Briefing note: Regional trade agreements

Regional trade agreements (RTAs) have continued to rise in number and reach in recent years, including a notable increase in large plurilateral deals under negotiation. The WTO recognizes the potential benefits of such arrangements, and the WTO Secretariat works to gather information on RTAs to enhance transparency and to increase understanding of their impact on WTO members’ interests.

Disclamer

Updated: November 2015

THIS EXPLANATION is designed to help the public understand developments in the WTO. While every effort has been made to ensure the contents are accurate, it does not prejudice member governments’ positions.

In 2015, 13 RTAs were notified to the WTO, bringing the total number of RTAs notified to the GATT/WTO to 265 according to the RTA database. Of these, 127 cover goods and services, while 137 cover only goods and one covers services only.

The WTO acknowledges that RTAs encourage closer economic integration among participating members and may contribute to members’ economic growth policies.

When the 12 countries negotiating the Trans-Pacific Partnership (TPP) announced the conclusion of talks on 5 October 2015, WTO Director-General Roberto Azevêdo congratulated the ministers and negotiators. He said this was proof that a diverse group of countries can strike a complex trade deal.

However, he has also said that RTAs cannot be a substitute for the multilateral trading system as many key issues — such as trade facilitation, services liberalization, and farming and fisheries subsidies — can only be tackled broadly and efficiently through the WTO. Furthermore, a multilateral system ensures the participation of the smallest and most vulnerable countries and helps support the integration of developing countries into global value chains.

While RTAs can provide a higher level of market access among their members, they also effectively exclude other economies contrary to the WTO’s most favoured nation principle, which mandates equal treatment for all trading partners. WTO members are, however, permitted to enter into such arrangements under specific conditions which are spelled out in three sets of rules. Generally speaking, RTAs must cover substantially all trade, and help trade flow more freely among the countries in the RTA without raising barriers to trade with the outside world.

Transparency Mechanism

Since December 2006, all RTAs have been subject to the provisions and procedures of the Transparency Mechanism for Regional Trade Agreements. Established through a General Council decision in December 2006, and applied provisionally since then, the mechanism provides specific guidelines on when a new RTA should be notified to the WTO Secretariat and the related information and data to be provided to enable the Secretariat to prepare a factual presentation on the RTA. The RTA is considered by WTO members on the basis of the factual presentation.

The mechanism has generally been seen as a success for enhancing transparency, creating a comprehensive body of information on RTAs and establishing a forum for members to discuss their RTAs candidly. However, it is not without challenges, as indicated by the backlog of work due to notification gaps and delayed submissions of data and comments from members. More information on the transparency mechanism can be found here.

Proposals and MC10 outcomes

At the 10th Ministerial Conference in Nairobi, WTO members adopted a ministerial declaration instructing the Committee on RTAs to discuss the systemic implications of RTAs for the multilateral system and their relationship with WTO rules. Members also agreed to work towards the transformation of the current provisional Transparency Mechanism into a permanent mechanism. For more information on negotiations covering WTO rules for RTAs, please refer to the briefing note on Negotiations on rules.

Jargon buster

Regional trade agreements (RTAs): In the WTO, these refer to reciprocal trade agreements between two or more partners to liberalize tariffs and services. They include free trade areas and customs unions and economic integration agreements on services.

Preferential trade arrangements (PTAs): This is the term used in the WTO for trade preferences, such as lower or zero tariffs, which a member may offer to a trade partner unilaterally. These include the Generalized System of Preferences schemes, under which developed countries grant preferential tariffs to imports from developing countries. They also include non-reciprocal preferential schemes granted through a waiver by the General Council, meaning the member has been exempted from applying the most favoured nation (MFN) principle.

Most favoured nation (MFN): This is one of the WTO’s founding and guiding principles. It refers to the requirement to treat all WTO members equally, meaning that when a member grants a trading partner a special preference, such as a lower tariff, it has to do the same for all other WTO members.

GATT Article XXIV: Paragraphs 4 to 10 of this article, as clarified in the Understanding on the Interpretation of the GATT 1994, provides for the formation and operation of customs unions and free trade areas covering trade in goods. It allows WTO members to be exempt from the MFN principle so as long as they meet certain conditions.

Enabling Clause: This refers to the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries. Paragraph 2c allows developing country members of the WTO exemption from the MFN principle when entering regional or global arrangements to reduce or eliminate tariffs in trade in goods among themselves.

GATS Article V: This governs RTAs (economic integration agreements) in the area of trade in services, for both developed and developing countries.

Transparency Mechanism: This is a decision taken by the General Council in December 2006 which further clarifies rules for WTO members to notify the WTO of new RTAs and for procedures to be followed by the Committee entrusted with considering the RTA. The mechanism sets out the timing of the notification and the type of information that members must provide to enable the WTO Secretariat to prepare a factual presentation of the RTA. Members consider the notified RTAs on the basis of the factual presentation. The mechanism also requires members to notify changes to existing RTAs and to submit a report at the end of implementation of the RTA. It also encourages members to provide information on RTA negotiations. The transparency mechanism is implemented on a provisional basis. Members are to review and, if necessary, modify the decision and replace it by a permanent mechanism adopted as part of the overall results of the Doha Round.