Topics handled by WTO committees and agreements
Issues covered by the WTO’s committees and agreements

REGIONAL TRADE AGREEMENTS: SCOPE OF RTAS

Scope of RTAs

Regionalism is described in the Dictionary of Trade Policy Terms, as “actions by governments to liberalize or facilitate trade on a regional basis, sometimes through free-trade areas or customs unions”.

In the WTO context, regional trade agreements (RTAs) have both a more general and a more specific meaning: more general, because RTAs may be agreements concluded between countries not necessarily belonging to the same geographical region; more specific, because the WTO provisions which relate specifically to conditions of preferential trade liberalization with RTAs.

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The coverage and depth of preferential treatment varies from one RTA to another. Modern RTAs, and not exclusively those linking the most developed economies, tend to go far beyond tariff-cutting exercises. They provide for increasingly complex regulations governing intra-trade (e.g. with respect to standards, safeguard provisions, customs administration, etc.) and they often also provide for a preferential regulatory framework for mutual services trade. The most sophisticated RTAs go beyond traditional trade policy mechanisms, to include regional rules on investment, competition, environment and labour.

What all RTAs in the WTO have in common is that they are reciprocal trade agreements between two or more partners. They include free trade agreements and customs unions, notified under Article XXIV:7 of the GATT 1994, and paragraph 2 (c) of the Enabling Clause, and Economic Integration Agreements under Article V:7 of the GATS. Information on regional trade agreements notified to the WTO is available in the RTA Database. 

Preferential Trade Arrangements (PTAs) in the WTO are unilateral trade preferences. They include GSP schemes,  non-reciprocal preferential schemes for products from LDCs only, as well as other non-reciprocal preferential schemes that have been granted a waiver by the General Council (such as AGOA or CARIBCAN). Information on preferential trade  arrangements notified to the WTO is available in the PTA Database.

 

A note of Caution:

RTAs can complement the multilateral trading system, help to build and strengthen it. But by their very nature RTAs are discriminatory: they are a departure from the MFN principle, a cornerstone of the multilateral trading system. Their effects on global trade liberalization and economic growth are not clear given that the regional economic impact of RTAs is ex ante inherently ambiguous. Though RTAs are designed to the advantage of signatory countries, expected benefits may be undercut if distortions in resource allocation, as well as trade and investment diversion, potentially present in any RTA process, are not minimized, if not eliminated altogether. An RTA's net economic impact will certainly depend on its own architecture and the choice of its major internal parameters (in particular, the depth of trade liberalization and sectoral coverage). Concurrent MFN trade liberalization by RTA parties, either unilaterally or in the context of multilateral trade negotiations, can play an important role in defusing potential distortions, both at the regional and at the global level.

The increase in RTAs, coupled with the preference shown for concluding bilateral free-trade agreements, has produced the phenomenon of overlapping membership. Because each RTA will tend to develop its own mini-trade regime, the coexistence in a single country of differing trade rules applying to different RTA partners has become a frequent feature. This can hamper trade flows merely by the costs involved for traders in meeting multiple sets of trade rules.

The proliferation of RTAs, especially as their scope broadens to include policy areas not regulated multilaterally, increases the risks of inconsistencies in the rules and procedures among RTAs themselves, and between RTAs and the multilateral framework. This is likely to give rise to regulatory confusion, distortion of regional markets, and severe implementation problems, especially where there are overlapping RTAs.