The new regionalism and the threat
            of protectionism
Drawing on the game theory concepts, the
            authors discuss why countries form themselves into trading
            blocs and what the relations between these blocs are likely
            to be. They identify three types of regimes: (a) unilateral
            trade policies - which are noncooperatives; (b) multilateral
            agreements (such as the GATT) - which are cooperatives; and
            (c) coalitions (regional integration arrangements or
            minilateral agreements) - which are mixed (cooperative
            internally and noncooperatives externally). The authors
            argue that regional integration arrangements can work better
            than global rules as precommitment devices for internally
            cooperative policies because they create a denser network or
            interlinked policy targets. The losses for a participant
            ostracized (or disciplined) by his bloc are immediate and
            tangible. Crucial to the results of analysis is the external
            policy stance adopted by each bloc after it has formed.
            External relations will determine whether regional blocs are
            welfare-improving, consistent with the aims of the GATT, and
            a vehicle for securing commitments or the regime; or whether
            they will become a vehicle for spreading "political
            economy biases." Should higher or lower external
            barriers be expected for nonmembers? That depends on how
            large the benefits or costs, in trade and investment
            creation (or diversion), would be to members if the mover to
            free trade within the bloc is not accompanied by any
            increase in the bloc's external barriers (an
            "open" bloc). Widening tends to be easier the more
            open a bloc is, since insiders are less concerned with the
            erosion of their preferences. In the alternative scenario,
            lower intra-bloc trade and investment barriers are
            accompanied by an increase in the external barriers, giving
            any specific set of potential participants strong incentives
            to join (a "closed" bloc). "Deepening"
            by expanding the list of variables covered by the trade
            agreement also tends to make the bloc more cohesive. In both
            cases - a closed bloc or deep integration - greater cohesion
            is obtained at the cost of increasing the costs of entry for
            nonmembers. The hope that regional integration arrangements
            can pave the way for global free trade is unrealistic. As
            regional integration arrangements enlarge, they may be
            better off exerting market power against outsiders rather
            than following a globally cooperative path. Inter-bloc trade
            relations will ultimately depend on how effective special
            interest groups are at distorting bloc-wide trade policies
            that suit their interests. A multilateral trade system
            inhibits noncooperative behavior among trading blocs. The
            successful conclusion of the Uruguay Round extended and
            deepened the network of variables covered by multilateral
            rules. For developing countries, a working (even imperfect)
            multilateral trade system remains the best hope against
            excesses by those with market power.