TFR 42 – Regionalism in a Converging World

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Like the global security system, the international economic system is facing uncertainty. The writings of the Trilateral Commission have long acknowledged one source of tension—that between economic nationalism and economic interdependence. The alternative to globalism was principally assumed to be nationalism. More recently a new spectre has arisen—a world economy in which global economic arrangements are overshadowed by regional economic blocs.

This vision is an extrapolation from strands of current reality. At least one “bloc” already exists—the European Community. In North America a free trade arrangement is in place between Canada and the United States, a North American Free Trade Arrangement (NAFTA) is being negotiated on a triangular basis with Mexico, and there is talk of further expansion. There is also discussion of Asia-Pacific regionalism (including North America) and East Asian regionalism. The loss of momentum in the GATT Uruguay Round global trade negotiations is another strand of reality that gives rise to the perception that regionalism is on the rise. Perhaps even more important have been the continuous economic frictions between Western Europe, the United States, and Japan, which overshadow (at least in terms of media and political attention) extensive trilateral business and government cooperation.

The world is a long way from three antagonistic, protectionist regional blocs. But economic blocs represent a real danger to global welfare and organization because regionalism can so easily align itself with the forces of economic nationalism rather than globalism. Indeed, several short- and longer-term factors are pushing regionalism in the direction of protectionism:

The near-term economic outlook is not good for any of the trilateral regions. While the recession in the United States has not been deep, there is yet little sign of a strong economic upturn. Europe is experiencing slow growth, and, in Japan, despite a growth rate that is still the envy of other regions, economic pessimism is the order of the day In recessionary times, the climate for global economic liberalization worsens, and the forces of protectionism increase. This may benefit nationalism more than regionalism, but to the extent that regionalism continues, its thrust is toward a more closed, protectionist direction.

The Uruguay Round of GATT negotiations, launched in 1986, continues to slip successive deadlines for compromise. This needs to be placed in the context of the especially ambitious agenda for this round as compared to previous ones, but nonetheless it contributes to disillusionment with global trade harmonization.

In Western Europe and North America some argue that increased global openness will benefit Japan more than the other regions because of differences in the nature of government-business and inter-firm relationships in Japan. Whether or not these arguments are true (they have not been carefully investigated), they appear to be gaining wider acceptance among political and government elites. The recent growth in Japan’s trade surpluses with the other two regions, after several years of decline, gives more ammunition to those espousing this argument. At the same time, fear of exclusion from other potential blocs is a force behind arguments in Japan that it needs to be thinking about an Asian bloc option as an alternative to tritateralism.

Finally, the rhetoric about regional trade “blocs” may be a self-fulfilling prophecy. Except for Europe, which is moving toward a comprehensive integration, there are few signs of true “blocs.” Nonetheless, in each region the perception that the others are moving in the direction of economic blocs can be used to justify such moves on the part of that region. Such pressures need not come first or primarily from the leading economies in each region. In particular, in a time of apparently increasing protectionist pressures, developing countries and smaller advanced countries will be increasingly concerned about their access to their major markets, and may see regionalism guaranteeing a means of liberal access to at least one advanced country market. The concern to maintain markets, for example, motivated Canadian and Mexican interest in a free trade arrangement with the United States despite their historic fear of economic exploitation by their superpower neighbor and sparked a proposal by Malaysian Prime Minister Mahathir for an East Asian economic grouping.

It is important, however, to place the current movement toward regionalism in a balanced perspective. The discussion in the media on the growth of regionalism is frequently misleading in several respects.

First, the public discussion often assumes that regionalism is developing in the same direction and at the same pace in Europe, North America, and Japan. In fact, the processes leading toward regional cooperation in these areas are occurring under very different political, economic, and social conditions, affecting their nature and speed. The three regions should not be equated with one another.

Second, the growth of interdependence and regional cooperation among geographically neighboring countries does not necessa rily imply a “bloc.” Most countries are experiencing a process of increased interdependence with neighboring countries and with the rest of the world simultaneously. Cooperative relations are developing both within the three regions and among the regions on a trilateral basis. Indeed the Group of Seven, cutting across the three regions, is a quite remarkable example of economic consultation and cooperation.

Finally, and most importantly for this paper, regionalism need not be opposed to globalism. The world should not have to choose between one or the other. It needs to live with both. The challenge and central topic of this paper—is how to channel the forces of regionalism in directions compatible with and supportive of globalism.

In the next section, this paper will review the relationship between regionalism and globalism in more detail. In the third section, it will examine the development of regionalism in Europe, North America, and East Asia, and the implications for global economic cooperation. The fourth and final section will examine the relationship between regionalism and globalism in the fields of trade and investment, macroeconomic policy, and financial regulation.

Authors

Toyoo Gyohten, Chairman, Board of Directors, Bank of Tokyo.

Table of Contents

I. Introduction
II. Regionalism and Globalism
III. Regionalism in Europe, North America and East Asia

A. Europe
B. North America
C. East Asia
IV. Global and Regional Strategies for Addressing Economic Issues
A. Trade and Investment
B. Macroeconomic Policy
C. Financial Regulation

  • Topics: Economics, Trade, Multilateral Cooperation
  • Region:  North America, Europe, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 1992
  • ISBN:  0-930503-68-6
  • Pages:  16
  • Complete Text: Click here to download
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