Introduction

In the 1990s the creation of preferential trading groups (PTGs) in the global economy has become highly controversial, both among scholars and in the body politic of affected countries. Regarding the former, because global free trade maximizes international efficiency by providing a global division of labour, economists argue that a world without barriers to trade — that is no preferential treatment favouring domestic producers over foreign producers — would be one in which world economic welfare would be greatest. Hence, PTGs are inferior to multilateral agreements under the General Agreement for Tariffs and Trade (GATT), for non-discriminatory free trade dominates free trade areas that do discriminate (between member and non-member countries). However, an increasing number of economists maintain that PTGs can be used as an effective complement to trade liberalization under GATT. Also, they note that advocacy of free trade in the 1990s goes well beyond mere liberalization of tariffs, as has been done traditionally under GATT, to include a host of other issues such as non-tariff barriers, subsidies, trade in services, etc., which are far more difficult to change, especially in the light of the tremendous diversity of GATT's 117 member states. PTGs are easier to negotiate because they involve fewer countries which usually have relatively similar interests. In short, the advocates of PTGs tend to agree that free trade is best, but recognize that the proper comparison is not between PTGs and multilateral free trade, but rather between free trade and the (highly imperfect) status quo. This division in the discipline of international trade is one of the most dramatic in recent memory.

Moreover, in the United States and elsewhere in the developed world outside of the European Union (ELI) — formerly the European Community, or EG — the PTG option is relatively new, at least with respect to domestic politics.