Global Trend of RTAs

In the 1990s, the number of notified RTAs began to surge upwards. Uncertainty concerning the outcome of the Uruguay Round has been one of the reasons advanced for such a trend. However, even after the conclusion of the Uruguay Round and the establishment of the WTO the number of RTAs has continued to grow. As of February 2005, about 250 RTAs had been notified to the GATT/WTO, of which 162 are currently in effect. It is estimated that by 2007, a further 87 RTAs¹ will be in effect, if those currently being planned or under negotiation are concluded. Figure 1 [ PDF 55.8KB | 1 pages ] shows the unabated growth of RTAs notified to the GATT/WTO.

Although RTAs may take the form of free trade areas (FTAs), customs unions (CUs), or agreements leading to the formation of one or the other, the most common category is the free trade agreement, which accounts for 72% of all RTAs. The trend towards the conclusion of free trade agreements, which require a lesser degree of integration and are faster to conclude, has intensified in recent years. In an FTA each party maintains its own tariffs visà- vis third parties. Customs unions, which provide for the establishment of a common external tariff and harmonization of trade policy, often, take years to negotiate and have long implementation phases. Customs union agreements account for 19 percent of all RTAs. Eighteen of the RTAs identified (17 FTAs and 1 customs union) contain commitments on trade in services in addition to tariff concessions on goods. The new generation of RTAs, especially those involving developed countries, tend to go far beyond traditional tariff-cutting exercises and even beyond the realm of existing multilateral rules. First, while old regionalism was essentially confined to RTAs between industrial economies or the

developing economies, the new regionalism is known for cross alliances between developing and industrial economies. Second, while old regionalism was essentially limited to RTA formations by contiguous economies, the new regionalism does not seem to be limited to neighboring economies. In recent times RTAs have been intercontinental. Although there may be coordination-related problems, from the gains-from-trade perspective this could be a healthy development. Third, under the new arrangement RTAs are not exclusive, meaning thereby one country can simultaneously be a member of more than one RTA. This may eventually turn out to be an aid to promoting multilateralism through RTAs. Fourth, while old regionalism was limited to shallow integration, the new regionalism is more ambitious. A number of recent agreements aspire for deep integration, with commitments to harmonization of regulatory measures, freeing factor movements, and other close integrating measures. Such trade agreements include more and more regional rules on investment, competition and standards, in a few cases; they also contain provisions on environment and labor. Many more agreements today contain disciplines limiting the use of quantitative restrictions and subsidies among countries forming an RTA.

The configuration of RTAs is diverse and becoming increasingly more complex with overlapping RTAs. The simplest configuration is a bilateral agreement formed between two parties. These account for more than half of all RTAs in effect and for almost 60 percent of those under negotiation.² The most noteworthy development expected in the next five years is the emergence of a new category of agreement, namely RTAs where each party is a distinct RTA itself.³ Several agreements of this kind are currently under negotiation.

The greatest concentration of RTAs is primarily centered around Western Europe constituting about 50 percent of the RTAs currently in effect. Further, the enlargement of the European Union (EU) in 2005 and 2007⁴ has increased its membership from 15 to 27 with the addition of 12 new countries. The EU is also negotiating and concluding secondgeneration bilateral FTAs based on a reciprocal exchange of preferences with partners in the Mediterranean and North Africa, with the objective of establishing a Euro-Med free trade area by 2010. The EU is also looking to forge closer ties with emerging markets in Latin America. Its FTA with Mexico entered into effect in mid-2000 and negotiations on FTAs with MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) and Chile have been taking place.

Countries of North Africa are participating in various other regional trade initiatives both in Africa and the Middle East, such as the recent effort launched by the Arab League to establish an Arab Free Trade Area by 2007⁵ and a broader economic union (including a single market and currency by 2010). For their part, the Gulf Cooperation Council (GCC) countries established a common external tariff in 2003, and are engaged in discussions with the EC on the negotiation of a possible RTA.

In Sub-Sahara Africa, the regional integration process is gaining depth, although progress is uneven and far from certain due to the complex web of overlapping RTA membership. In western Africa, there are two advanced levels of RTAs; one is the West African Economic and Monetary Union (WAEMU)⁶ and the other is the Central African Economic and Monetary Community (CAEMC).⁷ In eastern and southern Africa, members of the Common Market for Eastern and Southern Africa (COMESA)⁸ have achieved their objective of creating a free trade area grouping of 20 countries, and similarly, the parties to the South African Development Community (SADC) established a free trade area by 2004, despite difficulties mainly due to overlapping membership with other RTAs, in particular the long-standing South African Customs Union (SACU) agreement.⁹

The Asia-Pacific is a region undergoing significant changes with respect to its stance towards regional integration, with a number of countries shifting their long-standing policy of MFN trade liberalization to actively consider the regional option. Also, the “open regionalism” typically associated with the Asia Pacific Economic Cooperation (APEC) group appears to be counteracted by a drive towards preferential trade initiatives. Japan, the Republic of Korea, and Singapore have been negotiating and conducting feasibility studies for the establishment of several RTAs both among countries in the region and cross-regionally. Similarly, New Zealand and Australia are exploring the possibility of several RTAs with regional partners and with countries of the western hemisphere. Singapore and New Zealand have already concluded a far-reaching RTA and discussions are being held for a Closer Economic Partnership (CEP) between New Zealand and Hong Kong, China. Japan and Singapore formed their own bilateral agreement in 2002. A notable development in the region has also been the agreement between the members of the Association of Southeast Asian Nations (ASEAN)¹⁰ and the PRC establishing a FTA in 2005. Japan and the Republic of Korea have also initiated similar negotiations with ASEAN. These developments constitute an enormous change in East Asia. Prior to them, Japan and the Republic of Korea, along with Hong Kong, China and Mongolia, were the only four members of the more than 140 members of the WTO that had not participated in a reciprocal regional trading agreement. See Table 2 [ PDF 7.6KB | 1 pages ] for details of RTAs in the region.

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1. Dr. Jayanta K. Nanda
   (posted 04 July 2007 / 08:44:57 AM)
   
   Not only for India, but for global trade in the near future.
   
   -www.jknanda.com