Introduction

Regionalism has been an important phenomenon in the world of international trade in the last decade. Groups of countries, typically geographically concentrated, are banding together to liberalise trade and investment among themselves. The EU is surely the furthest along, with relatively liberal provisions for labour migration added to trade and investment liberalisation.

One interesting and relatively novel feature of some of the new regional trade agreements (RTAs) is that they combine partners of very different levels of development. Typically this was not the case during previous decades, when such agreements tended to be among countries of similar per capita income levels. The NAFTA was pioneering in this respect, and may be expanded to include other Latin American countries in the next few decades. Similarly, the EU will surely consider substantial liberalisations in the future with countries from Eastern Europe and the former Soviet Union.

Factors which motivate and encourage these new ‘North–South’ or ‘East–West’ agreements may also differ from the older agreements among highly developed countries. The latter were in large part motivated by the objective of creating large internal markets in order to capture scale economies and other production efficiencies. But the newer agreements have a somewhat different focus. First, the developed partner(s) may be seeking a low-wage partner who can provide low-cost labour for labourintensive tasks of the developed country's firms. The less-developed partner(s) may be seeking access to inward investment and newer technologies. A somewhat more subtle motive for the less-developed country (LDC) is to obtain ‘insurance’ against capricious policy changes by the developed countries.