The recent growth of regional integration agreements (customs unions and free-trade areas) has been accompanied by a mounting concern for the health of the multilateral trading system. Much of this concern stems from the generally accepted view that the current WTO rules do not provide an adequate set of disciplines on regional arrangements. The EU has been one of the main driving forces behind the recent growth of regionalism, but its interests are increasingly affected by regional arrangements formed between other countries.

This paper argues that the lack of clear WTO disciplines on regional arrangements may have already had adverse consequences for the EU. Given that the EU has declared its support for a clarification of the rules, the paper tries to identify where its priorities should lie. It is argued that there should be two such priorities. The first should be to define more precisely what is meant by an "applicable" tariff. It has never been clear whether this refers to applied tariff rates or to bound ceilings. Because of this ambiguity, Mexico was able to raise applied tariffs (within bound ceilings) on imports from the EU and other third countries in response to the peso crisis, whilst lowering tariffs on her NAFTA partners. Secondly, the EU and other major WTO players need to address the problem of different rules of origin emerging from the proliferation of regional arrangements.