WTO Rules on Regional Trade Agreements Outline of

WTO Rules on Regional Trade Agreements

Outline of Presentation �RTAs - Trends and characteristics �Motivation for bilateral/regional trade agreements �Relevant rules of the WTO �Are they “building blocks” or “stumbling blocks” for the multilateral trading system? �Conclusions

RTAs trends & characteristics �RTAs are a major and growing feature of the multilateral trading system �RTAs show an increasing level of sophistication both in terms of scope and configuration �Geo-political developments point to an increase in North. South as well as South-South agreements �Global RTA dynamics suggest a growing appeal for crossregional RTAs �RTAs are here to stay. Many more are expected to be concluded in coming years

Quantifying the proliferation of RTAs n n As of September 2007, 383 RTAs have been notified to the GATT/WTO of which 194 are in force 137 RTAs cover trade in goods; 46 trade in services; and 11 are accessions to existing RTAs

Quantifying the proliferation of RTAs 1947 -1995 -2007 WTO n n Out of the total, 124 RTAs were notified during the GATT years and 259 RTAs during the WTO years Of the RTAs notified during the GATT years only 31 remain in force today

Typology of RTAs Notified RTAs in force as of September 2007 n n FTAs account for the great majority of RTAs notified and in force . . . and of the projected RTAs signed and under negotiations

Configuration of RTAs RTA configuration as of September 2007 n Bilateral RTAs account for the majority of RTAs notified and in force and of future RTAs Cross-regional RTAs as of September 2007 n Cross-regional RTAs account for a large share of future RTAs

Configuration of RTAs Notified RTAs in goods by type of partner as of September 2007 Note: developed economies include Canada, the United States, EU, EFTA, Japan, Australia and New Zealand; transition economies include the former Soviet Union, Eastern and Central Europe, the Baltic States and the Balkans; the remaining countries are classified as developing

Configuration of RTAs signed/under negotiation in goods by type of partner as of September 2007 Note: developed economies include Canada, the United States, EU, EFTA, Japan, Australia and New Zealand; transition economies include the former Soviet Union, Eastern and Central Europe, the Baltic States and the Balkans; the remaining countries are classified as developing

3. Global & regional developments Participation in RTAs (goods) as of September 2007 1 to 4 5 to 9 10 to 19 20 to 26 No data

Global & regional developments Projected participation in RTAs (goods) as of September 2007 1 to 4 5 to 9 10 to 19 20 to 29 30 to 40 No Data

Global & regional developments Participation in RTAs (services) as of September 2007 1 to 24 3 to 5 6 to 8 9 to 13 No data

Global & regional developments Projected participation in RTAs (services) as of September 2007 1 to 4 5 to 9 10 to 14 15 to 19 20 to 25 No Data

Global & regional developments The spaghetti bowl effect. . . EFTA Canada EC United States Egypt Morocco CARIFORUM Mexico Israel Jordan ECOWAS ESA CEMAC Panama Chile MERCOSUR SACU S. Africa Signed / In Force Under Negotiation Under Consideration Bahrain GCC Japan Korea Thailand ASEAN India PA C EP IFI A C Singapore C AD S Chinese China Taipei Australia N. Zealand

Global RTA landscape Consolidation in regional blocks? Euro Mediterranean Free Trade Area ASEAN +3 Free Trade Area of the Americas (FTAA) African Economic Community ASEAN + 3 + SAFTA and CER?

Motivation for RTAs Economic Reasons market access deeper integration defensive necessity Lock-out competition, attract and lock-in investment Political Reasons prevent backsliding on political or economic reforms increase bargaining power in multilateral fora enhance security among members ensure or reward political support

RTAs motivation Developed Economies slow progress on multilateral agenda to support foreign policy goals, including development access to markets in areas other than goods trade (e. g. services, intellectual property, investment) Developing Economies more secure access to developed markets than unilateral programs (GSP, AGOA, Cotonou, EBA) to attract FDI and technology transfer to facilitate trade among neighboring countries framework for regional cooperation

RTAs: costs and benefits Benefits: Economies of scale Increased competition and efficiency in domestic producers Attract foreign investment and technology transfer Possible trade creation Costs: Loss of tariff revenue Administrative resources to negotiate/administer an RTA Burden of compliance with different regulatory regimes in case of multiple RTA membership Possible Trade Diversion

Relevant WTO Rules Three distinct legal bases Article XXIV of the GATT 1994 Article V of the GATS Paragraph 2(c) of the Enabling Clause Article XXIV of the GATT 1994 Covers trade in goods and is applicable to agreements concluded between developed countries (US-Australia) and also those concluded between developed and developing countries (NAFTA) Two basic conditions – internal and external requirements

Internal requirement Parties to a free-trade area or customs union have to eliminate duties and other restrictive regulations on substantially all their trade The term “substantially all the trade” not defined in the GATT Two main schools of thought have emerged: the quantitative and qualitative. According to the quantitative school, the coverage of the agreement must exceed a certain threshold. Some Members have suggested between 80 -90 per cent According to the qualitative school, no major sector of economic activity can be excluded from the coverage of the agreement

External requirement Parties to a free-trade area or customs union should ensure that their trade barriers after the formation of the free-trade area or customs union are not on the whole higher or more restrictive than before the conclusion of the agreement Where there is an increase in the level of a bound rate, compensation has to be provided. In the case of customs union, the parties are expected to have substantially the same duties and other regulations of commerce Most of the rules are ambivalent and Members are engaged in negotiations to strengthen them in the current Round of trade negotiations

Article V of the GATS &Enabling Clause Provisions mirror those of Article XXIV Agreements must have substantial sectoral coverage and also provide for the absence or elimination of all substantially all discrimination between nationals and non-nationals of other parties in the sectors covered Enabling Clause: Can be invoked only by developing countries in respect of agreements covering trade in goods. Provided that the purpose of such trade agreements between developing countries should be to create trade and not raise barriers to the trade of other countries Agreements examined by the CTD in Special Session Continuing efforts to strengthen the disciplines under the GATS and Enabling Clause

RTAs: Building blocks? RTAs can lower trade barriers which can be multilateralised – open regionalism Spur competitive liberalisation among participating countries which can enhance global welfare Laboratory for multilateral disciplines in new areas – GATS – inspiration from NAFTA / Trade Facilitation – APEC Contribution towards the building and strengthening of negotiating capacities of developing countries e. g. ACP states and the EU – the negotiations for economic partnership agreements

RTAs: Stumbling blocks? RTAs by their very nature divert trade and investment, especially where barriers of partner countries are high (Trade Diversion V Trade Creation: Jacob Viner) RTAs encourage the shifting of resources which could have been invested in the MTS. Vested interests would do everything to impede multilateral liberalisation Different and competing rules might make it difficult to negotiate multilateral rules in new areas Proliferation of RTAs risk marginalising further developing countries, particularly least-developed countries

New WTO Transparency Mechanism A new transparency mechanism was agreed in December 2006 to ensure coherence of the transparency provisions applying to all RTAs Simplifies, clarifies and improves the existing RTA transparency provisions Alleviates Member’s burden of compliance with transparency obligations by entrusting some obligations to the WTO Secretariat Aims at ensuring a more homogeneous and systematic provision of information of RTAs Strives to unblock the current impasse in the CRTA and enable decisions to be made While progress has been made on the procedural issues, scant progress has been made in clarifying the existing rules

Standard Format for Notification Member(s) notifying: Date of notification: Notification pursuant to: [ ] Article XXIV: 7(a) of GATT 1994 [ ] Article V: 7(a) of GATS [ ] Paragraph 4(a) of the Enabling Clause Parties to the Agreement: Date of signature: Date(s) of entry into Force: Brief description of the Agreement: Text and related schedules, annexes and protocols are: [ ] submitted to the WTO Secretariat (electronic format) [ ] available from the following official Internet link(s):

Operation of the Mechanism � A number of agreements have been notified under this new Mechanism, some of which have already been examined �Reappraisal of the Mechanism: to be in light of experience gained from its provisional use

Conclusions �Empirical studies seem to indicate that RTAS have been supportive of the MTS �RTAS can complement the multilateral trading system but cannot be perfect substitutes for it �Some issues such as agriculture and subsidies can only be effectively addressed at the multilateral level e. g. stalled FTAA negotiations �Need for strengthened WTO disciplines to effectively monitor bilateral/regional trade agreements.