Building Blocks or Stumbling Blocks?: The GMS and AFTA in Asia
regionalism, multilateralism, AFTA, GMS.
I. Introduction
The last two decades have witnessed a proliferation of formal regional trade arrangements (RTAs) mostly in the form of free trade areas (FTAs). The interest in forging bilateral trade agreements (BTAs) has further increased the number of FTAs over recent years (see Menon 2007). There is strong demand to form or to join all kinds of RTAs on political grounds. As Bhagwati (1997) puts it, "No politician is happy unless he has put his signature on at least one of them." There is also an apparently strong compulsion to avoid being an outsider on economic grounds.1 As far back as 1964, Robert Mundell demonstrated how trading partners who do not join a preferential trading arrangement might be made worse off (through terms of trade effects)2 even when global welfare is enhanced. Even in the absence of terms of trade effects, the fact that an outsider's competitors may have negotiated preferential access to its major markets suggests that the costs of not joining could be high. The threat of trade and investment diversion is viewed as a compelling reason to seek membership in RTAs (Lawrence 1996).
Alongside these FTAs, there has also been significant interest in less formal arrangements sometimes referred to as growth triangles or quadrangles or more generally as subregionalism. Every member of the World Trade Organization (WTO) today is also a member of at least one subregional or regional co-operation arrangement, many are members of both, and some are even members of multiples of each.3 This is sometimes referred to as the "spaghetti bowl" effect (Bhagwati 1993).
In light of these developments, it is pertinent to ask the question, what are the inter-relationships between subregionalism, regionalism, and multilateralism? Apart from the inter-relationships, [End Page 254] it is also interesting to consider the conditions under which subregionalism or regionalism can assist a country in moving towards multilateralism. Put a different way: is there anything that countries can do to ensure that their membership in subregional or regional cooperation arrangements will act as building rather than stumbling blocks towards free and open trade and investment? The relevance of this question is rooted in the fact that, in economic terms, preferential trade liberalization will always be inferior to non-discriminatory or multilateral tariff reductions.4 Thus, if subregionalism or regionalism can help move a country towards multilateralism, then it is working in the right direction, and reducing the risks that the proliferation of FTAs will have on the smooth functioning of the world trade system.
In answering these questions, we use the Greater Mekong Subregion (GMS) co-operation arrangement to represent subregionalism and the ASEAN Free Trade Area (AFTA) to represent regionalism. These choices are appropriate for our purpose because all countries in the GMS co-operation arrangement except China are also members of AFTA and are either already members of the WTO or are actively pursuing membership.
The paper is organized in six sections. Section II provides a brief overview of the GMS programme and AFTA to set the stage for the ensuing analysis. In section III, we examine how subregionalism is affecting both regionalism and multilateralism. Next, we turn to the relationship between regionalism and multilateralism. One of the questions that we attempt to answer in this section is whether it is necessary to have "open regionalism" in order for the arrangement to be a building block towards multilateral principles and objectives. In other words, can multilateral objectives be achieved even without open regionalism? This question is relevant because some countries in the region have pursued open regionalism while others have been less willing to do so. In section V, we look at what additional benefits WTO membership can bring to countries that are already members of both subregional and regional cooperation arrangements. A final section summarizes the main points.
