"The number of
regional trade agreements has grown rapidly since the World Trade Organization (WTO) came into existence in 1995. [As of the year 2000,] more than 40 per cent of world trade was conducted within these preferential trade arrangements, the most significant exception to the WTO's principle of non-discrimination. Governments have often entered
regional economic agreements primarily motivated by political rather than economic considerations. Nonetheless they may prefer trade liberalization on a regional rather than a global basis for several economic reasons."
(Ravenhill, J., "Regionalism," in
Global Political Economy, ed. J. Ravenhill, New York: Oxford University Press, 2005, p. 116)
The WTO and Regional Trade Agreements
"Normally, setting up a customs union or free trade area would violate the WTO's principle of equal treatment for all trading partners (‘favoured-nation'). But GATT's [(General Agreement on Tariffs and Trade)] Article 24 allows
regional trading arrangements to be set up as a special exception, provided certain strict criteria are met."
(World Trade Organization (WTO),
Regionalism: Friends or Rivals?, visited 2009-08-03)
The Committee on
Regional Trade Agreements, established by the WTO to examine each agreement, tries to reconcile the rules of the specific
RTA with those governing multilateral trade agreements.
"By July 2005, only one WTO member — Mongolia — was not party to a
regional trade agreement. The surge in these agreements has continued unabated since the early 1990s. By July 2005, a total of 330 had been notified to the WTO (and its predecessor, GATT). Of these: 206 were notified after the WTO was created in January 1995; 180 are currently in force; several others are believed to be operational although not yet notified."
(World Trade Organization (WTO),
Regionalism: Friends or Rivals?, visited 2009-08-03)
Debate
Over the past few years, there has been a growing interest in
regional trade arrangements (
RTAs) and a consequent concern over the prospect of a weakened multilateral trading system and the emergence of a small number of powerful regional trade blocs. Many observers have expressed the fear that these blocs would develop protectionist tendencies towards one another and (however inadvertently) towards third countries. Excluded countries would be forced to take shelter within other regional blocs. However, the increased interest in regional trade pacts does not seem to have led to any marked regionalization of trade flows and it does not seem that greater intraregional trade is the result of shortcomings in the global trade system.
(adapted from the Food and Agriculture Association (FAO),
The Impact of the Uruguay Round on World trade and Commodity Prices, The State of Food and Agriculture 1995, United Nations, visited 2009-08-04)
"Economists assert that an economy's welfare can be maximized […] if governments lower trade barriers on a non discriminatory basis. […]
Regional trade agreements, on the other hand, can reduce global welfare by distorting the allocation of resources, and may even lead to welfare losses for their members. Moreover, from the political scientist's perspective, it is usually more efficient to negotiate a single agreement with a large number of states than to undertake a series of negotiations with individual states or with small groupings."
(Ravenhill, J., "Regionalism," in
Global Political Economy, ed. J. Ravenhill, New York: Oxford University Press, 2005, p. 120)
"
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."
(World Trade Organization (WTO),
Scope of Regional Trade Agreements (RTAs), visited 2009-08-03)