Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements

TLDR

Preferential trading arrangements have proliferated over the past fifty years while multilateral openness has expanded under GATT and WTO, raising the question of why members pursue preferential liberalization despite the regime’s nondiscrimination principle. The study argues that GATT/WTO developments motivate members to form PTAs to gain bargaining leverage within the multilateral regime. The authors identify growth in membership, periodic negotiation rounds, and losses in formal disputes as drivers prompting members to join PTAs. Statistical tests provide strong evidence that these GATT/WTO factors indeed drive PTA formation.

Abstract

Abstract Preferential trading arrangements (PTAs) have spread widely over the past fifty years. During the same era, multilateral openness has grown to unprecedented heights, spurred by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). If the cornerstone of the manifestly successful multilateral regime is nondiscrimination, why have its members increasingly resorted to preferential liberalization? We argue that developments at the heart of GATT/WTO encourage its members to form PTAs as devices to obtain bargaining leverage within the multilateral regime. Specifically, the growth in GATT/WTO membership, the periodic multilateral trade negotiation rounds, as well as participation and, especially, losses in formal GATT/WTO disputes, have led its members to seek entrance into PTAs. Conducting the first statistical tests on the subject, we find strong evidence in support of this argument.