Written by Aulina Pandey
E-mail: 20jsia-apandey@jgu.edu.in
M.A. (D.L.B.), Jindal School of International affairs, O.P. Jindal Global Univeristy
ABSTRACT
The world as we know it is going through unprecedented changes. With the advancement of technology and faster communication systems, countries continue to become more interconnected and interdependent of each other. Keeping in mind these changes, the world has seen a rise in two fundamental concepts; Regionalism and Globalization. After the Second World War and during Cold War, a new type of international relations (IR) economic policy was being adopted to encourage trade and commerce in the form of regionalism and, later, multilateralism. Both deal with economic arrangements to facilitate trade and commerce but differ in implementation and the actors. Traditionally, the concept of regionalism was only limited to geographical units or territories; however, the purpose of this paper is to argue for the latest changes in the concept of regionalism and how it has helped create a more globalized and interconnected world. This essay has been divided into three parts to understand the relationship between regionalism and globalization and in order to study whether regionalism can operate effectively in the multipolar world of multilateral institutions and system. The first part deals with the definitions and the fundamental principles that govern the concept of regionalism, such as region, regional integration, cooperation, and interdependency. The second part is an attempt to understand the role of regional and multilateral institutions in the current economic system and whether either can operate alongside or exclusive of each other. The third part is an attempt to arrive at a conclusion with respect to the role of various institutions by taking into consideration contemporary examples of regional trade agreements, common markets, and custom unions as tools for effective regionalism. This paper also vehemently argues that regionalism can truly act as a building block for globalization rather than a challenge if applied in the contemporary sense.
Keywords: Regionalism, Multilateralism, Globalization, Trade agreements
Introduction
In its most traditional sense, regionalism can be defined as an arrangement between countries within the same geographical area to facilitate the free flow of goods and services and coordinate foreign policies to encourage trade and business. However, the scope of regionalism in the new world order goes beyond just economic aspects and free trade and to social, political, and cultural aspects as well (Inoguchi, 1996). As such, the concept of regionalism in this paper refers to the free flow of trade and commerce between social systems and transnational borders.
One of the most important roles played in favor of regionalism is by the State itself. State behavior towards the process of regionalization is important to ensure that the policies and strategies are implemented effectively (Inoguchi, 1996). In the economic sphere, regionalism is propagated mainly through providing secure markets for organizations to work with, which is done through Regional Trade Agreements. These agreements are usually entered into by regional organizations, the main facilitators of regionalism.
According to Nye, regional organizations are the ones that can enter into a formal agreement among governments by possessing diplomatic powers and are assisted by international bureaucracy (Nye, 1971). The Association of Southeast Asian Studies (“ASEAN”), BRICS, African Union, the North Atlantic Treaty Organization (“NATO”) are some examples of regional organizations in the modern world. It is also argued that ‘open regionalism’ can be a step forward from multilateralism given the greater economic integration, reduced trade barriers, enhance coordination between policy makers of different countries and a resolution for border conflicts (Rojas-Suarez, 2004). The role of multilateral institutions that is non-state actors that focus on the overall development of the society through mutual cooperation and dependence is becoming increasingly important in the this day and age. (Devitt, 2011).
Keeping in mind the objective of regionalism, which is to facilitate trade and commerce within social systems, multilateralism focuses on the alliance between multiple countries towards a common goal. So, while regionalism is a way to create ‘regional blocs’ to facilitate trade, multilateralism focuses on creating an overall global system of free trade. The infamous question raised by Bhagwati that, “whether regionalism is truly building bloc rather than stumbling bloc towards multilateral free trade for all?” remains pertinent till today. This question, however, needs to be addressed from the context and state of the world economy today (Bhagwati, 1993).
For the purpose of this paper, the concept of globalization is looked at as an umbrella concept within which regionalism and multilateralism would operate. Globalization is associated with the shift in the social system, an emergence of the world as a shared social space, the relative deterritorialization of social, economic, and political activity, and the denationalization of power (John Baylis, 2017). In economic terms, it creates a direct relationship between economic transformation and the new world order. The world economy has become ever so interconnected and ever-expanding with cross-border trade and freer financial flows (John Baylis, 2017). The objective of this research paper is to understand that if globalization is a way to a borderless society, then how can regionalism effectively operate within such a world order. The main argument being examined in this regard is the fundamental understanding of the term “region” as a social system or mutual beneficial trade blocks rather than territorial units and how it is a step forward from the current system of multilateralism.
Research Methodology
The purpose of this paper is to create a theoretical framework for the key concepts using the extensive literature available. The objective is to provide a better understanding of the concepts through a contemporary lens. It includes a historical overview of the term regionalism and a comparative study of regionalism with the current system of multilateralism.
Literature Review
Many scholars have written about the concepts of regionalism, multilateralism and globalization in journal articles and books. The author has referred to several articles dealing with these core concepts and several primary and secondary electronic sources. The paper edited by Toshiro Tanaka and Takashi Inoguchi that include four other scholarly articles on the relationship between Globalization and Regionalism, elaborates on international organizations and includes futuristic application of the concept of regionalism (Inoguchi, 1996). Another article written by Bhagwati, which questions the applicability of regionalism in a globalized world and the weighing of pros and cons to understand how it could help facilitate the multilateral system, has been a massive influence on the conclusions that the author has arrived at (Bhagwati, 1993). One of the fundamental questions given in the research question of this paper is to analyze regionalism vis-à-vis multilateralism. The paper By Winters analyses the immediate consequences of regionalism for economic welfare and regional integration (L. Alan Winters, 1999).
Additionally, a paper written by scholars Birdsall and Rojas-Suarez talks about the unexploited potential of regionalism for financing and help the economic structure of developing countries, especially in the global south. This paper emphasises the benefits of adopting regionalism, which could help in reducing trade barriers, sharing infrastructure, and in resolving conflicts (Rojas-Suarez, 2004). Söderbaum, in his article, argues for a world that revolves around regionalism and regions. He mentioned the rising importance of regions as fundamental aspects of global politics and world affairs. The author has relied on the concept and explanation of contemporary regionalism and notions of “regionness” (Söderbaum, 2013).
The role of regionalization in a globalized world full of primarily democratic nations and how it acts as a response to globalisation’s political and economic context that can be generalized to represent a normative project for a better understanding of the new world order has been explained by Lupel in his article. This article has been referred to by the author for a better understanding of globalization and regionalism (Lupel, 2003). In another article by Barbieri, the concepts of regionalism, globalism and complexity have been explored as being complementary to each other which could be applied as a way to approach the new world order (Barbieri, 2019). Books by Nye and Baylis have been referred to for their timeless definitions of core concepts such as regionalism, globalization, regional organization and the features that make them (Nye, 1971) (John Baylis, 2017).
Conceptualizing Regionalism
In the 1960s, the world saw an outbreak of free trade agreements (“FTA”) and custom unions in developing as well as developed countries. Subsequently, the establishment of the General Agreement on Tariffs and Trade (“GATT”) helped reduce several tariffs and trade barriers that were in place. The main objective of the economic policies at the time was to reduce the cost of industrialization, regional integration and exploit economies of scale by opening the markets with each other. Proposals of North American Free Trade Agreement (“NAFTA”), Peru-Australia Free Trade Agreement (“PAFTA”) and Latin American Free Trade Association (“LAFTA”) were made at the time; however, most of these free trade arrangements died out due to the failed bureaucratic negotiations and eventually resulted in the failure of the first wave of regionalism.
The only regional community that survived during the first wave was the European Free Trade Area (“EFTA”) (Bhagwati, 1993). By the end of the second wave of regionalism at the end of the Cold war, the bipolarity of the world system and hegemonic influence of the USA and USSR was finally dealt with. There was a significant shift in the balance of power and the trading blocs. When the world was no longer divided between two countries, the international system was confronted with creating a new world order that could facilitate trade, commerce and interaction within a multipolar world (Inoguchi, 1996). The ASEAN, the Caribbean Community (CARICOM), The Asia-Pacific Economic Cooperation (APEC), NAFTA, South Common Market (Mercosur) etc., were all created around this time. Since the initial negotiations of multilateral trade failed, the rising importance of regional agreements in the Global North created concerns in the Global South, particularly about its reduced access to the international market. The latter’s response to the threat was to create its own regional projects for economic development. As countries started gaining an interest in the multilateral system of free trade, global economy and competition, the benefits of regional trade agreements between countries became apparent (Santander, 2018).
Modern regionalism or the current wave of regionalism is a multidimensional and comprehensive process that includes not just the economic but political, social and developmental issues. With the advent of globalization and shrinking economies, “regions” in the context of modern regionalism is a process whereby a geographical area is transformed from a passive object to an active subject, capable of articulating transnational interests. Non-state actors, organizations and most importantly, the social systems therefore operate on different aspects that contribute to the world economy. (Söderbaum, 2013).
Regionalism in the multipolar world is a phenomenon in which countries engage in economic integration and tackle global challenges. The efficacy of regionalism is facilitated through FTA, custom unions, common markets etc. Regional Trade Agreements are a common method of international, regional trading today, along with multilateral agreements. It is a method adopted by several countries to boost economic growth. According to the Organisation for Economic Cooperation and Development (“OECD”), the relationship between the regional agreements and additional participation by various countries can complement the multilateral trading system. Regional Trade Agreements (“RTA”) provisions on agricultural issues, technology, investment strategies and transfer of technology, environmental policies and approaches to market openness are like the objectives of a multilateral trading system (OECD, 2020). The degree of regionness is determined by the degree of regional integration. It can also be classified by types of integration which are: FTA’s, custom unions, common markets, and economic unions. Free trade agreements are the most common way of trading in the international sphere.
Regionalism vs. Multilateralism
The main concern expressed by scholars with respect to regionalism and multilateralism is whether regional integration is better or worse for the multilateral trading system. Regional organizations such as NAFTA, Free Trade Area of the Americas (“FTAA”), Asia-Pacific Economic Cooperation (“APEC”) etc., are constantly evolving and entering into trade agreements in the current international trading system. The way a group of countries interact with each other within a group could have an impact on the way they interact with countries outside of the group. This essentially is the difference between trade diversion and trade creation. While regionalism is the institutional arrangement between countries within the same social system or territory to facilitate trade and commerce through regional trade agreements, multilateralism, on the other hand, are agreements between three or more parties concerned with a specific economic arrangement.
Multilateralism is a type of economic policy that countries incorporate, keeping in tune with the basic principles of global free trade and economic integration with multiple countries. Several countries that form a relationship and pursue common economic goals follow a multilateral trade policy (Devitt, 2011). Often multilateralism is referred to as a process wherein countries engage in an interactive and cooperative economic model to pursue common goals. While regionalism restricts the benefits of policies and reduced trade barriers and custom within the specific unit, whether geographical or social, multilateralism is the process that is essentially facilitated by the process. In other words, it allows internalization of the gains from trade de-restriction and is likely to facilitate freer trade in a highly restrictive circumstances or sectors (L. Alan Winters, 1999).
A pertinent question that is pondered over critiques of regionalism is that it acts as a stumbling block to multilateralism by causing trade diversion. This argument has been declared irrelevant by the Director of the World Trade Organisation (“WTO”), Pascal Lamy. Lamy states that fostering growth and economic efficiency for countries is based on the principle of “Most Favored Nation” status, which allows countries to exploit its comparative advantage. And multilateralism is a way to combine such principles of the global economy towards regulating trade. According to him, the consideration of which “ism” is better is redundant and what matters at the end of the day is reduced obstacles and smooth trade routes, agreements and interaction between countries (Lamy, 2015).
With bilateral and trilateral trade deals becoming common, the expansion and regionalism can become difficult to regulate. There is an increasing role of economic and market integration. However, in no way is regionalism a threat or detrimental to the process of multilateralism so far. Rather it facilitates a multilateral system to create better regional interactions and economic policies. An economic system where multilateralism is facilitated by regionalism rather than exclusive of each other could help build economic interdependency.
Regionalism as a building block of Globalization
Regionalism as an economic strategy could help speed up the domestic economy tremendously and help generate speedier and steady growth and a countries ability to deal with challenges and risks of deep integration into the world economy (Rojas-Suarez, 2004). Eliminating border, reducing trade barriers and customs, and creating common markets could help in the growth of the domestic economy so much that countries are encouraged to a multilateral arrangement. It acts as a facilitator to the globalized economy.
Regional Trade Agreements are the first step towards a gradual global free trade as it gives the countries a chance to slowly increase their level of competition and influence in the global world. Globalization can be defined as a global transformation that is influenced by the shrinking of global trade (John Baylis, 2017). Regional organizations also promote peace, security and economic development that is beyond the scope of states. For instance, the success of the European Union and its relationship with other states and neighbors. Its function is that of a global influencer maintaining peace and security to the world’s superpowers. It pools the economic and trade resources to enforce foreign policies. The world economy is under the security of the World Bank, International Monetary Fund (“IMF”), WTO, and the UN Development Programme. These organizations aim to create a competitive and steady global economy (Inoguchi, 1996). The world is constantly dealing with uncertainties, but globalization is an ongoing process and an umbrella under which international organizations and countries interact with each other through various policies.
Regionalism, given its cooperative approach to the economy and objective of collective economic welfare, can be considered a building block under the current circumstances. The interdependence and interconnectedness that comes with being a part of a globalized world can be facilitated by regionalism to maintain a balance of economic power between regions. As Amitav Acharya has also pointed out, “the international system is moving towards Regional World, meaning that the broader globalization process is being considered in the substance rather than nature” (Barbieri, 2019).
Conclusion
Complexity is a primary feature in the global economy and politics. The objective of this paper is to understand how regionalism relates to globalism. Regionalism takes place where there is cooperation and integration between countries. These are also the core principles of multilateralism in the global world. For instance, China’s Belt and Road Initiative is the regional economic initiative and is seen as a prime example of regionalism in the contemporary context to ‘promote regional economic space with Asian characteristics’ (Barbieri, 2019). Even the Indo-Pacific strategy, which discussed the COVID 19 pandemic in the quad meeting between the US, Japan, India and Australia, was held to collectively combat the virus and facilitate trade and commerce between the four countries. Most of the conversation between the foreign ministers has been about cooperation, integration, transfer of technology and financial deregulation. Regional agreements like these could act as a starting point for the next wave of globalization. While they could be opposing concepts to some degree, however with the current phenomenon of fast-paced globalization given the internet, digital technology, cross-cultural interaction, and environmental problems that affect all countries equally, regionalism is a complementary phenomenon that could help countries with similar issues collaborate and combat global issues collectively.
The new world order is porous and borderless, and regional trade agreements can facilitate the role of multilateral institutions to create a well-connected world while we enter a new wave of globalization. A comprehensive approach to global affairs that includes the concept of new regionalism, multilateralism in the contemporary sense and globalization, which is influenced by the internet, technology, non-state actors and the environment, needs to be studied extensively. A futuristic approach to regionalism and how it relates to globalization could has tremendous scope for further research.
REFERENCES
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The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.
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