REGIONAL TRADE AGREEMENTS: AN INTRODUCTION
Regional trade agreements and the WTO
Regional trade agreements (RTAs) are a key fixture in international trade relations. Over the years RTAs have not only increased in number but also in depth and complexity. WTO members and the Secretariat work to gather information and foster discussions on RTAs to enhance transparency and to increase understanding of their impact on the wider multilateral trading system.
RTAs in the WTO are taken to mean any reciprocal trade agreement between two or more partners, not necessarily belonging to the same region. As of June 2016, all WTO members now have an RTA in force. Documents, including factual presentations, on the various regional trade agreements notified to the WTO are available in the RTA Database.
Preferential trade arrangements (PTAs), meanwhile, refer to unilateral trade privileges such as General System of Preferences (GSP) schemes and non-reciprocal preferential programmes some WTO members implement for products from developing and least-developed countries. Information on preferential trade arrangements notified to the WTO is available in the PTA Database.
WTO rules on RTAs
Non-discrimination is a core principle of the WTO. Members have committed, in general, not to favour one trading partner over another. An exception to this rule is RTAs. These deals, by their very nature, are discriminatory as only their signatories enjoy more favourable market-access conditions. WTO members recognize the legitimate role of RTAs which aim at facilitating trade between its parties but which do not raise trade barriers vis-Ó-vis third-parties.
WTO members are permitted to enter into RTAs under specific conditions which are spelled out in three sets of rules. These rules cover the formation and operation of customs unions and free-trade areas covering trade in goods (Article XXIV of the General Agreement on Tariffs and Trade 1994), regional or global arrangements for trade in goods between developing country members (Enabling Clause), as well as agreements covering trade in services (Article V of the General Agreement on Trade in Services). Generally speaking, RTAs must cover substantially all trade - unless they are under the Enabling Clause - and help trade flow more freely among the countries in the RTA without raising barriers to trade with the outside world.
A note of caution
WTO members have also declared that RTAs must remain complementary to, not a substitute for, the multilateral trading system. Director-General Roberto Azevêdo has said that many key issues — such as trade facilitation, services liberalization, and farming and fisheries subsidies — can only be tackled broadly and efficiently when everyone has a seat at the negotiating table. Furthermore, a multilateral system ensures the participation of the smallest and most vulnerable countries and helps support the integration of developing countries into the world economy.
There are mixed views on RTA's effects on global trade liberalization. Though RTAs are designed to benefit signatory countries, expected benefits may be undercut if distortions in resource allocation as well as trade and investment diversion are not minimized.
Moreover, the increase in RTAs has produced the phenomenon of overlapping membership. This can hamper trade flows when traders struggle to meet multiple sets of trade rules. Furthermore, as the scope of RTAs broadens to include policy areas not regulated multilaterally, there may be increased risks of inconsistencies among different agreements. Most older RTAs covered tariff liberalization and related rules such as trade defence, standards and rules of origin only. Increasingly, RTAs have moved on to include liberalization of services as well as commitments in services rules, investment, competition, intellectual property rights, electronic commerce, environment and labour. This could give rise to regulatory confusion and implementation problems.
WTO work on RTAs
Since the establishment of the Committee on RTAs (CRTA) in February 1996, WTO members have consistently highlighted the need to gather information on RTAs as well as provide a forum for discussions on their impact.
Since December 2006, all RTAs have been subject to the provisions and procedures of the Transparency Mechanism for Regional Trade Agreements. Established through a General Council decision in December 2006, and applied provisionally since then, the mechanism provides specific guidelines on when a new RTA should be notified to the WTO and the related information and data to be provided. This information enables the Secretariat to prepare a factual presentation on the RTA, which assists WTO members in the consideration of the agreement. At the 2015 Nairobi Ministerial Conference, WTO members agreed to work towards the transformation of the current provisional Transparency Mechanism into a permanent mechanism. More information on the transparency mechanism can be found here.
The mechanism has generally been seen as a success for enhancing transparency and creating a comprehensive body of information on RTAs that can support members' candid discussions in the CRTA.
Furthermore, discussions in the WTO about RTAs are seen as helping ensure continued balance and inclusiveness. At the 10th Ministerial Conference in Nairobi in 2015, WTO members adopted a ministerial declaration instructing the Committee on RTAs to discuss the systemic implications of RTAs for the multilateral system and their relationship with WTO rules. Access more information on the committee and its meetings here.