters regarding the use of force or laying down universal
norms.
Multilateralism works: in Monterrey and Johannesburg it has allowed us to
overcome the clash of North and South and to set the scene for partnerships
with Africa notablybearing promise for the future.
Multilateralism is a concept for our time: for it alone allows us to apprehend
contemporary problems globally and in all their complexity

CHAPTER 3. REGIONALISM VERSUS MMULTILATERALISM

It is impossible to decisively resolve the regionalism vs. multilateralism

dispute. Most analyses of most FTAS, including most importantly by far the
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Regionalism vs multilateralism

European union, conclude that trade creation has dominated trade diversion.
Most of the analysts agree that regional and global liberalization have
proceeded together.
There are such differences explain below between 20 th century old
regionalism and old multilateralism:
OLD REGIONALISM

versus

*The old regionalism countries are the

core of the system is flexible.
*Exchange of market access

*The old multilateralism countries

are the core of the system is
inflexible.
*Inter governmental organization

* tariff
*formally

OLD MULTILATERALISM

institutions of organizations

*vinerian tax

are dependent on the states will

*The principle of sovereignty in
decision making process

*WTO tariff cutter

*The policies are independent
* qualitative dimension
* the principle of sovereignty in
* internationalization of
the supply chain
*trade nexus
* two-ways flows ofgoods, people and
ideas within factories

decision making process

* the policies are independent
*the involvement of the citizens is
limited to democratic representation at
political

levelformal

institutions
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Regionalism vs multilateralism

*simple trade with simple rules

ororganizations

*North-South agreements

*the global order is divided into

*unipolarity or bipolarity

levels of governance, from global to

*preferential tariffs
*countries are winners or losers
*North-North FDI flows
* trade federalism
*universal norms
*GATT/WTO play a central role

local
*North-South agreements
*unipolarity or bipolarity
*perfect synchronization
between regions and
regional organizations
*principle of subsidiarity in
decision making process
*the system is closed
*universal norms
*United Nations play acentral role

From the above content and figure of 20 th century old regionalism and old
multilateralism are shows how different they from each other , the regionalism
and multilateral both has their own prospect about they own passion of work
in trade both are necessary . such function they have same like

North-South
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Regionalism vs multilateralism

agreements, unipolarity or bipolarity, universal norms and so on ,.and

difference is flexibility is different regionalism is flexible but multilateral is
inflexible in a nature, central role play by the regionalism is GATT/ WTO and
central role paly be the multilateralism is by united nation .

>21st century new regionalism and new multilateralism:

NEW REGIONALISM

NEW MULTILATERALISM

* the new regionalism

the new multilateralism

*RTAs are the core of the

*other actors are the core of the

system

system

*the system is inflexible

* the system is flexible

*foreign factories for domestic

*redistribution of global power,

reform

independent on the states will

*regulation

*diversification

*the increased number of non-

*WTO rule writer

state actors at regional level

*quantitative dimension
*outsourcing of the supply chain
trade-investment

the

multilateral organizations

* regulatory economics

of

service

* interconnected policies
*the involvement of the

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Regionalism vs multilateralism

nexus
*two-ways

citizens in the decisional

flows

across

international borders
*complex trade with complex
rules
* formal agreements
*South-South agreements
*unilateralism
* non-tariff measures
*corporations are winners or
losers
*South-South FDI flows
* fiscal federalism
*regional norms
*informal organizations play a
central role
* GATT/WTO do not

process, not only at the

political level
* informal agreements
*there is no hierarchical
structure of governance
* multi-polarity
* asymmetric
synchronization between
regions

and

regional

organizations
*principle

of

mutuality

in

decision making process

*informal organizations play a
central role
*United Nations do not play
anymore a central role

play anymore a central

role
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Regionalism vs multilateralism

Here the 21st century new regionalism and new multilateralism express that
the old regionalism is fully opposite from the new regionalism as per the
same like regionalism old multilateralism is different

from new

multilateralism .

4 . CHAPTER :CONCLUSION
Within the new global economic governance,certain elements are likely to
give new impetus to regionalism and multilateralism: the growing
dissatisfaction on the activities within these processes and the slow pace of
reform, the emergence of new powers and their impact on international
economic system, global crisis and other issues of global concern. Each one of
these has a significant impact on the appearance of regionalism and
multilateralism in the near future and there is a stringent need to finding
common answers and solutions. A fundamental reorganization of the
international system has not been fair approached until now and everyone looks
blown away if this change would be unnoticed or seen as cause of geopolitical
pressures. The qualitative analysis isdone in a comparative way, trying to
highlight the most important elements of this transition. The main added value
is the comparative approach of the two concepts transition and their formal
relationship with the new paradigm of global economic governance. In terms of
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Regionalism vs multilateralism

prior work, it has been previously tried to emphasizing the concepts already by
known researchers in the field. The approach is a more theoretical one, with
emphasis on results and future research.

REFERENCES

For books:

P. A. Johnson / A.D. Mascarenhas (2013)

ECONOMICS
OF
GLOBAL TRADE

&

FINANCE

by

Mananprakashan(publisher)
Economics of global trade and finance by dr.D.M.mithani (2011)
Bhagwati, J., Free Trade: Old and New Challenges

Web references :
www.rangasai.comEconomics of global trade and finance CVS RangaSai ,
www.google.com
sterian.gabriela@profesor.rau.ro, www.rau.ro

.
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Regionalism vs multilateralism

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