Multilateral Trade Liberalization, Political Disintegration, and the Choice of FTAs vesrus Customs Unions

This paper combines two sets of arguments in order to examine the choice betweendifferent types of regional agreements. First, Ethier (1998, 1999) argues that the new‘open regionalism’ should be viewed, not as affecting multilateral trade liberalization(MTL), but as a result of MTL. Second, Alesina et al. (2000) argues that globalliberalization leads to political disintegration. It is argued here that these two sets ofarguments may help explain why FTAs have proliferated compared to customs unions(CUs), and why North-South regional agreements are more likely to be FTAs whileSouth-South agreements are more likely to be CUs. We also examine a number of caseswhere CUs led to losses for some members or to conflict between members when thismight have been avoided if the member countries had formed FTAs.