Introduction

2. Introduction • The conclusion of the Uruguay Round of multilateral trade negotiations in 1994 • The establishment of the WTO in 1995 • to provide the institutional support to the multilateral trade agreements • The principle of “single undertaking” bound all WTO members to all the results of the Uruguay Round negotiations (with the exception of plurilateral agreements) • reinforcing the fundamental principle of most-favoured nation (MFN) treatment.

3. RELATIONSHIP BETWEEN MULTILATERALISM AND REGIONALISM GATT article XXIV, Article V of GATS and the Enabling Clause provide for Customs Unions and Free Trade Areas subject to the criteria that restrictions are eliminated on ““substantially all of the trade the trade””among members and that the level of prohibition to outsiders is no higher than before. There are also certain restrictions stipulated in Article XXIV to ensure that a grouping does not turn protectionist once it is formed. Both Articles XXIV and V reinforce the same criteria of intra and intra party trade liberalisations , transparency and negligible effect on countries which are not members of the grouping -liberalisations,

5. Proponents of RTA/FTAs have argued have that :: • RTAs promote quicker, freer and deeper integration with strong disciplines on trade related policies • serve as an incubator of export expansion and diversification for developing countries

6. The WTO system allows the establishment of RTAs/FTAs as an exception to the most favoured nation (MFN) clause which permits the use of discriminatory trade practised by one member against another. /

7. REGIONALISM: OLD VS NEW • Success of these integration schemes led to a variety of other attempts at regional integration schemes in the 1970’s, and 80’s (the “old phase” of regionalism). • Many of these versions of import-substitution / inward looking but on the regional level. Therefore also tended to be south-south • Most of these proved unsuccessful and unsustainable • More recently another surge in regionalism (NAFTA, FTAA, Mercosur, SADC, ASEAN, CAFTA, GAFTA, EU Association Agreements…. • but this time the motivation much more towards using regional integration as a means of insertion into the world economy • agreements tend to be both South-South, and North South

8. REGIONALISM: OLD VS NEW • Important also to bear in mind that the “new” regionalism is different in important ways to the “old” regionalism

9. REGIONALISM: OLD VS NEW • Early RTAs and GATT/WTO negotiations facilitated shallow integration: • Shallow integration: removal of barriers to cross-border flows of commodities • Role of multilateral liberalization: GATT/WTO • Role of RTAs - reduction of border trade barriers • New RTAs typicallyinvolve elements of “deep integration” • Deep integration: institutions that facilitate trade • Exploiting externalities and correct for market failures. • Additional roles for RTAs

10. OLD REGIONALISM • often with objective of supporting state-led import substitution policies with scepticism regarding private market, export led growth, and multinationals. • Import substitution policies were generally performing badly and one of the supposed explanations was the small size of national markets. • Hence regional integration designed to overcome this. • Frequently involved high levels of external protection, and industrial planning at the regional level. • Commercial links with industrialised countries + membership of the multilateral system were not perceived as priorities. • The process of trade liberalisation tended to by highly selective usually based on positive lists (ie lists of those industries to be included), as opposed to negative lists (lists of those to be excluded) • Effective liberalisation in many schemes was very modest, with special and differential treatment often given to poorest members, and lengthy, costly bureaucratic costs and delays.

11. NEW REGIONALISM • Some agreements often less ambitious but simplereg. confined simply to increased market access via exchanges of preferences (eg. LAIA/ALADI) • Closely linked to structural reform processes including a general opening to world markets, promotion of the private sector, and withdrawal of the state from direct economic activity • Indeed the increasing trend in RTAs is to introduce issues of “deeper” integration - public procurement, technical regulations & standards, non-tariff barriers • can link N-S countries (though largely only the US, EU, and Canada) , and not just N-N, or S-S. • eg.NAFTA was pioneering in that it was the first such integration scheme between an industrialised and non-industrialised country, and because it did not just deal with traditional tariffs but also with issues of deeper integration. • Note however, proliferation of overlapping agreements • impact on third countries via ROOs and trade diversion

12. GOING TO REGIONALISM • A total of 285 RTAs had been notified to the WTO by 2003, 215 of which are in force today, and the number will exceed 300 by 2007 if another 60 RTAs currently under negotiation and 30 at a proposal stage are concluded. • the growth, expansion and deepening of regional trade agreements has been remarkable.

13. REGIONALISM • Almost all countries in the world and virtually all WTO Members (the exception being Mongolia) today are party to, or are in the process of negotiating, at least one RTA. • Thus, regionalism has become a policy option for most countries and is a permanent feature of the international trading environment for the foreseeable future.

14. Reason ––to establish regional groupings and bilateral pacts to enhance their mutual interests • Various political, economic, and security based reasons are responsible for the recent surge in RTAsRTAs • Many countries belong to one, or more RTA/RTAs resulting in a “spaghetti bowl” of resulting trade relationship trade relationship

15. Country joined the RTA bandwagon • including Australia, New Zealand, • Japan, Singapore, India and the Republic of Korea • Which used to have traditionally favoured the multilateral approach • The United States has also given more attention to concluding RTAs.

16. RTAs have emerged between countries and entities in different regions/continents (e.g. EU-Mexico, EU-South Africa, US-Israel, Jordan, Morocco, Chile). • In most cases, these agreements are bilateral in membership, concluded by two countries/entities, including the case of free trade agreements negotiated and concluded by the two distinct RTAs (e.g. EU-MERCOSUR under negotiation).

19. international trade flows are increasingly concentrated within regional groupings formed by large trading nations. • intra-RTA trade has been significant, or has become more important for RTA members. • EU intraregional trade, for example, accounts for some 66-68 per cent of the EU’s total trade with the world, while in NAFTA the share of intraregional trade increased from 41 per cent in 1990 to 56 per cent in 2003 (see Table 2).

20. new-generation RTAs • Recent “new-generation” RTAs increasingly cover not only trade in goods, • but also other “behind the border” regulatory areas, including trade in services, investment, competition policy, intellectual property rights, government procurement, labour, environment and development cooperation, • WTO-plus : going beyond multilateral disciplines and liberalization commitments .

21. Africa • 14 RTAs are now in force • including UMA in North Africa and CEMAC, COMESA, EAC, IOC, ECCAS, ECOWAS, UEMOA, SACU and SADC in sub-Saharan Africa. • These subregional groupings are expected to constitute a continental scale Africa Common Market under the auspices of the African Union by 2028.

22. Asia-Pacific region • 10 RTAs are currently in force, • including ASEAN, SAARC, ECO in continental Asia and MSG, PICTA/PACER in the Pacific. • ASEAN is the precursor RTA in the region and has established the ASEAN Free Trade Area (AFTA) with the internal liberalization objective set for achievement in 2020. • SAARC has recently agreed upon transforming the entity into the South Asian Free Trade Area (SAFTA), while ECO has established the ECO Trade Agreement (ECOTA). • The Bangkok Agreement is a preferential trade agreement that includes, India, the Republic of Korea and China

23. Americas • MERCOSUR, the Andean Community, CARICOM and CACM, and pan- American negotiations are underway for the FTAA to be completed by 2005.

24. Middle East • GCC countries plan to establish an economic union by 2010. • Negotiations for the Greater Arab Free Trade Area (GAFTA) were launched with a target date of 2008. • Four Mediterranean-Basin countries 6 have signed the Agadir Agreement as a stepping stone towards a Euro-Mediterranean FTA to be established by 2010

25. Static effect • an RTA may increase the level of trade between members at the expense of less efficient domestic producers (“trade creation”) or of more efficient third countries (“trade diversion”). • The net effect of an RTA on welfare thus depends on the relative size of these two effects. This depends on a variety of assumptions and conditions, including complementarities of production structure among RTA partners and initial level trade barriers, and cannot be determined a priori.

26. The dynamic effects • resulting from regional integration include competition effects and scale effects. • These dynamic effects of regional integration have been a major rationale for the formation of recent RTAs, • including those arising from FDI flows, strengthened intellectual property rights protection, or the predictability of the trade regime and institution building and governance. • Eg in EU and NAFTA, which not only increased their intraregional exports but also their trade with the rest of the world.

27. political economic implications of RTAs • On the positive side, RTAs enable participating countries to move closer and quicker to freer trade with stronger disciplines over a wider range of goods and services than could be attained at the multilateral level. • RTAs could also act as laboratories for testing approaches to new issues, • and their operating experiences can provide the basis for future multilateral trade negotiations for developing rules for application at the multilateral level. • future RTAs would be built on the WTO, seeking to maintain compatibility with its disciplines. • all RTA provisions need to be WTO-compatible.

28. On the negative side, • RTAs may result in inward-looking, discriminatory and protectionist trading entities competing for spheres of influence and becoming self-contained fortresses. • large RTAs – those whose membership covers a large share of global trade – can potentially have harmful effects for non-members leading to net trade diversion rather then net trade creation. • Much depends on the policies and disciplines of RTAs with regard to imports from non-participants

29. Spaghetti bowl • Signing of successive trade agreement produces overlap of the rules regulating countries foreign trade with varying depth , scope and limitations. • consequence: its divide country’s trade under different tariff treatments rules and requirements, flexibilities, exception • The more numerous differences between agreement, the greater threat---may lead to produce inefficiency

30. 24 FTAs between the US, Canada and Latin America involving at least 19 countries.

32. SUMMARY • rise and fall and rise of regionalism in the post war period • new regionalism substantially different to the old regionalism • relationship between regionalism and mulilateralism • motives • impact • Role of shallow v deep integration • which way forward?