Objectives

Preferential trade agreements (PTAs) are now in vogue. Even as multilateral approaches to trade liberalization – through negotiations organized by the Geneva-based multilateral organization, the General Agreement on Tariffs and Trade (GATT), and its more recent incarnation, the World Trade Organization (WTO) – have made progress in reducing international barriers to trade, various countries have recently negotiated separate preferential trade treaties with each other in the form of GATT-sanctioned Free Trade Areas (FTAs) and Customs Unions (CUs). Among the more prominent are the North American Free Trade Agreement (NAFTA) and the MERCOSUR (the CU among the Argentine Republic, Brazil, Paraguay, and Uruguay).

Although by no means historically exceptional, this wide-spread implementation of PTAs does contrast strongly with the recent history of international trade relations. After the establishment in 1945 of the International Trade Organization (the ur-GATT) as a multilateral forum for trade-policy negotiations, few preferential treaties were initiated in the early post-war period. The European Community (EC), established subsequent to the 1957 Treaty of Rome, was a nearly singular exception with few successful imitators.

Many observers have argued that GATT negotiations were making such inroads on trade barriers during the early postwar period that PTAs fell out of fashion. In the period 1945–1975, trade barriers were reduced substantially through several multilateral negotiation rounds, each involving a growing number of member countries. This success has itself been attributed to a fundamental principle of the GATT: non-discrimination.