For the past 12 years, the World Trade Organization has demonstrated its utter uselessness in lowering barriers to the movement of goods, services, and money. Trying to reach consensus with so many members simply doesn't work. Regional trading blocs are clearly the way forward, but progress in that area has been halting at best -- until now.
The general case for trading blocs is easy to make: A bloc with uniform rules for trade and investment spurs new economic activity both inside and out. Companies inside the bloc can move merchandise duty-free and without customs clearances; they can also set up accounts in other countries with no legal restrictions. Foreigners can use the same rules for trade, foreign investment, and the movement of funds across the entire bloc. Multinational companies no longer need new lawyers, accountants, insurers, and bankers in every country. The more rules shared by the member countries, the easier it is to do business in each of them.
Despite the growth in emerging markets, big economies continue dominate global trade, in part because of the challenge of dealing with scores of small countries. In 2001, world merchandise exports amounted to about $6 trillion, of which the United States, the current countries of the European Union, Japan, and the BRIC countries (Brazil, Russia, India, and China) shipped about 69 percent. By 2011, global exports had almost tripled, but the same countries were still responsible for about 64 percent of them.
To break the big economies' stranglehold on global trade, small countries need to bloc up. Plenty have started moving in this direction, often citing the European Union as the example to follow in trade, if not in monetary policy. Yet there is no counterpart to the EU's free trade zone today, because the regional hopefuls are making the same mistake as the World Trade Organization: trying to get everyone under the same big tent from the very beginning. As the WTO has found, moving all the members of a large group past square one is pretty much impossible.
This is where the EU's example is especially important. The EU started with a core group of just six countries and then added new members that could meet the same economic and legal standards. By creating a leader-follower dynamic, the EU generated powerful incentives for countries to open their markets, crack down on corruption, and bolster protections for investors. It ran into trouble only when it started to relax these standards and incentives for political reasons (see: Greece, Bulgaria).