Trading Blocs and Multilateralism in

the World Economy

Wieslaw Michalak* and Richard Gibb**
*School of Applied Geography, Ryerson Polytechnic University
**Department of Geographical Sciences,University of Plymouth
The resurgence of continental trading blocs throughout the 1980s will influence the nature and
evolution of the world economy in the 1990s and beyond. In this paper, we argue that classical
economic analysis of trading blocs is inconclusive, and regionalism cannot be understood in
economic terms alone. We focus on an examination of the relationship that exists between trading
bloc formation and more fundamental economic and social trends taking place in the industrialized
economies since the Second World War. Our contention is that regionalism represents one of the
most fundamental restructuring processes affecting the world economy since the principles of
international trade were established at the Bretton Woods Conference. Regionalism and multilateralism represent competing, but not necessarily mutually exclusive, principles underpinning
economic integration and trade in the global economy. The end products of this competition are
the two potentially complementary, spatial processes of trade bloc formation and globalization.
Consequently, not only globalization but also regionalism are at the center of the economic
transformation of contemporary industrial society and changing international relations. Key Words:
trade, trading blocs, regionalism, multilateralism, globalization.

ne of the most significant developments

in the world economy since the Bretton
Woods Conference in 1944 has been the
emergence of continental trading blocs. The
European Union (EU), the North American Free
Trade Agreement (NAFTA), and the slowly
emerging Asian trading bloc centered on Japan
occupy an increasingly prominent role in an ongoing process of geoeconomic adjustment
(Sopiee et al. 1987). Despite popular conceptualizations in geography and political science declaring globalization and the decline of the nation
state as the principal outcomes of these adjustments (see, for example, Kennedy 1987; Henderson 1989; Dunning et al. 1990; Cox 1992;
Robertson 1992; Dicken 1992a; Howells and
Wood 1993; Nader 1993; Thrift 1994), the continental integration of nation states into trading
blocs throws doubt on the robustness of these
interpretations (Thurow 1992; Frankel et al.
1995; WTO 1995a). According to a number of
economists and political scientists (Preeg 1989;
Belous and Hertley 1990; UN 1990a; Bhagwati
1990, 1991, 1992; Schott 1990), commitment to
the multilateral framework underpinning globalization is weakening. Despite the successful con-

clusion of the Uruguay Round and new provisions

contained in the World Trade Organization
(WTO), which replaced the General Agreement
on Tariffs and Trade (GATT) on January 1, 1995,
trading blocs can fragment world markets into
exclusive and potentially hostile camps through
unilateral protectionist trade policies (Krueger
1995). At least theoretically, the collapse of multilateralism could unleash an economic crisis
comparable to that of the inter-war Great Depression (Bhagwati 1991; de la Torre and Kelly 1992).
Despite the obvious importance of regionalism
and trading blocs to the spatial organization of the
contemporary world economy, geographers have
made few attempts to date at a systematic examination of these phenomena (Thrift 1990; Gertler
and Schoenberger 1992; Grant 1993a). Instead,
theoretical and empirical research has focused on
the role of finance and flexibility in the global
economy (Grant 1994; Leyshon and Tickell
1994). Most of the resulting interpretations stress
the alleged decline of the U.S. as the hegemonic
power and the transformation of the world economy from Fordism to a post-Fordist mode of social
regulation, flexible production techniques, and
globalization (Scott 1988; Storper and Walker

Annals of the Association of American Geographers, 87(2), 1997, pp. 264279

1997 by Association of American Geographers
Published by Blackwell Publishers, 350 Main Street, Malden, MA 02148, and 108 Cowley Road, Oxford, OX4 1JF, UK.

Trading Blocs and Multilateralism

1989; Storper 1992, 1993; Tickell and Peck
1995). Despite evidence of integration in Europe,
North America, Asia, and elsewhere, none of
these frameworks adequately address the issue of
regionalism, nor do they attempt to relate local
changes to larger-scale phenomena such as tradebloc formation and continental integration
(Tickell and Peck 1992). This is odd indeed given
that trading blocs and regionalism explicitly recognize space as one of the organizing principles of
the world economy. Surely, geographers have
something to contribute here.
In sharp contrast to the geographical discipline, the debate in economics, political science,
international relations, sociology, and other cognate disciplines about the effects of regionalism
and trading blocs on the world economy is vigorous and often controversial (Anderson and
Blackhurst 1993). One question is at the heart of
this debate: Do trading blocs promote the ultimate goal of the postwar international trade
regimeglobal free tradeor do they present an
increasingly formidable barrier to that regime?
The debate is polarized. On one side, an influential group of economists and political scientists
argue that trading blocs, by the very fact of their
existence, threaten the spirit of multilateral trade
liberalization (Krugman 1991a; Bhagwati 1993;
Hallett and Braga 1994; Winters 1993; de Melo
and Panagaiya 1993). On the other side are those
who argue that regional trading blocs contribute
to the freeing of world trade (Krugman 1991b;
1993; Anderson and Snape 1994; Gould and
Woodbridge 1993; Lawrence 1991).
The first section of the present paper therefore
examines the compatibility of trading blocs with
multilateralism. In other words, is the neo-liberal
theory of trade correct in assuming that trading
blocs are necessarily protectionist? The second
section offers a theoretical analysis of international trading arrangements and regulatory
frameworks. Some key concepts (e.g., flexible
specialization and post-Fordism) are reviewed in
the context of regionalism. The objective here is
to sketch a common ground between these concepts and the issue of regionalism. Is there a
relationship of some kind between regionalism
and flexible production methods introduced at
the local level? Our contention is that multilateralism and regionalism represent divergent
forms of international governance associated with
changing modes of national regulation. According to some, the union of Fordism and multilateralism in a world economy dominated by the U.S.

265

constitutes the foundations for the long period of

prosperity in the West (Lipietz 1987). Systemic
contradictions within Fordism have led, however,
to a new form of international governanceregionalism. While some see the post-Fordist mode
of national regulation as coinciding with the progressive erosion of the ability of states to regulate
national economies and with the alleged globalization of the world economy, our view is that the
globalization of the world economy has been overstated. National governments have responded to
globalization by weakening their commitment to
the principles of multilateral trade and allied
themselves instead into more powerful regional
trading blocs. Thus regionalism not globalization
has emerged as the alternative path to achieving
the goal of managed free trade. To be sure,
globalization is taking place, but it is not the only
process restructuring the world economy.

Regionalism versus Multilateralism

The popular perception of trading blocs is one
of discriminatory regional organizations whose
principal role is to advance the common economic agenda of member countries by protecting
domestic markets from foreign competition
(Bhagwati 1990). In this sense, trading blocs are
regarded as a direct threat to multilateralism and
to the goal of free trade established at Bretton
Woods. According to this interpretation, the international framework embodied by the
GATT/WTO, International Monetary Fund
(IMF), and the World Bank has been, or is in the
process of being, replaced by a more limited goal
of partial trade liberalization centered upon regionalism. Accordingly, the decline of commitment to multilateralism may lead to a break-up of
the global trading system and promote protectionist trading blocs whose competing geoeconomic
objectives could lead to an international crisis.
The principal trading blocsNAFTA (perhaps
extended to Latin America), the EU (including
East-Central Europe), and the emerging
Asian bloc centering on Japan (and conceivably China)will become the triad of dominant
actors in future conflicts, while the rest of the
world will become increasingly isolated. As a
prominent economist noted, given the inevitable trade frictions that will arise between large
regional trading blocswith those left outside,
such as the East Asian newly industrializing countries and Japan trying to form their own defensive

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Michalak and Gibb

blocsthe whole multilateral trading system

built up since the Second World War could unravel (Lal 1993: 350).
Closer investigation of this pessimistic scenario
suggests that the consequences of the emergence
of trading blocs are far from clear. In the 1960s
and 1970s, numerous attempts to promote regional arrangements faltered. The Central
American Common Market (CACM), the Andean Pact, and a number of regional arrangements between African countries failed to
achieve significant intraregional liberalization
and integration. This discouraging history notwithstanding, regionalism experienced a resurgence during the Uruguay Round negotiations in
the 1980s and 1990s. During the four-year period
between 19901994, no fewer than 33 new regional integration arrangements were notified to
the GATT (WTO 1995), and many existing regional arrangements, especially in Western
Europe, were deepened and widened. Of the total
of 109 regional agreements notified to GATT
between 19481994, Western European countries participated in 76. The collapse of the communist Council for Mutual Economic Assistance
(CMEA) in Eastern and Central Europe in 1991
was an additional incentive to expand regional
integration in Europe. This surge of regionalism
made the Uruguay negotiations more difficult
and contributed to its compromise outcome. Although the establishment of the WTO in place
of GATT was hailed as a great success and proof
that multilateralism was alive and well, serious
doubts remain over its ability to resolve trade
disputes and to achieve the goal of global free
trade (Heine 1993; Ruggiero 1995).
The Uruguay negotiations led to a series of
compromises which, in the end, merely delayed
the decisions necessary to maintain the multilateral framework. For example, agreements on financial services, direct foreign investment,
intellectual property, and agriculture were postponed not resolved. Nor is it clear how effective
WTO will be in dealing with intra- and inter-bloc
tensions. Mexicos financial crisis, Japans deflating economy, Americas currency, and Europes
uncertain progress toward monetary union collectively ensure a difficult climate for future negotiations on multilateral trade liberalization.
Although there are still geographers and economists who discount the significance of regionalism and trading blocs (see for example, Corbridge
and Agnew 1995), the fact remains that by the
time the WTO was created, nearly all its members

had notified GATT that they were parties to at

least one regional integration agreement. If the
Asia-Pacific Economic Cooperations (APEC)
announced objective (November 1995) of
achieving free trade by 2020 is formalized, all
WTO members including Hong Kong and Japan
will be parties to one or more trading blocs.
Although economic integration theory and
preferential trading agreements have attracted
much attention in economics and political science, geographers have had little to say on these
issues. Their neglect is premised on two mistaken
assumptions: (1) that there is little or no evidence
for the regionalization of world trade around
separate regional nodes; and (2) that evidence of
restructuring the world economy around Western
Europe, North America, and Japan is not the same
as three emerging trading blocs. As to the first
point, the relative importance of regional nodes
is evident from an examination of trading transactions using the IMFs Direction of Trade statistics (IMF 1991). Our brief summary begins with
the caveat that there are many methods, and
associated problems, for measuring global trading
patterns. While this is not the place to review the
relative merits of those different approaches,
Grant (1993a) has pointed out that the traditional measures and perspectives employed here
provide a useful tool for interpreting and forecasting trade trends.
Figure 1 depicts world merchandise trade and
the key roles therein of three regional groupings:
the EU (of twelve); NAFTA; and Association of
South-East Asian Nations (ASEAN) plus Hong
Kong, Japan, South Korea, and Taiwan. This triad
of regional blocs dominated trade in the world
economy of 1991. In that year, intra-regional
trade accounted for 38 percent of all the worlds
merchandise imports and exports. Intra-EU trade
alone accounted for 24 percent of all such trade.
Inter-regional trade is quite modest by comparison, representing just 10 percent of the worlds
merchandise imports and exports. Nearly 50 percent of all world trade occurs within or between
the three major regional nodes (representing only
twenty-five countries). When trade between this
triad of regional blocs and third countries is taken
into account (amounting to 19 percent), regionalisms dominant role becomes clear. This empirical evidence thus makes a strong prima facie case
for regionalism as one of the most influential
factors determining world-trade flows. To what
extent these regional flows represent a fundamental restructuring of the world economy is the

Trading Blocs and Multilateralism

267

Figure 1. World merchandise trade, 1991. Sources: International Monetary Fund 1992; authors calculations.

key question addressed in this paper. We will

argue that the ongoing conflict between regionalism and multilateralism represents competing
organizing principles of economic integration and
trade which are at the very heart of the economic
and social transformation of contemporary industrial society and international relations. The results of competition between these two principles
of geoeconomic relations promise to have profound and far-reaching consequences for the ongoing globalization of the world economy and the
transformation of local production districts.
The central question, again, has to do with the
consequences of regionalism for global free trade.
Unfortunately, there are no straightforward answers for a question that is one of the oldest and
most contentious issues in economics and regional science (Balassa 1962; Feld and Boyd
1980; Greenaway et al. 1989; Bhagwati 1991;
Keenwood and Loughead 1992; Mansfield 1993).
Strictly speaking, the ongoing debate about the
merits of regionalism and trading blocs is inconclusive. According to many critics, multilateralism and the WTO are virtually synonymous. The
principal aim of the WTO (and the GATT before
it) is to promote a nondiscriminatory open market
in which only prices and tariffs determine international comparative advantage among sovereign nation states. Through a process of
multilateral negotiations involving as many con-

senting countries as possible, impediments to the

free movement of the factors of production are
gradually removed. While the WTO can be
viewed as a trading bloc itself (OECD and the
World Bank 1993), the large number of member
countries belonging to the WTO makes this bloc
qualitatively different from all other forms of regionalism. Nevertheless, since not all countries
are members, the WTO, at least theoretically, is
the largest and most open trading bloc of all
(Figure 2).
According to classical liberal economists, the
goal of free trade enshrined in the WTO will lead
to the optimal utilization of the factors of production in ways that reflect variations in comparative
advantage. Such an optimal allocation will ultimately lead to an increase in collective welfare of
all participants (Lloyd 1992; OECD 1993; Finger
1993). The WTO is itself a trading bloc with the
goal of facilitating a global free-trading system, first,
by ensuring that most trade impediments are tariffbased and therefore transparent; and, second, by
the gradual reduction and removal of these tariffs.
The primary coercive weapon of the WTO is the
nondiscrimination principle supported by most favored
nation (MFN) and national-treatment regulations.
If nondiscrimination is the core regulating
principle underpinning the GATT/ WTO and
multilateralism, the latters permission of trading
blocs and regionalism under this system of inter-

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Michalak and Gibb

Contracting Parties to
the GATT October 1992.
(105 countries)
De Facto Parties to
the GATT October 1992.
(27 countries)

Figure 2. Members of the General Agreement on Tariffs and Trade, 1992. Source: GATT 1992.

national regulation is paradoxical because regionalism epitomizes the very opposite of non- discrimination. Notwithstanding GATT Article
XXIVs allowance for trading blocs, the overall
level of tariffs has been lowered significantly since
the inception of the GATT (Rugman and Verbeke 1990; Bhagwati 1992). This fact enables
supporters of trading blocs to argue that regionalism, if properly managed and supervised, can
foster the process of multilateral trade liberalization (Aho 1993; Woolcock 1993; Planque 1993).
The pertinent question, therefore, is the extent
to which regionalism promotes or erodes trade
liberalization.
Neoclassical economists clearly regard trading
blocs as a second-best alternative to multilateral free trade (Bhagwati 1988). Their arguments
derive, by and large, from the views of a Canadian
economist Jacob Viner (1950) who provided a
more or less definitive analysis of the trading-bloc
issue. Although Viners concepts of trade creation
and trade diversion were enunciated more than
forty years ago, they have been almost universally
accepted by scholars of international trade
(Tovias 1991). According to Viner, a preferential
trading arrangement promotes trade creation
when a countrys more expensive domestic production is replaced by cheaper products imported
from a participating country. Greater domestic
consumption generates additional trade and wel-

fare in the process. Conversely, trade diversion

occurs when imports of inexpensively manufactured goods from nonmember countries are replaced by more expensive imports from
participating countries. The resulting increase in
intraregional trade takes place at the direct expense of imports from outside the bloc, hence
trade diversion reduces or, at best, does not increase global welfare in this scenario. In other
words, if a trading bloc promotes trade creation,
it will also promote global trade liberalization.
This simple but powerful theory of trading blocs
survived virtually intact until the late 1980s when
the growing disparity between the theory and practice of international trade and trade regulation became painfully apparent for participants in the
prolonged and acrimonious Uruguay negotiations.
Since then the debate has grown more complex (Lawrence 1994). According to Jackson
(1993), trading blocs can actually promote global
free trade if the MFN principle is applied. Moreover, regional trade arrangements can serve as
stepping stones for building political support and
strengthening the will for negotiating freer trade
worldwide (Lawrence 1991; Summers 1991;
Krugman 1993). Furthermore, Anderson and
Snape (1994) argue that intraregional trade statistics can be misleading as, for example, when
the proportion of GDP traded within regions
increases sufficiently to promote growth not only

Trading Blocs and Multilateralism

in trade with other regions but also in the share
of GDP traded extraregionally. The world economy, in this sense, continues becoming more
integrated across geographical regions, despite a
significant increase in the intraregional trade
within Europe, the Americas, and Asia. Although
East Asia and the Pacific Rim countries do not
belong to a significant trading bloc, there are signs
of an emerging regionalism in the West Pacific
Rim (Emmerson 1994; Yoshida et al. 1994; but
see the dissenting arguments of Frankel and Kahler 1993; Saxonhouse 1993). Finally, Krugman
(1991b), Summers (1991), and Hufbauer (1990),
argue that trading blocs merely formalize the
already existing practice of geographically proximate countries, or in his terminology natural
partners, who are bound to trade with each other
more than with distant or unnatural partners.
In turn, economic historians argue that the historical evidence is ambiguous on the issue of
multilateralism (Irwin 1993). They point out that
the present preoccupation with regionalism is not
new; after all, much of nineteenth-century trade
liberalization was achieved through bilateral arrangements between the principal economies.
In contrast some scholars call for a more cautious evaluation of the impact of trading blocs,
suggesting that trading blocs tend to set higher
tariff levels and thus move further from the ideal
of world free trade (de la Cepal 1988; Krugman
1991a). Frankel et al. (1995) warn that trading
blocs consisting of entire continents may represent an excessive degree of regionalization. Since
two of the most important trading blocs, the EU
and NAFTA, practically embrace entire continents, the world economy may have already entered the phase of excessive regionalization.
The optimal path saving the goal of free trade in
such a configuration is to extend the privileges of
regional arrangements from two-country agreements (like the Free Trade Association between
the U.S. and Canada) to a wider subcontinental
bloc, then to the continental level and beyond
(Frankel et al. 1995). Perhaps, the most outspoken critic of trading blocs has been Bhagwati
(1993). He argues that the recent proliferation of
trading blocs signals the breakdown of multilateralism, at least as the first best option. Many
powerful economies are now attempting to increase the gains from trade, according to Bhagwati, by forging coalitions with geographically
proximate partners at the cost of losing the significantly smaller benefits of freer trade between
blocs of more distant trade partners. Although

269

this might not necessarily lead to a trade war

between blocs, it clearly represents a second-best
solution to the preferable MFN principle. The
largest challenge in the second-best scenario is to
resist the temptation of protectionism. Although
trading blocs do not necessarily lead to a trade war,
they certainly increase the possibility of hostile
unilateral actions (Bhagwati 1993).
In sum, classical economic analysis as well as
new trade theory are ambiguous about the outcome of regionalism. Under certain favorable political conditions, such as an unwavering
commitment to the MFN principle (even under
Article XXIV of the GATT/WTO), trading blocs
can contribute to the goal of global free trade. All
the same, they represent a second-best scenario
which, given unfavorable political circumstances,
is prone to complicate the multilateral ideal.
Clearly, classical analysis of the issue of regional
integration requires elaboration.

The Political Economy of Trading

Blocs
A general theory of the political economy of
economic integration has yet to be developed
(Gilpin 1987; Halliday 1994). Nevertheless, some
of the elements of such a theory already exist.
Hirst and Zeitlin, among others (Gertler 1988,
1992; Dunford 1990; Hirst and Zeitlin 1991;
Dicken 1992b), reviewed some of the key themes
and terminology commonly used in theories linking macroeconomic supply and demand adjustments in highly developed market economies.
The most prominent terms used to describe the
nature of the new international economy and
its spatial organization are flexibility and globalization. Theories of flexible specialization, flexible
accumulation, post-Fordism, and regulationist
ideas all stress the role of flexibility and globalization in the evolution of highly integrated economies (Amin and Robbins 1990; Webber 1991).
Technological advances in transport, communication, and digital techniques are the main facilitators of this new economic environment. A
group of institutionalist writers (Piore and Sabel
1984; Sabel and Zeitlin 1985; Hirst and Zeitlin
1991; Hirst and Thompson 1992) attempted to
incorporate the notion of flexible industrial districts into the context of a more general process
of industrial restructuring in which Fordist massproduction methods are juxtaposed with alternative business strategy characterized by flexible

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Michalak and Gibb

specialization. The key to flexible specialization is

the notion of industrial districts consisting of
small, medium-sized, and large decentralized enterprises cooperating in a series of ever-changing
networks. Consequently, flexible specialization is
at once a general theoretical approach to the
analysis of change in industrial societies and a
specific model of productive organization. It appears, therefore, that regionalism and trading
blocs can be conceptualized as an equivalent
search for flexibility on a continental rather than
a national scale. Territorial discrimination linked
to minilateralism between participating countries permits greater mobility in the factors of
production and an expansion of intersectoral
linkages demanded by flexible production and
distribution networks. At the same time, a gradual shift toward protectionist policies increases
the chances of stability in the intrabloc relations
between state and capital. Regionalism therefore
may be seen as a mode of regulation at the international scale.
The regulation school assigns a particularly
important role to local government and the nation-state in the evolution of industrial society
(Aglietta 1979; Boyer 1990; Lipietz 1993). The
central role of regulation or government-led stabilization of the economy underlines the importance
of state and government in economic development (Lipietz 1992; Jessop 1995). According to
regulationists, the economic development of industrialized countries after World War II was
made possible by a broad consensus within and
cooperation between labor and capital. This national consensus integrated political, economic,
and social relations into a conception of capitalist
industrial societya mode of social regulation
which sought the stabilization of particular patterns of production, consumption, and international relations. The resulting regime of accumulation
constitutes a coherent macroeconomic phase of
capitalist development (Tickell and Peck 1992).
Unfortunately, the key term, regime of accumulation, is loosely defined, and its precise meaning
is subject to considerable controversy (Dunford
1990; Hirst and Zeitlin 1991). In essence, capital,
government, and culture are conjoined in a complex configuration of habits, customs, social
norms, enforceable laws, and technology that
culminates in a regulatory system which guarantees the reproduction of the mode of production.
The crux of the regulationist approach is in its
fusion of the mode of regulation with the regime
of accumulation to create a stable period of eco-

nomic and social development (Lipietz 1987).

According to the advocates of this theory, the
long postwar period of economic boom during
which western European, Japanese, and North
American economies prospered arose out of such
a period of stability. Assembly-line Fordism represents the industrial component of that stability based on mass production of standardized
goods, mass consumption, and governance
through principles of Taylorist and Keynesian
management.
Somewhat disappointingly, regulationists have
failed to provide a satisfactory link between national forms of regulation and the international
regulatory framework for stability, e.g., Bretton
Woods and the GATT. The nation-state is, according to regulation theory, the basic building
block of stability, yet the focus on the state ignores
the fact that production is heavily internationalized (some would say globalized, Thrift 1994) and
that trade, including intrafirm trade and foreign
direct investment, is assuming an ever-increasing
role in the economies of the leading industrialized
countries (Cox 1987). The prime candidate for
the international regulatory framework established in the aftermath of World War II is the
Bretton Woods System. This system (and the
GATT as one of its chief components) reinforced
the stability of the Fordist mode of national
regulation in highly industrialized countries
(Corbridge 1994).
Nearly all of the principal supranational institutions regulating international trade were
created during the postwar period. By far the most
important of themthe GATTstimulated
reductions in the tariffs of an ever-increasing
circle of member countries. The opening up of
world markets instigated by the GATTs multilateral approach is certainly one of the principal
factors behind the immense success of the West
European, North American, and Asian economies. To be sure the phenomenal growth of trade
after World War II was primarily the result of the
increasing productive capacity and productivity
of highly developed economies, yet it is worth
stressing that trades rapid growth also was the
result of the GATT-led system of international
regulation which provided both stability and a
relatively coherent environment necessary for
economic planning and industrial expansion (Gill
1990). In short, the Fordist compromise, flexible specialization, and globalization are, in large
degree, the fruits of the immensely successful
postwar regulatory framework for the interna-

Trading Blocs and Multilateralism

tional economy. This powerful combination of
regulation at the level of the nation-state coupled
with multilateral trade formed the basis for a long
period of prosperity in the West and for the economic successes of many developing countries
(Preeg 1993).
The irony of the success of GATT-led international liberalization, according to regulationists,
was that it led to the current crisis of Fordism and
multilateralism. Technological change, foreign
competition, and the ever-changing nature of
production and management placed the national
mode of regulation under enormous stressa
stress compounded by the end of the Cold War,
the impetus for a new round of trade liberalization, and the opening of markets in Eastern
Europe, Russia, and China (aspiring members of
the WTO; Table 1). The historical coincidence
between Fordism and multilateralism is clear, but
the reasons why are not. Even less obvious is the
relationship between Fordisms successor and
trading blocs.

Post-Fordism and Trading Blocs

Few issues in social science are more contentious than the role of multilateralism and trading
blocs in the world economy after the Uruguay
Round. Although post-Fordism, flexibility, and
globalization are often considered the most likely
successors to Fordism and Taylorism, there is no
equivalent analysis of international relations.
Post-Fordism is not a single and coherent theory.
Instead, it is a collective rubric covering several
theories and ideas which have emerged in recent
years (Hirst and Zeitlin 1991). Although some
argue that post-Fordism represents a fundamentally different mode of regulation from Fordism
(Jessop et al. 1991; Lash and Urry 1987; Jacques
and Hall 1989; Harvey 1989), most scholars reserve room for doubt (Gertler 1988; Pollert 1988;
Sayer 1989). Whatever this new mode of national
regulation, it has coincided with a gradual emergence of various forms of regionalism and trading
blocs. In short, the economics of flexibility at the
level of the individual enterprise or nation-state
is now being extended into the international
sphere in the search for flexibility on a continental scale. Trading blocs are perhaps the most
tangible geographical evidence of this process.
Regulation theory is neither prescriptive nor
deterministic and as a result provides little in the
way of guidance as to Fordisms successor. Al-

271

Table 1. The Waiting List: Countries that Have

Applied to Join GATT/WTO
Applicants

Date Working
Party Establisheda

Albania
Algeria
Armenia
Belarus
Bulgaria
Cambodia
China
Croatia
Estonia
Jordan
Latvia
Lithuania
Macedonia
Moldova
Mongolia
Nepal
Panama
Russia
Saudi Arabia
Seychelles
Sudan
Taiwan
Tonga
Ukraine
Uzbekistan
Vanuatu
Vietnam

December 1992
June 1987
December 1993
October 1993
November 1986
December 1994
March 1987
October 1993
March 1994
January 1994
December 1993
February 1994
December 1994
December 1993
October 1991
June 1989
October 1991
June 1993
July 1993
July 1995
October 1994
September 1992
November 1995
December 1993
December 1994
July 1995
January 1995

GATT/WTO committee to consider accession.

Source: World trade: Knock, Knock. The Economist, January 13, 1996.

though regulation theorists draw generously from

Marxism and the French school of historiography
of the longue dure, the theory was explicitly designed as an alternative to more orthodox versions of Marxism epitomized by the theory of the
new international division of labor on the one
hand and neoclassical economic analysis on the
other (Lipietz 1993). According to regulationists,
the Fordist phase started to unfold in the early
1970s in response to a number of unique events
and processes. Although regulationists cannot
agree about the precise reasons for this decline,
most argue that during the 1960s, productivity
gains began to fall in most developed economies
(Moulert and Swyngedouw 1989). This combined with rising real wages in many sectors of
industrial activity and cuts in fixed capital spending tripped off a vicious circle of stagflation, particularly in the EU and North America (Sapir
1993). The trade policies of EU member-states
turned increasingly protectionist and resulted in

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Michalak and Gibb

the introduction of various nontariff barriers

(NTB), e.g., voluntary export restraints (VER),
voluntary import expansion (VIE), and the socalled anti-dumping measures (ADM). Although
some of these measures were legal, most were
designed to circumvent the spirit of GATT and
to shelter European industries from outside competition (Cable and Henderson 1994). North
American countries followed a similar policy (Gill
1990). These measures avoided the main problem, which was that European and North American industries such as consumer electronics,
textiles, automobile or steel production were unable to compete internationally. The reasons
were complex, but these included, among others,
rigid labor contracts, Taylorist management
methods, and inflexible methods of industrial design and production (Lehmann 1993). These
structural difficulties gradually started to worsen
the economic performance of the old industrial
economies in Europe and North America.
In contrast, the economies of Southeast Asia
and Japan experimented with flexibility and corporatist policies. Firms introduced new forms of
management and production, e.g., Total-QualityMonitoring (TQM), Just-In-Time (JIT) delivery
systems, and industrial robotics. Japanese industries operated within a rather different mode of
social regulation and with a more successful set
of industrial policies (an alternative critique is
presented by Beason and Weinstein 1993), competitive export practices, and domestic structural
arrangements. Much of Japans manufacturing
and services were organized into kigyo-shudan and
keiretsularge industrial groups bound together
by cross shareholdings of equity, interlocking directorates, commercial and financial relations,
and jinmyaku (personal connections). Unlike
their European and North American competitors, keiretsu ensured enormous financial, technological, and human resources that enabled the
Japanese to absorb huge losses when necessary as
well as to sustain and expand a strong presence
in strategic markets despite temporary losses.
Japan was also a remarkably cohesive society in
which collective wa [harmony] was emphasized
at nearly all levels of social relations and industrial
policies (Wolff and Howell 1992).
With the benefit of hindsight, we now see that
European and North American economies were
slow in responding to the challenges from East
and Southeast Asia (Boyer 1990; Lipietz 1992;
Wise and Gibb 1993). At first, most Western
enterprises dealt with outside competition, do-

mestic structural difficulties, and falls in productivity by increasing pricesa decision which
eventually led to a double-digit inflation and
industrial conflict. Since the Fordist mode of
regulation required a direct relationship between
standards of living and wages, each wave of inflation led to a corresponding wage increase. The
purchasing power of the core currencies fell, further reducing demand, and postwar economic
growth began to falter. Furthermore, the multilateral liberalization of trade coupled with the industrial success of Japan and several other developing
economies in Asia put European and North
American markets under severe (and unwelcome) competition. An indirect result of this
competition was the globalization of many European and North American enterprises. Among
the many innovations introduced by these global
enterprises were the relocation or expansion of
their operations abroad in order to take advantage of low-wage labor in regions such as Hong
Kong, South Korea, and Taiwanregions that
eventually and in turn evolved into fully fledged
industrial economies modeled closely after their
Western prototypes (UN 1990b, 1990c; Ariff and
Chye 1992). The bulk of their exports, meanwhile, were directed back toward the relatively
open European and North American markets.
Small wonder that the Southeast Asian governments became enthusiastic supporters of the
GATT and multilateralism (Pangestu et al. 1992;
Hodder 1994). The combined effect of these developments was such an unprecedented surge of
trade between the OECD economies that the
growth of international trade outstripped the
growth of industrial output (Keenwood and
Loughead 1992).
According to many critics, nation-states and
their respective governments began to loose control over the macroeconomic management of
their domestic economies. The Fordist mode of
regulation was threatened by the internationalization of production, consumption, and the growing flexibility of capital and money markets
(Leyshon 1992; Leyhson and Tickell 1994; Glasmeier et al. 1993). There were very few viable
alternatives left to counter this erosion of national control and regulation. Some of the most
frequently used policies included increasing exports by lowering prices to more competitive levels or adopting nontariff barriers and other
protectionist measures in a tacit violation of the
international regulatory framework. The consequences of internationalization and multilateral-

Trading Blocs and Multilateralism

ism extended well beyond the economic sphere.
Regardless of the precise nature of this mechanism, the crisis of the Fordist model of industrial
development created a new international climate
and increased calls for the protection of domestic
enterprises and, in certain cases, whole communities and sectors of the economy. The result has
been new policies of managed or fair trade and an
erosion of multilateralism and the corresponding
international regulation (Scherer and Belous
1994). In short, a new regime of international
regulation is emerging.

The Uruguay Round

The launching of the last Round of the GATT
was stimulated, to a significant degree, by the
American government, which perceived GATT
as a mechanism for addressing the problem of its
domestic deficit through a revival of the multilateral framework and the fledgling international
regulatory system (de Melo and Panagariya
1993). The Uruguay Round of the GATT was, by
far, the most complex and ambitious Round to
date. Its twenty-eight separate accords extended
multilateral rules of trade to agriculture, textiles,
services, intellectual property, foreign investment, and more. In 1995, tariffs on industrial
goods were cut by more than a third, and farm
export subsidies and NTBs are to be reduced
significantly in several stages. Moreover, GATT
itself was transformed into the WTO. Unlike
GATT, which did not have real executive powers,
WTO is a permanent organization that has
authority to settle trade disputes between members through a formalized disputes procedure,
consisting of the Dispute Settlement Body
(DSB), the Trade Policy Review Body (TPRB)
with provisions for appeals, and binding arbitration (WTO 1994).
Concurrently, however, deep cleavages have
appeared in the world trading system, dividing
countries that experienced significantly restructured costs in their most exposed industrial sectors, e.g., the U.S., Britain, and France, from
those countries that emphasized instead the need
for a new social and industrial compromise between labor and capital, e.g., Japan and Germany
(Grant 1993b). In this new mode of social regulation, policymakers focused on a new collectivebargaining contract with labor, capital, the state,
and noninflationary fiscal and monetary policies.
At the same time, the trade gap between the

273

principal economic regions started to sharpen

and to become a focus of vigorous domestic political and economic pressures (de Melo and
Panagariya 1993). In some cases, these pressures
resulted in aggressive unilateral protectionism
and policies of fair trade in open violation of the
existing rules of international trade. Examples
include the use of Super 301 legislation by the
American administration and the anti-dumping
policies adopted by the EU (Gaile and Grant
1989; McConnell and MacPherson 1994).
On the face of it, the new WTO regulations
should strengthen the multilateral regulatory
framework. However, it was precisely this multilateral opening of international markets that contributed to the restructuring and post-Fordist
pressures on many industrialized economies in
the first place. The new rules will, if anything,
increase further international competition (after
all this is precisely one of the objectives of free
trade). In other words, the pressure to restructure
and re-engineer internationally uncompetitive
sectors will become even more intense under the
WTO. One possible consequence of this pressure
may be the need to transform local production
districts and to accommodate the sometimes
painful social changes that ensue. These pressures may, in turn, contribute to the erosion of
the multilateral regime of regulation. Consequently, an increasing number of economists insist that the GATT/WTO is changing and that
world trade is regulated not by multilateralism
and market forces but by predatory pricing, strategic industrial policies, and the monopolistic
behavior of multinational enterprises (Tyson
1987, 1992; Krugman 1992; Hirst and Thompson
1992)practices that are often used to justify a
significant rise in protectionism and unilateral
trade policies (Grant 1993a; Krueger 1995). The
history of the Uruguay Round of negotiations is
testimony to the rocky transformation of the international regulatory framework.
Regulationists argue that the postulated decline of Fordism and the parallel rise of postFordism and flexible specialization arose from a
complex and unique set of circumstances starting
with the inflationary shocks of the 1970s and the
macro-economic policies of the leading industrialized countries. The crisis of Fordism exposed an
inability of this mode of regulation to deal with
the trend toward a large and complex international division of labor and trade (Sayer 1989).
The phenomenal growth of multinational enterprises is the most tangible evidence of that trend.

274

Michalak and Gibb

In short, the crisis of the Fordist mode of regulation had become truly international. But once the
postwar geoeconomic balance started to shift, the
old system established at Bretton Woods accelerated its transformation. The complex and acrimonious Uruguay negotiations were simply not
sufficient to resolve all of the emerging trade
conflicts between multinational enterprises, nation-states, and trading blocs.
In response to the competitive challenge of
Southeast Asian economies, key western producers adopted a whole range of flexible production
methods which promoted a reorganization of entire production systems. Western firms incorporated various technological and managerial
innovations including digital manufacturing
techniques, vertical disintegration of producer
services, and flexible working hours replete with
a whole array of new and sometimes undesirable
social and political side effects (Cooke and Morgan 1993). New industrial relations and production techniques enhanced significantly the ability
of businesses to secure more optimal inputs. The
emergence of the EU, NAFTA, and Asian triad
represented the institutional response to the contradictory requirements of flexibilitythe need
for preserving and enhancing the possibilities of
mobility in the factors of production while limiting the threat of foreign competition (Gertler and
Schoenberger 1992). Thus regionalism may be
viewed as the result of a set of national economic policies that seek to regulate economic
activity in a strictly defined space in order to
reduce the threat of foreign competition and to
preserve the advantages of economic flexibility
and large markets. From this standpoint, trading
blocs are the building blocks of the newly emerging regime of international regulation. Although
these blocs are not necessarily protectionist and
do not, therefore, contradict multilateralism,
they nevertheless introduce a new level of uncertainty into inter-bloc competition. In this sense,
multilateralism and regionalism are at once two
competing and complementary processes associated with the transformation of international
economic relations.

Conclusion: Regionalization and

Nation-States
Regionalism and trading blocs are a significant
component of the changing nature of the inter-

national trading system. Our central contention

is that the globalization hypothesis, so frequently
espoused to theorizing about the contemporary
economy, has been overstated (Peck and Tickell
1994; Corbridge and Agnew 1995). Far from
being merely powerless spectators, nation-states
have responded to globalization by weakening
their commitment to the principles of multilateral
trade and engaging the process of regional integration. The Director-General of the WTO has
made the point precisely: regional agreements
are becoming more and more important in terms
of trade rules, and for the political weight they
represent in international negotiations. These are
elements which could break up the parallelism
between regional and multilateral progress; there
is a risk that antagonism between regional groups
could make progress in the multilateral system
more difficult (Ruggiero 1995:10). We agree;
regionalism and not globalization is emerging as
the main path to achieving the goal of global free
trade. The nation-state through regionalization
is instrumental in the transformation of the multilateral international framework. Contrary to
commentators who insist that nation-states are
becoming increasingly irrelevant, we suggest that
national states allied into regional blocs are the
principal agents in reconstructing the international framework (Corbridge and Agnew 1995).
Given the nation-states strong and historic role
in structuring trade activity, the formation of
economic alliances between nation-states into
trading blocs is the logical institutional outcome
and the most recent example of the states powerful and ongoing leverage.
Multilateralism and regionalism are, to a certain degree, contradictory and associated with
different modes of regulation and spatial outcomes. Indeed, it can be hypothesized that multilateralism (regulated through the GATT) and
Fordism combined to forge a solid foundation for
postwar economic advance. We are not the first
to suggest that multilateralism and Fordism may
be intrinsically linked. The contradictions encapsulated in the more anarchic effects of multilateralism (e.g., flexibility or globalization)
contributed to the crisis of Fordism and to multilateralism itself as a principle of international
regulation. The multilateral framework was further jeopardized by competition from Japan and
Southeast Asia. The gradual change of Fordist
production methods into a more flexible mode of
production and regulation contributed to a new
international regulatory climate in which calls for

Trading Blocs and Multilateralism

the protection of domestic markets evolved into
aggressive policies of fair and managed trade.
The ascent of this new mode of social regulation,
although far from complete, has thus far coincided with regionalism and the formation of trading blocs. It is difficult to conclude that the two
are causally linked, but we incline toward that
opinion. In a key sense, trading blocs represent
the spatial expression of the changing regime of
international regulation. That said, regionalism is
not identical with post-Fordism, flexible specialization, or whatever else will follow Fordism. After
all, the central argument for continental integration is the need for the regulation and coordinat i o n of two con trad ictory goa ls in the
international economy: first, the need to pursue
international flexibility in labor and capital markets; and second, the need to protect domestic
markets from outside competition.
Trading blocs are indisputably complex phenomena, and flexibility, globalization, or protectionism alone cannot explain their recent growth.
The successful conclusion of the Uruguay
Round, notwithstanding, it is as unlikely that
trade blocs will disappear as it is that international trade relations will return to their old
pattern. Unique historical circumstances combined with changes in the nature of multilateralism
have caused an irreversible erosion of confidence in
the principles of multilateralism and laid the
foundations for various forms of regionalism.
Trading blocs are not the result therefore of
some universal laws of capitalist development
so much as they are the outcome of a complex
web of coincidental historical, economic, and
political circumstances.
Regionalism therefore represents a powerful
process that, in tandem with globalization, is fundamentally transforming trade relationships in
the world economy. Trading blocs will surely play
an increasingly significant role in shaping this
new form of international governance. Regionalism also has profound consequences for national
modes of regulation. This does not imply, however, that multilateralism is any less relevant. On
the contrary, the Uruguay negotiations provided
a powerful boost to the multilateral mode of
international regulation. Nevertheless, the new
multilateralism is likely to be dominated by trilateralism between the largest trading blocs. The
power relations between this triad will dominate
future international relations. Countries outside
these blocs will be relegated severally to bilateral
negotiations with each bloc. Although an all-out

275

trade war between the principal trading blocs is

unlikely, the potential for conflict is increasing.
The likely scenario in the medium term is a slow
but persistent transformation of multilateralism
coupled with increasingly unilateral and interventionist policies. The emerging forms of trade
relations based on regionalism and trading blocs
will, it seems, determine the nature of geoeconomic relations for the foreseeable future.

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Correspondence: School of Applied Geography, Ryerson Polytechnic University, 350 Victoria Street, Toronto, Canada
M5B 2K3, email michalak@acs.ryerson.ca (Michalak); Department of Geographical Sciences, University of
Plymouth, Drake Circus, Plymouth PL4 8AA, U.K., email rgibb@plymouth.ac.uk (Gibb).