national protection. therecouldbealossofproductive efficiency. especially wherelocalfirmscantacitly sharemarkets. Whether regional tradeliberalization willhelpdepends onhowefficient othersuppliers withintheregionareandthe natureandheightofbarriers removed. ~insinexportmarkets andimproved termsoftrade 89.Thetraditional analysis ofgeographically discriminatory trading arrangements assumedperfectly elastic supply (constant costs) onthepartofexporting Countries, sothatanywelfare gainswouldbeappro~riated b~thelibe:alizin g. Country's consumers. Theresulting focusofeconom~c analys~s onthe1mport s1de ofthearrangement. however. istheopposite ofactualpolicymotivation -namely. exportgrowth. Inpractice. exporters favoured bydiscriminatory liberalization -27-gal.'nersfromsuchanarrangement, through higher pricesaretheonlyunambiguous andincreased exports. 90.Sincethetheoretical analysis ofregional blocsisambivalent foroutcomes OD livingstandards within theblocs, agreatdealofeffort has~eendevoted to empirical studies oftrading blocs. Theresults ofthesestudles aresomewhat less ambivalent. 91.TheEuropean Community hasbeenatthecentre ofregional blocstudies, Its tariffreductions onmanufactured goodswerelargely non-discriminatory aspartof themultilateral tradenegotiations and,thus,gaveopenaccess toothercountries totheECmarket formanufactures, asdidEFTA'stariff reductions. TheEC's CommonAgricultural Policy, whichhasbeendiscriminatory, hasincontrast resulted inhighbarriers against therestoftheworld. Ithasbeencostly intermsofEC employment, ECbudgets andtoECconswners andhasimposed highcostsontherest oftheworld. 92.Functioning tradeblocsamongdeveloping countries havealsobeenstudied intensively, although manyarrangements existmoreonpaperthaninreality, Where developing country trading blocshavebeenheavily protectionist, theirprincipal effecthasbeentradediversion rather thantradecreation. Although someprivate firmsachieved highprofitability, protectionism hasreduced income andincreased inequality andpoverty. 93.Unfortunately, thehopethatthedeveloping countries thatcouldnotsucceed inimportsubstitution inindividual markets could, byutilizing economies of scale,industrialize inaregional blochasproved unfounded. Someoftheblocs weresimplytoosmallforrealistic economies ofscale. Countries atdifferent levelsofdevelopment orwithdifferent political philosophies couldnotagreeon theco-operation necessary forregional blocmanagement. Rulesoforigin andother administrative problems haveplagued theblocs, sothattodatemanyofthemhave notyetbecomeeffective. Attempts todivide manufacturing industries amongbloc members floundered. 9~. T~erenewed, impetus forblocformation hascaused concern because ofthetrade dl.vertl.ng potentl.al ofrecently formedblocs. Amongdeveloped market economies the enlargement oftheEC,theformation oftheCanada/United States andAustrali~~v z:al~nd blocsandoftheIsrael/United States blochaveaddedtodiscrimination W1.ftfhl.nttbhe 91°arnbba~trading system. Onlyiftheseblocswereopentoallwouldtheir eecs eunl.guoI't'usyPOSl.l.ve.Then,ofcourse, therewouldbenoneedforblocs. HopefUlly, mUltilateral pressures will k sothatincome growtheffects willdominate. maetheseblocsincreasingly open, 95,Mostproposals fornewregional arrStates andEastAsiancountries, arise angements, notably between theUnited liberalization impetus. NotanIisth~rombilateral imbalances rather thanfro:na theseinitiatives donotap/pea Yth s a poorbaseforstimulus totradebut,r0avesuffi i tTherecentdiscussions between thU ' c ensupport tobecome effective.. en1tedStates dJ Yconsl.derable advance andsophistl.' at" anapan,however, showedaver. clonl.ntheir f .domestl.c policies thatarethecause f ocusonthoseofeachother 5 otheirmutual trading difficulties. 96.Proposals forstrengthening regional countries arebasedontheviewthatinextr~ding arrangements amongdeveloping become moreefficient through 1 ' perl.enced producers canlearntocompete,earnlng-by_do'J.ng,benefit fromeconomies ofscale -28-andthesharing ofexperience within atrading blocasastagetomoreopen
**Analysis**
The text appears to be discussing the effects of regional trade liberalization on economic development, particularly in the context of developing countries. It highlights the potential benefits and drawbacks of regional trade agreements, including the creation of trade blocs, and the impact on income, employment, and poverty.

**Category**
International trade