Sub-Regional Trading Arrangements APEC is a regional grouping. Its hallmark is “open regionalism” embraced in the Bogor Declaration. Open regionalism was designed to allow differential progress toward trade liberalization yet to ensure that trade diversion caused by liberalization among a few would not overwhelm benefits of trade creation among those liberalizing. In the environment of the New Economy where productivity gains are enhanced through liberalization and openness, such open regionalism is paramount, not only for the original reason, but more importantly because those “left-out” of exclusive arrangements are more likely to fall behind.
In the contest of the digital, productivity, and income divides in APEC such an outcome would be terrible. Some suggest that the plethora of sub-regional trading arrangements (SRTAs) is an effort to preserve the voluntary non-binding approach, still make progress toward the Bogor goals, and achieve the liberalization contained in the Osaka Action Agenda. The relationship between regional trade arrangements and multilateral trade agreements (are RTAs stumbling blocks or building blocks) has a long history that need not be reviewed here.
54 Recent analyses of the scope and inclusiveness of the current crop of SRTA in the APEC context add new dimensions to the previous research that are worth mentioning here because of their relationship to the New Economy. On the “building block” side, some of the SRTAs have considered more extensive liberalization of services sectors and have focused on trade facilitation devices including mutual recognition or harmonization of standards, customs procedures, business law, and so on. All of these are of increasing importance in the New Economy. To the extent that SRTAs formulate concensus approaches that are then expanded throughout the APEC region, they act as building blocks.
On the “stumbling block” side, however, is the potential for each SRTA to promote “its own” standards, which can raise costs and be just as detrimental to inclusiveness as a differential tariff barrier. The rise of the SRTA adds a third block-type problem—of the so-called “spaghetti bowl”type. 55 That is, the activities of a single firm are increasingly likely to take place in more than one SRTA member, with trade crossing more than one SRTA boundary. The requirements for being aware of and following more and more rules raises the cost of engaging in trade, even if the rules do not preclude trade.
This could impede the productivity gains of the New Economy as well as favor large multinational corporations (who have whole departments to interpret trade rules) and hinder small and medium-size enterprises. This recent research on the range of proposed sub-regional trading arrangements make it clear that the gains are relatively small (compared with multilateral liberalization). Yet there is the 54 See Jeff Frankel, Regional Trading Bloc in the World Trading System, Institute for International Economics: Washington, October 1997.
55 The “spaghetti bowl” metaphor was first used by Jadish Bhagwati, David Greenaway and Arvind Panagariya to describe fragmentation associated with different rules of origin. See reference to the broader issues in Robert Scollay and John P. Gilbert (2001), New Regional Trade Arrangements in the Asia-Pacific?, Institute for International Economics: Washington DC, page 13. - 36-