Summary

Economic globalization and its influence on regional economic integration processes are among the most debated issues. Noteworthy, that neoliberal economic globalization has increased attractiveness of regional economic integration, which is reflected in growing numbers of trade agreements on bilateral, multilateral and cross-regional levels. Recent proliferation of Regional Trade Agreements (RTAs) involves developed and developing countries as well as countries with transition economies. In addition, a substance of RTAs changed significantly and includes issues which were not covered by previous trade agreements, such as services, investments, competitions. Thus, economic globalization is developing through increased regional and cross-regional integration and therefore, globalization and regional integration are the complementary process. 

Keywords: Economic Globalization; Regional Economic Integration; Regional Trade Agreements; Free Trade Agreements. 

1. Introduction

In the 1990s, economic globalization became a most important factor of economic development of national economies as well as world economy in general. Noteworthy, that economic globalization, evolving on the basis of intensification of international economic relations among countries obtained apparent feature in the 1980s as a result of smooth combination of many political, economic and technological aspects in world development. More specifically, the fall of the Berlin wall, break of the Soviet Union and the socialist bloc in general, liberalization of economic relations and technological developments were main supporting factors.

Therefore, in the 1990s, as Frieden argues “The interests, and the ideas, favorable to economic globalization dominated world economics and politics. The globe was once again capitalist, and capitalism was once again global” [Frieden, 2006: 412]. Notable, that the ideology and economic policy behind the economic globalization is known as Neoliberalism, which underlines an importance of free markets and limited intervention of government in economy. Accordingly, neoliberal reforms include liberalization, deregulation, privatization and therefore, formation of so called “small government”.

In addition, in the 1990s, alongside with the neoliberal economic globalization has intensified regional integration processes and countries are represented in several integration groups. Noteworthy, that during this period a number of Regional Trade Agreements (RTAs)[1] increased significantly. Therefore, the aim of this article is to analyze main characteristics of neoliberal economic globalization and its influence on regional integration as well as to observe the dynamics and peculiarities of Regional Trade Agreements in globalizing world economy. 

2. Regional Integration and Neoliberal Economic Globalization

Economic globalization has many definitions. As Sholte noted “Definitions are not everything, but everything involves definition” [Sholte, 2005: 49]. Differences among globalization definitions have been stipulated by different approaches of social scientists towards globalization. On the one hand, political scientists focus on North-South relations and issues related to new international order, while economists on the other hand are mainly concentrated on the issues related to liberalization of trade and capital movement, new international economic order, strategies of Transnational Corporations, etc. According to Bhagwati economic globalization is “integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology [Bhagwati, 2004: 3]. Stiglitz argues that economic globalization “entails the closer economic integration of the countries of the world through the increased flow of goods and services, capital, and even labour” [Stiglitz, 2007: 4]. International Monetary Fund (IMF) describes economic globalization as “increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders” [IMF, 2008].[2] Despite some differences in economic globalization definitions, all of them underline growing interdependence of national economies based on significantly increased economic relations among countries.

All abovementioned definitions of globalization with some extent belong to neoliberal economic globalization. Even though globalization has many dimensions, economic globalization represents foundation of all other forms and dimensions of globalization, which in turn is based on increased trade, capital movement and internationalization of production [Eteria, 2009]. Leading position of economic globalization is determined by increased impact of international economic relations on the economic development of countries. It should be noted, that during recent decades economic globalization has been developing as neoliberal economic globalization. As Rodrik noted “Free market economics was in the ascendancy, producing what has been variously called the Washington Consensus, market fundamentalism, or neoliberalism” [Rodrik, 2011: 77]. Neoliberal reforms, initially implemented in the USA and the Great Britain in the 1980s have spread to many countries in the world. As Sholte argues “… neoliberalism prescribes a shift from state interventionism towards market-enabling governance” [Sholte, 2005: 39]. The idea of liberalization of economic relations and limited government has become attractive for many countries in the world, especially to countries with socialist past, which in 1990s were trying to establish a market economy. Therefore, neoliberal form of economic globalization in turn has been increasing a significance of foreign factors in economic development by focusing on further liberalization of economic relations and diminishing role of governments in regulation of economy. As a result, 1990s were years of intensification of neoliberal economic globalization and therefore, widespread beliefs in superiority of market economy over government intervention in economy and government regulation in general. However, “this is not to say that neoliberalist policies have been fully and consistently implemented” [Sholte, 2005: 40]. Despite this it should also be noted that almost all countries/country groups, including the EU, pursued neoliberal economic policy recommendation regarding trade liberalization and importance of free trade in general.

It is clear, that economic globalization involves all nation states/country groups with different degrees of integration into globalizing world economy.[3] Gradual liberalization of economic relations starting after the World War II, initially in the framework of General Agreement on Tariffs and Trade (GATT) was major supporting factor of economic globalization processes. It should also be noted that “Creation of the GATT did not diminish the attraction of bilateral or regional approaches to international trade relations” [WTO, 2011: 51] and “After all, bilateral trade agreements long pre-dated the multilateral trading system” [WTO, 2011: 197]. Since creation of the GATT economic globalization has been evolving through increasing scale of trade, investments, movement of labor and developments in technology.

During recent decades the complexity of economic globalization was increased by proliferation of Regional Trade Agreements. Number of Regional Trade Agreements increased significantly, including Regional Trade Agreements concluded by the EU. As Frieden pointed out, “Regional integration in the 1990s became an important component part of the overall process of economic globalization” [Frieden, 2006: 411]. However, until 1990s number of the RTAs remained at the modest level.

There are two major reasons for such proliferation of RTAs. First, it is clear, that in the framework of regional integration and/or on the basis of Regional Trade Agreements Nation States are able to determine common interests more easily than in the international arena with many actors. As Martel pointed out, “It may be better for states and other political actors to ally trans-nationally with those actors who are likeminded and with whom they share interests rather than trying for cosmopolitan consciousness at a global level where many have opposite interests and ideologies and are more powerful” [Martel, 2007: 190].  Moreover, as Higgott argues, “Because globalization weakens the efficacy of national policy instruments, collective action approaches to problem solving with regard to issues demanding trans-national management solutions are probably easier at the regional level” [Higgott, 1998: 45]. Therefore, significant increase of Regional Trade Agreements was a reaction to the absence of efficient system of global trade governance and unresolved issues in the framework of World Trade Organization (WTO). Consequently, disappointment by multilateral trade negotiations known as “Doha Development Round” pushed the EU, as well as other developed and developing countries to promote trade relations with partner countries on the basis of bilateral trade agreements. Second reason is geographical proximity, current close economic relations or potential of intensification of economic relations. Noteworthy, that geographical proximity increases nation states ability to agree on mutually beneficial rules and procedures of interaction. However, as Sholte pointed out “macro-regional schemes would not have appeared in such numbers - and developed as far as they have – in the absence of a concurrent large-scale growth of global relations” [Sholte, 2005: 209]. Therefore, it is clear, that economic globalization in general and neoliberal economic globalization in particular stimulated proliferation of Regional Trade Agreements.

Regional Trade Agreements represents a more effective instrument of cooperation among countries in many areas, based on bilaterally or multilaterally (in the regional framework) approved rules and procedures, which are not covered by WTO or other international economic organization and therefore, not agreed on the global level. Thus, “Globalization and regionalism are not mutually exclusive and cannot be seen in isolation from each other” [Di Mauro at al. 2008: 17]. As a result, liberalization of trade and investments enhanced economic globalization, which in turn further increases liberalization of economic relations on the bilateral, regional and cross-regional levels during recent decades. Consequently, neoliberal form of economic globalization could be considered as major reason for intensification of Regional Trade Agreements.

It is clear, that economic globalization is developing trough intensification of regional integration processes based on RTAs and regional integration as a process represents a transition step towards a globalized world economy. In view of that, economic globalization stipulates enhancement of qualitatively new economic relations and creation of multipart interdependence among countries that gives to economic globalization a clearly defined complex nature.

3. Dynamics and Scope of Regional Trade Agreements

It should be noted, that significant increase of RTAs has coincided with intensification of economic globalization processes and involved developed, developing countries as well as countries with transition economies. In 1990, Cumulative Number of Physical RTAs in force was 19, while in 2018 number of RTAs reached 291 (Fig. 1).  Noteworthy, that “For most of modern history, trade agreements were more and less limited in geographic scope – usually taking form of colonial spheres of influence, associated with empires, or bilateral commercial treaties, mainly among European powers” [WTO, 2011: 48-49]. However, during recent years Regional Trade Agreements are not limited by Geography and include bilateral, multilateral as well as cross-regional agreements.

Figure 1. Number of Physical RTAs

Source: Data from WTO RTA Database; http://rtais.wto.org/ui/PublicMaintainRTAHome.aspx

Noteworthy, that during last decades regional trade agreements intensified not only between developed and developing countries, but also among developing countries. As it was indicated in respective WTO report “The recent proliferation of PTAs to a significant degree comprises agreements between developing countries, cross-regional PTAs and bilateral arrangements” [WTO, 2011: 86]. A leading position in RTAs belongs to the EU with 40 RTAs, while USA and Japan participate in 14 and 16 RTAs respectively (Fig. 2). 

Figure 2.  RTAs by Country/Country Group

Source: Data from WTO RTA Database; http://rtais.wto.org/ui/PublicMaintainRTAHome.aspx 

It should be noted that the EU “ …for a period of seven years from 1999 the EU maintained a de facto moratorium on new FTA initiatives, while it pursued a comprehensive trade agenda at the multilateral level” [Woolcock et al. 2007: 236]. In 2006, European Commission issued a new trade strategy “Global Europe: Competing in the World”,which could be considered as turning point in trade policy priorities of the EU.According to this document“Free Trade Agreements (FTAs), if approached with care, can build on WTO and other international rules by going further and faster in promoting openness and integration ….. [Commission of the European Communities, 2006: 8]. So, since 2006 the EU has accelerated negotiations on regional trade agreements. As a result, the EU has concluded largest number of RTAs in the world, which includes agreements with developed as well as with developing countries and countries with transition economies.

In addition, since 1990s USA intensified bilateral dimension of its trade policy. It should be noted, that first bilateral FTA the USA signed in 1983 with Israel, however, this agreement was “motivated entirely by political and security interests, not trade policy considerations” [Woolcock et al. 2007: 240]. Other developed country, which trade policy priorities has changed significantly since 2000 is Japan. As it was indicated in Trade Policy Review (TPR) of 1998 “…Japan places priority on progress in the development of further multilateral disciplines under the WTO…” [WTO, 1998: 21] and “Japan does not belong to any customs unions, free-trade areas or other preferential regional agreements” [WTO, 1998: 24]. In next Trade Policy Review, issued two years later, was stated that “Although Japan has traditionally eschewed regional free-trade agreements on the grounds that they could lead to exclusive, discriminatory trading blocs, and thereby undermine the multilateral trading system, such agreements now seem to be attracting greater interest in Japan” [WTO, 2000: 19].  As a result of Japan’s changed trade policy priorities, “in January 2002, Japan signed its first bilateral free-trade agreement, the Agreement between Japan and the Republic of Singapore for a New-Age Economic Partnership (JSEPA), which entered into force in November 2002” [WTO, 2004: 13]. According to recent Trade Policy Review Japan has intensified bilateral trade cooperation and “Japan has begun negotiations to conclude a further eight agreements” (WTO, 2017: 24]. In addition, it should be noted that Australia, which now is the participant of 13 RTAs “until recently, was a member of only one PTA, namely, the one with New Zealand” [Woolcock et al. 2007: 250].  

During last decades “big” developing economies such as China and India also intensified regional cooperation and have been participating in 15 and 16 RTAs respectively. Despite that both countries remain active supporters of multilateral trade liberalization, they also are actively engaged in regional trade agreements. From other developing countries Chile, Turkey and Singapore participated in 30, 23 and 24 RTAs respectively.

Noteworthy, that during recent years Regional Trade Agreements increased not only in numbers, but also the content of these agreements changed and evolved significantly. Therefore, “RTAs' scope and configuration is respectively far reaching and innovative in terms of design and choice of RTA partners” [Fiorentino et al. 2007: 1]. First RTAs focused on removal or reduction of tariff barriers in trade. As it was indicated in respective report by WTO “The steady reduction of tariff barriers has generated pressure on countries to align divergent national non-tariff policies” [WTO, 2011: 197]. Therefore, new generation RTAs, especially agreements with involvement of the EU and USA, envisage “deep” integration and include provisions on many areas of cooperation, previously not envisaged by trade agreements, such as services, investments, competition, etc. As Woolcock et al. noted “In comparison with the deep agreements that the super-hubs of the EU and the USA have negotiated, those within the Asian area in general have been shallower and more flexible in scope as well as being more pragmatic in motivation” [Woolcock et al. 2007: 254].  However, it should also be noted that the significant part of RTAs are Free Trade Agreements, rather than agreements on Customs Union or other advanced forms of regional integration.

It is clear, that intensification of Regional Trade Agreements was driven by geography as well as by economic and political considerations. As it was indicated in WTO report “Countries may use trade cooperation as part of a broader political agenda of shared interests going beyond purely economic considerations” (WTO, 2011: 197]. RTAs between developed countries mostly are driven by economic considerations such as the market size, economy of scale, barriers to exports, etc. RTAs between developed and developing countries, especially with countries with „small“ economies mostly are driven by political considerations, such as the political stability, export of domestic regulations, etc. However, further intensification of RTAs, especially “deep” RTAs will support creation of mutually agreed rules and procedures at the global level regarding issues, not yet covered by WTO.

Hence, economic globalization has transformed trade policy of developed as well as developing and transition countries. So, tendency of intensification of bilateral and regional and cross-regional trade agreements is clear feature of modern world economy.  Neoliberal economic globalization intensifies regional integration, which in turn, stimulates economic globalization itself. Therefore, neoliberal economic globalization and regional integration are complementary, not substitute processes. As a result, economic globalization will promote intensification of regional integration groups and Regional Trade Agreements, taking into account the importance of geographic proximity and intensity of trade relations on the one hand, and unfeasibility of the creation of global institutions capable to regulate the global economy on the other hand.

4. Conclusions

Since 1990s neoliberal economic globalization has intensified regional integration processes, aiming at selective liberalization of foreign economic relations among countries. Considering recent proliferation of Regional Trade Agreements, which involves new countries, a growing trend of regional trade agreements will remain. In addition, sectors of economy covered by trade agreements will expand and therefore, “deep” trade agreements will prevail. In turn, increased number of RTAs alongside with the expanded area of economy, covered by these agreements, will support creation of new rules and procedures on multilateral level, extending to new areas, previously not covered by WTO or other international organizations. Hence, the economic globalization and regional integration are closely interrelated and complementary, not opposite processes, which reinforce each other and will lead towards more globalized economy, rather than fragmented on regional level world economy.

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