Regional Trade Agreements and Regionalisation: Motivations and limits of a global phenomenon

Regional Trade Agreements and Regionalisation: Motivations and limits of a global phenomenon
Author/editor: Gabriele Suder
Year published: 2013
Volume no.: 4
Issue no.: 1

Abstract

The World Trade Organisation reports that the negotiation and implementation of regional trade agreements (RTAs) has been booming in the past decade. This type of agreement is negotiated at the political level; however, it primarily shapes the bilateral business environment in which trade and investment are made. It thus appears crucial to understand in which context companies consider RTAs desirable. This is because contingencies theory claims that the more markets integrate in the context of RTAs, the more firms need to strive to adopt an optimal course of action so as to benefit from coordination and harmonisation effects, thanks to the reduction of environmental uncertainty. In this briefing paper, I therefore analyse the political and corporate advantages that result from RTAs, that is, the capacity of economies and, specifically, firms to yield benefit from business in RTAs. The European Union (EU) is widely recognised as the most advanced form of resulting market integration, and has been scrutinised thoroughly for an understanding of the impact it has on cross-border business strategy. Less attention has been given to EU-induced RTAs outside of Europe, which are analysed here.

The majority of contemporary RTAs take the form of free trade agreements (FTAs) and similar relatively basic forms of economic integration, that simply remove some or all tariffs between the signatory countries. These agreements are part of what economic globalisation discourse names ‘regionalisation’, in which regions are (re-)shaped at the politico-economic level for the purpose of collaboration and interconnectivity. Simultaneously, politics aim for this regionalism to transfer powers to or throughout regions.

What we call a ‘region’ here is not necessarily a construct of geographical neighbourhood; members of RTAs may be far from each other in kilometres and miles yet close in political and economic interests or due to historic or geostrategic reasons. Through RTAs, countries become institutionally closer because they adopt specific common based capabilities that they wish to share and intensify. In particular, the major economic powers are weaving a net of trade agreements that is increasingly intertwined and multi-layered, that reaches across continents and beyond, and that is thus preparing the economic geography of tomorrow. This paper reviews multidisciplinary literature on RTAs, combining political science, political economy, economic geography and international relations perspectives. This combination of insights reveals that RTAs mainly serve business relations as a means to gain insider knowledge and advantage of several types. However, the interest for RTAs is relatively weak in business circles when institutional distance is low and gains are either not perceived or not sufficiently distributed, for instance in the case of the EU and Australia.

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