Regionalism and the World Trade Organization: Is Non-Discrimination Passe?

The principle of non-discrimination as enunciated in its Articles I on General Most Favoured Nation Treatment (MFN) and III on National Treatment (NT) is the foundation of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). Yet, articles of GATT included many exceptions to MFN, of which one of the most serious was Article XXIV relating to Customs Unions (CU) and Free Trade Areas (FTA). Clearly there was a tension, if not contradiction, between the fundamental principle of nondiscrimination and inherently discriminatory preferential trading arrangements (PTA's) such as CU's and FTA's. This tension was not a serious practical one as long as a few PTA's were proposed, let alone implemented, as was the case four decades until the start of the Uruguay Round of multilateral trade negotiations in 1986. The continuing proliferation of proposed PTA's covering several regions of the world since then is a potential threat to progress towards a non-discriminatory multilateral trading system. The paper begins with a discussion of the reasons for the failure of the Working Party mechanism set forth in Article XXIV for examining the consistency of proposed PTA's with GATT. It then briefly surveys the recent literature on regionalism and multilateralism, focusing more on the issues raised than on analytical models. It critically examines the concept of "open regionalism" that has been enthusiastically advanced by the United States in particular and finds it problematic, if not an oxymoron. The paper concludes with a discussion of how further progress towards a nondiscriminatory world trading system could be made, even as preferential regional liberalization initiatives proliferate.