General
  Accessions
  Agriculture
  Anti-Dumping
  Biotechnology
  Competition
  Development
  Dispute Settlement
  E-Commerce
  Environment
  Government Procurement
  Intellectual Property
  Investment
  Labor
  Market Access
  Regionalism
  Services
  SPS/TBT
  Textiles and Clothing
  Trade Facilitation
  Transparency
  Current Research Papers
  NGOs
  International Organizations
  Governments
  Researchers
  Schools and Institutions
  Data Sources
 
Regionalism Summary Papers Links

Regionalism Summary

Regional trade agreements continue to proliferate as progress on the Doha Round has slowed. Free trade blocs formed by agreements such as the North American Free Trade Agreement (NAFTA) and customs unions such as the European Union (EU) have allowed countries to lower trade barriers among neighbors and political allies, while retaining flexibility over which sectors to liberalize and which issues to negotiate. Recently, there has been a surge of regional trade agreements (RTAs): about 162 RTAs are in force as of 2002 with over half of those coming into existence after 1995. The WTO estimates that over 300 will be in effect by 2007.[1] RTAs, such as the ones being negotiated between the EU and Latin America, and between the US and the Association of South East Asian Nations, reflect a trend of trade liberalization outside of traditional regional boundaries. The collapse of the Cancun Ministerial Conference has underscored the difficulties inherent in that multilateral agreements and that many countries have focused on RTAs as the primary means of opening up international trade. In the context of the struggling Doha Round and ever-expanding RTAs, what effect does regionalism have on multilateral trade negotiations? What role the WTO should play in moderating RTAs?

The WTO's Role in Regulating RTAs

In general, the WTO mandates that each member accord Most Favored Nation (MFN) status to all other WTO members. However, it allows an exception for regional trade initiatives that extend different terms of trade to participating countries, stipulating that an RTA must comply with two main requirements outlined in the GATT Article XXIV. First, the agreement must lower trade barriers within the regional groups. Second, the agreement cannot raise trade barriers for non-participating members. 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. The process becomes difficult in areas where WTO rules are vague and inconsistent, particularly those regarding dispute settlement and retaliation measures. The WTO has placed great emphasis on the need to tighten up its own policies in the face of RTA proliferation.

Should the WTO encourage RTAs?

Proponents of RTAs argue that they help nations gradually work towards global free trade by allowing countries to increase the level of competition slowly and give domestic industries time to adjust. In addition, RTAs can be valuable arenas for tackling volatile trade issues such as agricultural subsidies and trade in services. Political pressures and regional diplomacy can resolve issues that cause deadlock in multilateral negotiations. Proponents of RTAs, such as the US trade representative Robert Zoellick, a number of economists, and trade policy analysts, describe them as circles of free trade that expand until they finally converge to form expansive multilateral agreements.[2]

Other policy analysts express doubt about the benefit of booming RTAs. Some describe them as a complex web of competing trade interests that hinder multilateral agreement. Because RTAs create preference systems that transcend regional boundaries, some argue that political and economic tensions will lead to hostility and increased retaliation.[3] The fear is that anti-dumping charges will increase and the dispute settlement process in the WTO will be complicated by unclear and conflicting regional trade laws. Additionally, RTAs may negatively impact global trade because regional preferences and rules of origin distort production by making location of production or source of raw materials the driving incentive.[4] Others fear that RTAs prevent complete liberalization in the multilateral arena. Countries that benefit from regional trade agreements may be reluctant to expose themselves to the risks of opening their markets on a multilateral level if they expect relatively insignificant returns.

FTAA Negotiations

The Free Trade Area of the Americas (FTAA) is the most ambitious regional trade agreement proposed to date. Negotiating countries include every nation in the Americas except Cuba with a total population of 800 million and a market of $13 trillion. Difficulties between Brazil and America, co-chairs of the negotiations, have resulted in a scaled down version of the agreement (dubbed "FTAA la carte") that allows countries to opt out of certain contentious areas like agriculture subsidies, investment, intellectual property rights, and anti-dumping.[5] According to the Ministerial Declaration issued November 20, 2003 in Miami, countries that agree to additional obligations are eligible for additional benefits. The pared down version of the agreement is due in part to domestic political pressures: because of a strong domestic farm lobby, the US has always refused to negotiate agriculture subsidies outside of the WTO, while Brazil's domestic business interests do not want to deregulate foreign investment or tighten enforcement of intellectual property rights.

Opponents of this pared-down agreement, mainly Canada and Chile, criticize the attempt to limit the scope of FTAA, arguing that it makes the free trade area meaningless. They argue that the US and Brazil are setting the agenda at the expense of the other participating members who are interested in liberalizing more than just import tariffs.[6] However, since the US and Brazil are the co-chairs, and also the two largest markets in the hemisphere, they are responsible for setting the agenda for what will be negotiated. The result is a two-tiered framework, with all participating countries agreeing to tariff reductions on foreign imports, and some countries opting out of negotiations on intellectual property rights, investment, and agriculture liberalization. While the FTAA talks have been bolstered by this new compromise, trade representatives do not expect the free trade area to be finalized by its deadline, January 2005.[7]

Lessons from NAFTA

While most Latin American countries agree that access to the US market would reinvigorate their economies, there has been disagreement about whether the FTAA would benefit participating members. The Carnegie Endowment, a Washington-based research institute, reported that real wages in Mexico have gone down, income inequality has risen, and immigration to the US has continued to increase.[8] The rural, subsistence farmers and the environmental health of Mexico have suffered the most since NAFTA. There is no guarantee that trade liberalization is a cure for poverty or a recipe for improved standards of living. A World Bank report presents evidence that NAFTA has buoyed the Mexican economy and that without the free trade area, wages and poverty levels would have been worse as the country struggled to recover from a severe financial crisis in 1994. Despite the conflicting conclusions about NAFTA, some lessons can be drawn from the Mexican experience going into the FTAA negotiations. The Carnegie Endowment recommends that Latin American countries should bargain for slower tariff reductions on agriculture products unless the US is willing to shed its exorbitant subsidies.

US Trade Policy

For the past two years, US trade policy has become intertwined with the political objectives of rewarding allies in the war against terrorism and promoting national security.[9] For example, the US Trade Representative delayed signing RTAs with Chile and New Zealand after the countries openly opposed the US war in Iraq. As President Bush tries to garner support for re-election in 2004, it is increasingly unlikely that the US will make concessions on its massive agriculture subsidies in WTO negotiations, or conclude any controversial trade agreements. The passage of the Trade Promotion Authority (TPA) in August 2002 had a significant impact on US trade policy by making it easier for the President to negotiate and conclude RTAs. TPA, also known as fast track, grants the President the authority to directly negotiate trade agreements, bypassing the arduous task of gaining support from Congress. Critics of TPA, representing sectors of the economy that are traditionally reluctant to remove trade barriers such as agriculture, steel, automobile, and textiles, are wary of how much freedom TPA gives the President going into FTAA negotiations.

Singapore

Singapore has recently concluded an RTA with the US, and has been a major advocate of a RTA between ASEAN countries plus China, Japan, and South Korea slated for the next twenty years. Its active role and interest in regional agreements can be explained by the boom in trade between the Asian countries, and the desirability of access to the US market. Singapore is also an attractive country for RTAs because it has a fairly open and transparent economy, with good opportunities for investment in telecommunications, e-commerce, finance, and other services - sectors which were previously protected by trade barriers.[10] The Singapore-US agreement has been heralded as a model for reducing barriers to investment and strengthening intellectual property rights. However, some NGOs that are particularly concerned with the environmental and economic impacts of deregulated investment argue that the agreement represents the primacy of the US's interests over the welfare of Singapore. Questions remain about what effects intellectual property rights enforcement will have on public health. [11]

China

China has captured the world's attention because of its enormous market for imports, its high growth rates, and its new WTO membership. ASEAN countries have already begun vying for RTAs with China in the hopes of re-building economic stability and renewing growth that was shaken by the East Asian economic crisis of 1997.[12] Mexico, and other Latin American countries that have specialized in manufactured goods, are feeling an export pinch as Chinese goods replace theirs in the US market. Lower wages, high productivity, and falling transportation costs have made China much more competitive than Mexico in exporting toys, shoes, and small electronics. On the other hand, countries that export agriculture commodities like Argentina and Brazil have benefited from the endless Chinese demand for soy beans, beef, grains, and produce.[13] In response to continually frustrated efforts to open the US agriculture market, these countries may turn to China an alternative market.[14]

Recent RTAs

For a list of RTA notifications to the WTO, visit:

RTA list link

RTAs by Date

Concerns and Issues Surrounding RTAs

There are concerns that RTAs are incomplete, unequal, or counter-productive that even those who support the recent proliferation of the agreements believe must be addressed. The volume of RTA activity stretches negotiation capacities to their limit, and in the case of developing countries, prevents them from actively participating in all proceedings. The WTO has partnerships with the United Nations and the World Bank to build capacity in smaller countries and give aid money to support participation in trade negotiations.

Additionally, there is a fear that in agreements formed outside the WTO, developing countries do not have the power of collective bargaining to negotiate RTAs (particularly bilateral agreements) that are in their best interest. For example, Chile recently concluded an agreement with the US in which it committed to lowering tariffs on agriculture products and deregulating investment, but could not gain any concessions from the US regarding farm subsidies. Since developing countries often depend on progress made in the WTO on sensitive issues it is important that multilateral negotiations retain a top priority.

Last updated February 2004

[1] "Proliferation of regional trade agreements - Implications for multilateral regime" WTO Website
[2] Regionalism in a Multilateral World," Wilfred J. Ethier, University of Pennsylvania Policy Paper
[3] "On the Relationship between Preferential Trade Agreements and the Multilateral Trade System," Soamiely Andriamananjara, US International Trade Commission
[4]"Regional Integration Agreements," OECD Chapter on RIAs (RTAs)
[5]"Hemisphere Trade Talks in Miami Are Reported to Hit a Bump," Simon Romero, New York Times, November 17, 2003
[6]"Can't have FTAA without Brazil,' says Rodrigues" Gazeta Mercantil, Brazil. October 23, 2003
[7]"As ministers convene in Miami this week to initiate negotiations on new rules for regional trade, many observers fear that the task is lacking a spirit of common purpose. Indeed, few think that the 2005 deadline is attainable," Financial Times, November 17, 2003
[8] "Report Finds Few Benefits for Mexico in NAFTA," The New York Times, November 19, 2003
[9] "Lack of Clarity in US Trade Policy," Sidney Weintraub, Center for Strategic International Studies (CSIS), July 2003
[10] "U.S.-Singapore's FTA Packs a Quiet Punch," Daniel Ikenson, Center for Trade Policy, 2002.
[11] "Oxfam testimony on Bilateral FTAs before the House Subcommittee on Trade of the Ways and Means Committee" CPTech.org
[12] "WTO rifts spurs ASEAN to tackle free trade," South China Morning Post, October 7, 2003.
[13] "China begins to exert its influence on Latin America: the region is feeling both the good and the bad sides of Beijing's trading power," Financial Times, September 26, 200 (a series of articles on the impact of China in Latin America)
[14] "As ministers convene in Miami this week to initiate negotiations on new rules for regional trade, many observers fear that the task in lacking a spirit of common purpose. Indeed, few think that the 2005 deadline in attainable," Financial Times, November 17, 2003.