Regionalism versus Multilateralism: The Case of the European Union Trade Policy

Abstract

In this article, we use a Computable General Equilibrium (CGE) model to assess the effects of possible agreements between the European Union (EU) and different partners, namely India, Mercado Común del Sur (MERCOSUR), and the United States of America (USA).We evaluate the impact of the Free Trade Agreements (FTAs) by themselves, assess their mutual compatibility, and compare them with a scenario including all bilateral agreements as well as a benchmark global free trade scenario. In 2006, the EU decided to abandon its moratorium on negotiating new FTAs. Since then, numerous negotiations have been started. In particular, the EU joined the scramble for preferential market access by launching bilateral negotiations with both individual countries and regional sub-groupings. The discriminatory character of these agreements is controversial in economics, not simply because of the classic 'Vinerian' view that they can divert rather than create trade, but also because of the unresolved disagreements on when a regional trade agreement is likely to precede, rather than preclude, more global agreements. In this article, we use a CGE model to assess the effects of possible agreements between the EU and different partners, namely India, Mercado Común del Sur (MERCOSUR), and the USA. We evaluate the impact of the FTAs by themselves, assess their mutual compatibility, and compare them with a scenario including all bilateral agreements as well as a benchmark global free trade scenario. This allows us to provide a quantitative comparison of the most important arguments asserting that bilateral agreements advance or hinder multilateral trade relations.