How minilateral trading agreements may affect the post-Uruguay Round world

One issue dominating recent discussions on free trade areas and other minilateral associations (preferential trade arrangements) is whether such arrangements will detract from further multilateral trade liberalization on a most-favored-nation basis. But for much of this debate empirical information has been lacking on: the global importance of minilateral arrangements that have been, or are being, concluded; the relative size of other major bilateral trade flows not affected by minilateral arrangements, and their suitability for such arrangements; the global importance of Europe in this process; the possibility that other sorts of arrangements - such as managed trade initiatives (arrangements specifying quantitative trade targets) - are a more likely threat as far as trade flows not presently covered by free trade area arrangements are concerned. The authors argue that this lack of relevant data has led to several misconceptions about the movement toward minilateralism. In particular, their statistics suggest that fears about how the further spread of free trade areas will affect world trade volumes may be exaggerated - while the dangers of these blocks becoming hostile to each other may have been underestimated. Using data recently compiled by the United Nations, the authors show that the global importance of minilateral arrangements is now far greater than is often recognized. Almost half of world trade is affected by these arrangements. But major trade flows not covered by minilateral arrangements are dominated by important country-specific problems. In particular, problems relating to high-technology trade between Asian newly industrialized countries (NICs), Japan, and the United States, as well as between Asian NICs, Japan, and Western Europe, are sufficiently important to hinder the formation of additional free trade areas. This suggests that fears about the spread of such arrangements may have been exaggerated. The authors'tabulations and analysis of the discriminatory trade barriers applied to these flows indicate that managed trade is a far more likely outcome.