Preferential Trading Agreements: Friend or Foe?

Preferential trading agreements (PTAs) have proliferated inexorably during recent years. Virtually all countries are members of a trade bloc and many belong to more than one; more than two-fifths of world trade takes place within such agreements; PTAs are often advanced as a route to development for poor countries, both PTAs with other poor countries and with richer neighbors. This chapter introduces some of the main arguments that have been advanced for and against such regionalism, especially, because this is my principal interest, as a tool of development policy. It briefly considers not only the traditional economic issues such as trade creation and trade diversion, but also more recent economic arguments such as whether PTAs stimulate investment and growth or promote economic and political credibility, peace, and stability. PTAs matter for individual countries: for potential members there are questions of whether to join (or perhaps with whom to join) and on what terms; for nonmembers, questions of whether others' PTAs will have adverse effect on them. In addition, PTAs matter systemically: here the issue is whether they strengthen or weaken the multilateral trading system that has served the world well for the past six decades. In the terminology of Baldwin's (2008) excellent recent survey, there are both “small-think” (individual) and “big-think” (systemic) dimensions to the question of regionalism, although I do not accept the implication that the former are uninteresting or unimportant.