REGIONAL TRADE AGREEMENTS 
Regionalism and the multilateral trading system 

Most WTO members are now also parties to regional trade agreements (RTAs). These have expanded vastly in number, scope and coverage and their number is still growing. It is estimated that more than half of world trade is now conducted under preferential trade agreements. RTAs are found in every continent. Among the best known are the European Union, the European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA), the Southern Common Market (MERCOSUR), the Association of Southeast Asian Nations (ASEAN), and the Common Market of Eastern and Southern Africa (COMESA).

From its inception, the GATT — and now the WTO — has allowed member countries to conclude customs unions and free-trade areas, as an exception to the fundamental principle of non-discrimination set in the most-favoured-nation clause of Article I. Conditions for trade in goods were set in GATT Article XXIV. The main principle is that the purpose of a RTA should be to facilitate trade between the constituent countries and not to raise barriers to the trade of other WTO members not parties to the RTA. During the Uruguay Round, Article XXIV was clarified to some extent and updated by an Understanding of interpretation. Preferential trade arrangements on goods between developing-country members are regulated by an “Enabling clause” dating from 1979. For trade in services, the conclusion of RTAs is governed by GATS Article V.

Non-reciprocal preferential agreements involving selected developing and developed countries require WTO members to seek a waiver from WTO rules. Among the best known examples of such agreements are the US-Caribbean Basin Economic Recovery Act and the Cotonou Agreement recently signed by the EC and the ACP countries to replace the Lomé Convention; the waiver for the latter is still under consideration in the WTO.

Work within the Committee on Regional Trade Agreements back to top

During the GATT years, the examination of RTAs was conducted in individual working parties. In order to ensure consistency in their examination, the General Council established in February 1996 a single Committee to oversee all RTAs, the Committee on Regional Trade Agreements (CRTA). In addition to examining individual regional agreements, another important duty of the Committee is to consider the systemic implications of the RTAs for the multilateral trading system and the relationship between them. The Committee is also mandated to develop procedures to facilitate and improve the examination process and to ensure that the reporting on the operation of the regional agreements is adequately carried out by the parties to the agreements.

To date, over 200 RTAs have been notified to the GATT/WTO. Of these, 121 agreements notified under GATT Article XXIV, 19 agreements under the Enabling Clause and 12 under GATS Article V are still into force today. The CRTA has currently under examination more than 100 agreements.

• Since its establishment, the CRTA has succeeded in structuring and improving the examination process, in particular with respect to schedules for examination and the standardized presentation of basic information concerning RTAs. In the last three years, the CRTA has endeavoured to find ways to evaluate each agreement through its assessment of the consistency of each examined RTA with the corresponding WTO provisions. These legal yardsticks, however, are open to different readings by members and no consensus on this account has yet been found. Thus, there is an increasing backlog of reports on the examination of individual RTAs.

• The expansion and extent of regional trade agreements make it important to analyze whether the system of WTO rights and obligations as it relates to regional trade agreements needs to be further clarified. There is no common understanding among WTO members on whether RTAs favour or contradict the development of the multilateral trading system, whether they function as “building blocks” or “stumbling blocks”. One view is that RTAs, by moving generally at a faster pace than the multilateral trading system, represent a way of strengthening it. The positive effect of RTAs on the integration of developing countries in the world economy is also emphasized. Other members consider that, in today’s circumstances, a redefinition of the relationship between RTAs and the multilateral trading system is required, to achieve a better synergy between the two. It is argued that a further re-interpretation of rules drafted 50 years ago would not suffice to take into account the fundamental changes observed in the nature and scope — both geographical and in coverage — of RTAs and their increasingly overlapping membership.

What is at stake? back to top

Issues raised by the regionalism debate are pluri-dimensional and inter-linked. Some are primarily legal. For example, Article XXIV requires that “substantially all the trade” between the constituent members be covered by the RTA, and the same condition is laid by GATS Article V which requires a “substantial sectoral coverage” in services. But there is no agreement among members on the meaning of these wordings, and in fact many agreements omit from their coverage large and sensitive areas such as agriculture and textiles. Hence the difficulties encountered by WTO members in assessing consistency of RTAs.

Other issues are more institutional in nature and highlight possible discrepancies between rules in RTAs and in the WTO system. Trade rules have, over time, evolved from tariff reduction into regulatory policy, both at the regional and at the multilateral level. This is true, for instance, in such areas as anti-dumping, subsidies, or standards; the more so since some recent RTAs include provisions not covered by the WTO such as investment or competition policies.

Finally and most importantly, there is the economic dimension. Today, this goes far beyond the effects of tariff preferences on RTA members and third parties. Rather, given the large and increasing number of free trade agreements and their overlapping membership, at issue is the impact of regional agreements on the shaping and development of world trade itself. Whatever happens at Doha, this will be one of the most important challenges that trade policymakers in all continents will have to face over the next few years.

At Seattle, some WTO members wanted to include on the agenda of the WTO Ministerial Conference a review of GATT Article XXIV and GATS Article V. With the increasing backlog of examination reports not agreed and the question of the consistency of important RTAs examined vis-à-vis WTO rules, the relationship between regionalism and multilateralism has become a critical systemic issue which is likely to need a political push in the next WTO Ministerial Conference in Doha.