Why regional trade blocs can't be avoided


Exports Slow Down. The industrial world's rapid economic growth in the period following World War II stemmed, in large part, from growing global trade. Between 1960 and 1980, for example, exports from advanced market economies expanded 8 percent annually in real terms, far outstripping the growth in gross national product; during the same period, exports from the industrialized world rose from 12 to 18 percent of GNP. Yet today, world trade is in trouble. Exports grew only 5 percent annually in the 1980s and stagnated as a share of GNP. More ominously, international negotiations, so crucial to world trade growth, have bogged down. With the United States no longer able to lead and Japan generally distrusted in the world marketplace, meaningful trade talks will almost certainly remain on hold. As a result, countries are giving up on global negotiations and making separate deals with their neighbors. These less ambitious agreements have helped foster the rise of regional trade blocs, which could possibly restrict the flow of goods and capital around the world.

Since the 1940s, countries that have signed the General Agreement on Tariffs and Trade, also known as GATT, have engaged in a series of negotiations. The Kennedy Round of the 1960s was a success. The Tokyo Round of the 1970s was much less effective. And the Uruguay Round, which was supposed to end in 1990, is deadlocked. The immediate cause of this stalemate is a bitter dispute between the United States and Europe over agriculture. The United States wants the European Community to phase out its huge farm subsidies, which total more than $ 20 billion a year. These supports help European nations to compete with unsubsidized U.S. agricultural exports.

America’s Reduced Role. Behind this dispute lie two deeper problems for the global trading system: the decline of the United States and the rise of Japan. World trade growth from 1940 to 1980 was largely spurred by the United States. During this period, America was able to pressure other nations to open their markets. And as the military leader of the West, the United States viewed expanding trade as essential to national security. Today, with the American economy sputtering and the Soviet Union fragmenting, this country has neither the means nor the incentive to lead world trade negotiations. On the other side, Japan, which rose from ashes to become a global powerhouse, is still viewed suspiciously by its trade partners. Tokyo has few tariffs or explicit restrictions on imports of manufactured goods, but tightly linked Japanese firms have shut out competing foreign products in many areas.

The current disarray in the world marketplace has begun to stimulate regional trade activity between neighboring nations. Canada put aside its fear of American economic domination, for example, and the two countries signed a free-trade pact in 1989. Mexico is set to participate in North American free trade as well. And members of the European Community have agreed to eliminate trade barriers with each other next year. Japan has not reached any explicit deal with its neighbors, but over the past five years its business ties with a handful of East Asian nations have grown. To some observers this suggests that a de facto Japan-centered trading bloc is emerging in the Far East.

Fractured Market System. Regional trading alignments will play a central role in the new world economic order. Who will win and who will lose under this emerging system? Some nations will benefit greatly because of their privileged access to markets. Mexico, for example, is developing a special economic relationship with the United States and is thus poised for the same kind of economic liftoff that has already taken place in Spain and Portugal. Other countries, including most in the Third World, won't have built-in outlets for their products. This has led some economic leaders to condemn separate trading blocs. These analysts desperately hope that the faltering Uruguay Round can be made a success. But at this point, a turn away from the world stage toward fractured regional markets seems inevitable.


World trade, once an engine of growth in many Western economies, has slowed.

Growth rates in OECD countries

Exports GNP

1968-73 9.3 pct. 4.6 pct.

1973-79 5.0 pct. 2.7 pct.

1979-89 5.0 pct. 2.8 pct.


America's ability to influence world trade negotiations has declined because of its diminished role in the world economy.

U.S. share of developed world GNP

1960 39 pct.

1974 35 pct.

1981 34 pct.

1989 33 pct.

Breaking Up

The deadlock in world trade talks has given rise to three regional trading blocs, which account for most global output.

Share of World GDP

North America 26.6 pct.

European Community and European Free Trade Area 29.3 pct.

Japan and Pacific Basin 14.2 pct.

Originally published, 9.30.91