DP748 | Holes and Loopholes in Integration Agreements: History and Prospects

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It often appears self-evident that regional integration arrangements (RIAs) result in more far-reaching liberalization of intra-bloc trade than is possible if countries restrict themselves to a multilateral approach. This paper considers whether such arrangements do in fact imply, or facilitate, greater liberalization of trade flows among member countries than that achieved (or sought) in the multilateral (GATT) context. The underlying hypothesis is that the political-economy forces that block far-reaching liberalization in the multilateral context also remain robust and largely decisive in sculpting RIAs. The holes and loopholes - exceptions, sectoral exclusions, market-sharing arrangements and escape clauses of various kinds - embodied in major RIAs are examined to assess the degree to which existing RIAs have achieved liberalization beyond the prevailing multilateral trade policy regime. A number of lessons regarding the likely prevalence of, and scope for, holes and loopholes in alternative types of RIAs are drawn from the historical overview.