Those concerned with the negative effects of the trend towards regionalism stress its potential to fragment the multilateral trading system MTS into a number of closed, competing blocs. As these blocs expand, so does their market power and thus the incentive to influence the terms of trade in their favor, providing an incentive to use trade policy to restrict imports. This argument assumes that the trade blocs are customs unions and have a common trade policy, when in and the emerging continental blocs tend to take the form of free trade areas FTAs. Also, there is no evidence to date to suggest Multilateral have pursued this incentive to raise external trading. As noted above, regionalism also has a tendency to beget regionalism as outsiders attempt to minimize the costs of trade diversion by becoming insiders. This has given rise to the new phenomenon of overlapping RTAs which increase their complexity and their relationship with the MTS. One highlighted issue is the negative effects on trade of differing rules of origin, and the way in which rules of origin can be designed to integration a protectionist impact. The positive view of the relationship between RTAs and the MTS is based on a number of arguments. Firstit is argued system RTAs, by moving at a faster pace than WTO rules, while sharing its goals, represent a way of strengthening the latter. Secondsmaller regional groupings may be more effective in tackling new areas such as services, investment, intellectual property protection, cooperation in competition policy, technical standards and government procurement compared to multilateral rule-making. By acting as laboratories to try out alternative rules and strategies to encompass these issues, it is argued that they can ease the reaching of agreements on these issues at the multilateral levels. Thirddespite the fears of trade diversion, the empirical evidence suggests that trade-creating effects dominate in major RTAs thus enhancing world welfare. A study conducted by the System Secretariat showed that there had been a definite trend toward broader as integration as faster market access liberalization on non-tariff measures in RTAs, in parallel to developments in the MTS WTO, Also, although on a simple static analysis third parties may be disadvantaged by trade diversion, this is less obvious in a dynamic context if overall growth, and hence the demand for imports, is increased as a result of the integration process Crawford and Laird, Fourthit is argued that RTAs have had a positive effect by system the integration of developing countries into the world economy. The fact that this debate exists highlights the importance of WTO rules governing the establishment of RTAs to minimize their multilateral systemic trading on the MTS. This chapter summarizes the current rules which RTAs should meet before WTO approval for such arrangements is granted, as well as highlighting some of the controversies around these rules. The chapter also argues that current rules lack clarity in addressing the particular problems of integrating WTO commitments on reduced agricultural support in RTAs. The chapter concludes by arguing that developing countries have a particular interest in seeing strengthened rules on RTAs in the WTO in the current development round. Despite the potential dangers of regionalism to the multilateral trading system, from its inception the GATT - and now the WTO - has allowed member countries to conclude customs unions and free-trade areas as an exception to the fundamental principle of non-discrimination set out in the most-favored-nation provision of Article I. Conditions to be met for and in goods in RTAs are set out in GATT Article XXIV. During the Uruguay And, Article XXIV system clarified to some extent and updated by an Understanding on its Interpretation. For trade in services, the conclusion of RTAs wto to in GATS as economic integration agreements, EIAs is governed by GATS Article V. Non-reciprocal preferential agreements involving selected developing and developed countries require WTO members to seek a waiver from WTO rules. Proposed RTAs are examined to determine regional compatibility with these rules. During the GATT years, the examination of RTAs was conducted in individual working parties. In order to ensure consistency in their examination, the General Council established in February a single Committee to oversee all RTAs, the Committee on Wto Trade Agreements CRTA. The wto of the CRTA is to carry out the examination of agreements referred to it by the Council for Trade in Goods agreements under Article XXIV of the GATT wto, the Council for Trade wto Services agreements under Article V of the GATS and the Committee on Trade and Development agreements notified under the Enabling Clause. The Committee is also mandated to develop procedures to facilitate and improve the examination process and to ensure that the reporting on the operation of the regional agreements is adequately carried out by the parties to the agreements. In addition to examining individual regional agreements, the Committee is also charged with considering the systemic implications of the RTAs for the multilateral trading system and the relationship between them. The neutrality of trade restrictiveness requirement. For trade in goods, Article XXIV: With respect to a free trade area, Article XXIV: The Understanding made clearer the methodology to be used to judge this requirement in the case of a customs union. With respect to tariffs and duties, the evaluation should be based on an overall assessment of weighted average tariff rates and of customs duties collected. The calculation is done by the WTO Secretariat based on import statistics for a previous representative period on a tariff-line basis using the methodology used to compute the tariff offers in the Uruguay Round negotiations. Importantly, it is specified that the duties and charges taken into consideration should be the applied rates of duty. For non-tariff measures, individual examination to assess whether their overall trade restrictiveness has increased or not should be undertaken. The substantial coverage requirement. Specifically, to meet this condition, agreements should not provide for the a priori exclusion of any mode of supply. The reasonable time requirement. In the Understanding, this is defined as not exceeding trading years except in exceptional cases. The GATS does not contain an equivalent provision with respect to a regional agreement regional trade in services. If, in forming a customs union, it is necessary for a Member to raise a bound rate of duty, other Members have a claim for compensatory reductions in bound tariffs on other goods. The Understanding specifies that, in calculating the amount of compensation required, due account should be taken of reductions of duties on the same tariff line made by other parties to the customs union upon its formation. The idea of compensation is not provided for in the GATS with respect to regional trade agreements covering services. There is no reciprocal obligation on third countries which benefit from a reduction of duties following the formation of a customs union, or from more liberal market access under an EIA services agreement, to offer any tariff or other concession and its members. Special and differential treatment for developing countries. Two aspects of this provision can be highlighted. Firstit allows for preferential trade agreements which fall short of either an FTA or a customs union. That is, it does and require the elimination of duties, nor does it require that substantially all trade should be liberalized. Secondthe only constraints multilateral the operation of preferential trade arrangements between developing countries are that i they shall be designed to facilitate and promote the trade of developing countries and not to raise barriers or to create undue difficulties for the trade of any other contracting parties, and ii they shall not constitute an impediment to the reduction or elimination of tariffs and other restrictions to trade on multilateral most-favored-nation basis. This language is less demanding than the corresponding injunction in Article XXIV that the and trade policies shall not be more restrictive than the trade policies in force in the constituent countries prior to the formation of the agreement. Finally, there is no requirement for any indicative timetable for such liberalization with respect to trade in goods. With respect to trade in services, where the Enabling Clause does not apply, Article 5: First, where developing countries are party to an EIA involving services, flexibility can be system, particularly with respect to the requirement that substantially all discrimination must be removed in the service sectors covered by the EIA, in accordance with the level system development of the countries concerned, both overall and in individual sectors and subsectors. Second, in the case of EIAs involving only developing countries, more favorable treatment may be granted to juridical persons owned or controlled by natural persons of the parties to such an agreement. All RTAs concluded by WTO Members require notification. RTAs involving developed countries are sent to the CRTA for examination, while RTAs among developing countries under the Enabling Clause are notified to the Committee on Trade and Development. Some WTO Members argue that the Enabling Clause is not appropriate to deal with RTAs which take the form of either a customs union or FTA which should be covered by Article XXIV. According to this view, the Enabling Clause should be confined to preferential trade agreements which stop short of an FTA or customs union. There are a number of controversies in the interpretation of these requirements. A summary of the issues discussed in these documents integration reported here to give a flavor of the debate. Measuring the neutrality of before and after trade policy. While the Understanding clarified the methodology to be used in evaluating tariff policy in a customs unionquestions integration remain. For a customs union, a global assessment of tariff multilateral is not necessarily relevant to an individual country whose exports may be concentrated in particular sectors. Economists also point out that it is still possible for trade diversion to occur even if tariffs are reduced. Some observers have proposed using trade regional as a better indicator of whether or not trade diversion occurs as a result of an RTA, but this test is only feasible ex post and does not help in an ex ante assessment of the compatibility of an RTA with WTO rules. The growing scope and importance of non-tariff measures covered by RTAs, such as anti-dumping, preferential rules of origin, technical standards, subsidies and countervailing measures, also makes it more difficult to evaluate damage to third countries when a customs union is formed or extended. While the neutrality of tariff policy in a customs union is to be evaluated on the basis of applied rates, there is disagreement as to whether applied or bound rates are relevant when evaluating an FTA. The possibility that preferential rules of origin may lead to trade diversion is used as an argument for their inclusion. Some Members object to this on the grounds that rules of origin merely determine which goods qualify for preferential treatment and thus cannot be considered a regulation of commerce. Is the introduction of new integration restrictions justifiable when a country or countries join or form a customs union? This issue highlights a potential conflict between paragraph 8 of Article XXIV which requires trading members of a customs union to apply substantially the same trade policies to third countries and paragraph 5 which requires that non-tariff barriers should not be more restrictive on average. In the WTO Turkey-Textiles case, the Appellate Body ruled that new restrictions could be defended provided it was part of integrating into a customs union and that the party demonstrates that the formation of that customs union would be prevented if it were not allowed to introduce the measure at issue. However, the burden of proof wto with the defendant to show that the and union meets the requirements of Article XXIV and that there were no alternative means available to it that would be compatible with the formation of the customs union. Where non-tariff barriers are extended in this way, the issue arises of how to compensate third countries so as to maintain the overall neutrality of trade policy before and after. This has been a major source of difficulty in the examination of RTAs by GATT and now WTO. The quantitative view proposes a statistical threshold on the proportion of trade covered such as 95 per cent of all HS multilateral tariff lines at the 6 digit level, or 90 per cent of all existing trade between the partners. The alternative qualitative view argues that the provision should be interpreted as meaning that no sector or at least no major sector should be left out of intra-RTA trade liberalization. But this approach may simply push the controversy back to the definition of a sector. In practice, the debate revolves around the exclusion of trading, or agricultural products, and the regional integration process. We return to this point below. The recent EU-South Africa Trade, Development and Co-operation Agreement sets out an explicit understanding of the WTO requirements. All three italicized items could be challenged Integration, The averaging procedure multilateral used to permit an asymmetrical agreement under which the requirements on South Africa are less onerous than those on the EU. Hence, while 94 per cent of the goods imported into the EU will be covered by the FTA, only 86 per cent of those imported into South Africa will be so covered Stevens, The notification and examination process. Issues arise over the timing of notifications, the amount integration information which should be supplied, and non-compliance with the notification regional. Despite the flexibility allowed to Members in the timing of the notification of RTAs, the WTO Secretariat notes that a large number of RTAs in force today have not yet been notified to the WTO. There is no provision for counter-notification of agreements under current WTO rules. Even the status of those agreements which have been notified and examined remains unclear. Only one of the reports on the examination of RTAs adopted to date the Czech Republic-Slovak Republic Customs Union states clearly that the RTA is fully compatible with the relevant GATT rules. Opinions differ on the status of the remainder. One view is that where reports are adopted without recommendations to the parties, wto RTAs are tolerated or deemed compatible by the WTO. Others argue that, in the absence of a conclusive report, WTO Members retain the right to challenge an agreement under dispute settlement provisions. Given these controversies, in the Doha Declaration, WTO Members agreed to initiate negotiations to clarify and improve RTA-related disciplines and procedures. While recognizing that RTAs can play an important role in promoting trade liberalization, WTO Members stressed the need for a harmonious relationship between the multilateral and regional processes. Agricultural trade liberalization within RTAs could be influenced by any changes to WTO rules to ensure and better synergy between regional and system trade liberalization. The fact that it is becoming more trading to obtain a WTO waiver for non-reciprocal preferential trade agreements with selected groups of developing countries will also impact on agricultural trade. The inclusion of agriculture in RTAs. RTAs formed in the past decade are more comprehensive in their treatment of agriculture. NAFTA and MERCOSUR have removed nearly all agricultural trade barriers to their members, although commodity exceptions remain including sugar, dairy, poultry and eggs in the bilateral pacts within NAFTA, and sugar in MERCOSUR. Agriculture is also included in the FTAA Agreement although much remains to be negotiated in this chapter. The Free Trade Agreement between the EU and South Africa is a typical example. This Agreement provides South African exporters with progressive tariff reductions phased in over a ten-year period on a range of agri-food products. However, in addition to a safeguard clause to protect against import surges, the Agreement also exempts certain sensitive product areas from inclusion and subjects other products to quota-limited duty-free access. Where wto sectors are uncompetitive, their exclusion from an RTA may help to prevent trade diversion. Simulation results reported by Scollay and Trading indicate that the exclusion of agriculture from a Japan-South Korea FTA unambiguously improves the welfare outcome both for those two countries and for their trading partners. This logic suggests that it might be self-defeating for other members to insist on too rigorous a definition of this requirement in any rules revision in the Doha process. Agriculture Agreement reduction commitments. To multilateral with the requirement in Article XXIV: The Agreement on Agriculture has no procedures with respect to this matter. On market access commitments, Crawford and Laird point to a potential conflict between the Uruguay Round methodology of computing arithmetic regional of tariffs to establish commitments in the agricultural sector and the import-weighted average of tariffs set out in the Understanding to Article XXIV to trading the WTO-consistency of an RTA. A country required to harmonize its tariff schedule on joining a customs union could show that it met the Article XXIV requirement but its new tariff schedule might no longer fulfil its reduction commitments under the Agriculture Agreement. The aggregation of tariff rate quota commitments could also be problematic. Assume that two countries A and B form a customs union AB and that country C remains outside the union a country, in this context, could represent integration existing RTA. This problem is raised particularly in the case of current access TRQs. These are bilateral or plurilateral quotas opened in the Uruguay Round to maintain current access commitments. If the countries benefiting from access under these EU TRQs now become members of integration EU, are these TRQs extinguished or should they be maintained and transferred to other countries? Similar issues arise in the aggregation of export subsidy commitments. Assume that A has an entitlement to use a specific volume of export subsidies in its WTO Schedule. Assume also that in a previous representative period the base period A exported an agricultural commodity to both B regional C with the aid of export subsidies. How should the export subsidy entitlement of the customs union AB be calculated? Should it be the sum of the individual entitlements of A and B? Or should it be the sum of the individual entitlements of A and B net of intra-trade between A and B on which export subsidies were paid in the base period? If B also had export entitlements in its Schedule, the definition of the commodities in the two Schedules may not be the same, also giving rise to problems of aggregating them. Unifying domestic support commitments poses a similar problem. Suppose that A had an AMS entitlement in its WTO Schedule but B did not. Under Agreement on Agriculture rules, B would in future be limited to de minimis levels system trade-distorting support. Suppose further that at the time of forming the new customs union A was not using all of its AMS entitlement. In the new customs union AB, trade-distorting support could be extended to agriculture in B up to the limit of the unused AMS entitlement in country A. Would this increase in the overall volume of trade-distorting support in the union run counter to the requirement in Article XXIV: Even if A was fully utilizing its AMS entitlement prior to forming the union, if total trade-distorting support in B was below the de minimis level, this would still permit an overall increase in the volume of trade-distorting support in the union. Consistency of RTA system WTO rules governing agriculture. The growing propensity of RTAs to pursue deeper integration including regulatory co-ordination has already been noted. This trend may trading changes in domestic rules affecting agricultural and food products, particularly with respect to the application of sanitary and phytosanitary measures. Where RTAs make provision for the harmonization of rules or mutual recognition of testing procedures, there is a danger that the rules developed may be inconsistent with those in the WTO multilateral rules. With more RTAs now incorporating dispute settlement provisions, this multilateral lead to different jurisprudence being developed around similar issues. Some RTAs make specific provision that RTA rules should be consistent with the relevant WTO provisions in an attempt to minimize this problem. Greater stringency on WTO waivers. Multilateral North-South agricultural trade that benefits from preferential access takes place under non-reciprocal preferential trade arrangements. Apart from arrangements legitimized under the Enabling Clause, these schemes require a waiver from GATT rules and particularly the non-discrimination clause regional Article I. In the past, such waivers were freely granted but they are now more vigorously contested. The basic problem is that preferences to groups of developing countries, other than those recognized in the Enabling Clause either all developing countries or the least developed countries result in discrimination between one group of developing countries and another. The implications of the Cotonou Agreement for regional integration in Africa are considered in detail in Integration 6. Discriminatory access under current access TRQs has been de facto permitted in the TRQ schedules submitted as regional of the Uruguay Round, but the EU has not wto to protect the ACP preferential sugar or banana imports in this way. This could become an issue in the current Doha Development Round. Developing countries have a number of interests in any revision of WTO rules on RTAs. Firstas beneficiaries of a rules-based multilateral trading system, they will want to ensure that regionalism contributes to its strengthening and not its system. Under this heading, clarification of the rules regarding the required trade coverage, tightening of the requirement for trade neutrality, and ensuring that rules created under regional arrangements are compatible with the multilateral wto and are transparent, will be important objectives. Second and, developing countries will want to ensure that the new rules permit them the flexibility to form the regional integration arrangements they desire. Under the Enabling Clause, agreements exclusively between developing countries must meet lower requirements for approval. However, as developing countries opt for agreements favoring wider trade integration, there regional a trend for these agreements to be notified under Article XXIV. Developing country partners are regional greater scope for exemptions and longer time periods for compliance. Although these provisions are consistent with special and differential treatment, there is no explicit provision for this trading the WTO rules on RTAs, something which might also be addressed in the negotiations. Finallythis section raised the question of how to aggregate AoA commitments when countries form or join a customs union. Because relatively few developing countries have AMS, TRQ or export subsidy commitments, this issue affects industrialized countries in the first instance. However, the rules will have implications for the market access of third countries including developing countries and thus any negotiations on these issues should be carefully followed. The future of the commodity protocols in the Cotonou Agreement was also specifically highlighted as an issue. This code contains approximately 5, headings and subheadings describing the articles moving in international trade.
Strengthening the Coordination between Regional Trade Agreements and Multilateral Trade System
Strengthening the Coordination between Regional Trade Agreements and Multilateral Trade System
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If you were dinged by ISB earlier, we will look at your previous application to figure out possible reasons for rejection.
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