Regionalism and trade creation: The case of NAFTA

Preferential Trade Areas (PTA) were historically limited to arrangements within Western Europe, among developing countries, and trade preferences by developed to developing countries. 1 Because the developing-country arrangements, undertaken principally in Latin America and Africa, were largely ineffective and trade preferences by developed to developing countries were limited, effective PTAs were confined to the two arrangements in Western Europe: the European Community (EC) and the European Free Trade Area (EFTA). The limited role for PTAs meant that the architects of the global trading system, i.e., the General Agreement on Tariffs and Trade (GATT), did not have to fear that regional arrangements might undermine the multilateral process of trade liberalization (Panagariya, 1998).