Enshrined in Article I of the World Trade Organization’s (WTO’s) General Agreement on Trade and Tariffs (GATT) is the key principle of the multilateral trade system the principle of nondiscrimination which prevents member countries from discriminating against imports based on the country of origin. In an important exception to this central prescript, however, the GATT (Article XXIV) permits WTO members to enter into preferential trade agreements (PTAs), provided these preferences are complete. In so doing, it sanctions the formation of free trade areas (FTAs),whosemembers are obligated to eliminate internal import barriers, and customs unions (CUs), whosemembers additionally agree on a common external tariff against imports from nonmembers. In addition, the Enabling Clause allows tariff preferences to be granted to developing countries (in accordance with the Generalized System of Preferences) and permits preferential trade agreements among developing countries in goods trade. Among the more prominent existing PTAs are the North American Free Trade Agreement (NAFTA), the European Economic Community (EEC), and the European Free Trade Association (EFTA), all formed under Article XXIV, and Mercosur (the CU encompassing Argentina, Brazil, Paraguay, and Uruguay) and the ASEAN (the Association of Southeast Asian Nations) Free Trade Area (AFTA), both formed under the Enabling Clause. Other forms of integration, such as the formation of a common market, involve the further elimination of barriers to factor mobility, as in the Common Market for Eastern and Southern Africa (COMESA) and the use of a single currency to forma common currency area (as in the European Union). Since preferential integration has often (but not always) involved geographically proximate countries, the term regionalism has been used to describe such regional groupings and sometimes to describe the broader phenomenon of preferential integration itself.
See also common currency; common market; customs unions; free trade area;multilateralism; nondiscrimination
- Bhagwati, J. 1993. ‘‘Regionalism and Multilateralism: An Overview.’’ In New Dimensions in Regional Integration, edited by Jaime de Melo and Arvind Panagariya. Cam bridge: Cambridge University Press, 22 46. An in sightful historical and analytical survey of preferential trade and its interaction with the multilateral trade system.
- Kemp, M., and H. Wan. 1976. ‘‘An Elementary Proposi tion Concerning the Formation of Customs Unions.’’ Journal of International Economics 6 (1): 95 97. A sem inal contribution describing the design of necessarily welfare improving customs unions.
- Krishna, P. 2005. Trade Blocs: Economics and Politics. Cambridge: Cambridge University Press. A discussion of recent developments in the economic, political, and quantitative analyses of preferential trade agreements.
- Panagariya, A. 2000. ‘‘Preferential Trade Liberalization: The Traditional Theory and New Developments.’’ Journal of Economic Literature 38 (2): 287 331. A comprehensive survey of the theoretical literature on preferential trade agreements.
- Panagariya, A., and P. Krishna. 2002. ‘‘On the Existence of Necessarily Welfare Improving Free Trade Areas.’’ Journal of International Economics 57 (2): 353 67. A theoretical contribution describing the design ofwelfare improving free trade areas.
- Viner, J. 1950. The Customs Unions Issue. New York: Car negie Endowment for International Peace. A seminal contribution characterizing the economic consequences of preferential trade.