Changing Faces of International Trade: Multilateralism to Regionalism
| Author | Sayantan Gupta |
| Position | Hidayatullah National Law University Raipur, India sayan.hnlu@gmail.com |
| Pages | 260-273 |
Changing Faces of International Trade: Multilateralism to Regionalism1
Page 260
The literature on regionalism versus multilateralism is growing as economists and political scientists grapple with the question of whether regional integration arrangements are good or bad for the multilateral system. Are regional integration arrangements building blocks, or stumbling blocks, or stepping stones toward multilateralism? As economists worry about the ability of the World Trade Organization to maintain the GATT's unsteady yet distinct momentum toward liberalism, and as they contemplate the emergence of world-scale regional integration arrangements (the EU, NAFTA, FTAA, APEC, and, possibly, TAFTA), the question has never been more pressing.2
The slow progress of World Trade Organisation (WTO) trade negotiations has led to an increase in regional trading agreements (R.T.As) for the purpose of gaining immediate market access. Economic considerations aside, R.T.As are also driven by geo-political and strategic considerations. Crawford and Fiorentino (2005) identified the following trends in the formation of RTAs:
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The formation of RTAs is a phenomenon observed across countries. In fact, regionalism is, for an increasing number of countries, the main element of their trade policy.
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Today's RTAs are broader in coverage than in the past. In that sense, they are becoming more complex. They contain provisions applicable to subjects that go beyond those negotiated at the level of the WTO- among them investment, competition, environment, and labour, among other topics.
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Reciprocal preferential North-South agreements are increasing in number. There is also a significant emergence of South-South partnerships.
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RTAs are expanding and consolidating across regions and within continents. Most countries today belong to at least one RTA. Indeed, a "spaghetti bowl" of multiple and overlapping RTAs around the globe has emerged.
As far as typology of RTAs is concerned, Free Trade Agreements (FTAs) are the most common type (84 percent at all RTAs in force vs. 8 percent for Custom Unions and 8 percent for Partial Scope Agreements). As for the configuration of RTAs, bilateral agreements account for more than 75 percent of all RTAs notified and in force, and for almost 90 percent of those under negotiation.
Most RTAs are between transition economies (29 percent), followed by North-South agreements (26 percent) and South-South agreements (21 percent). The number of South-South agreements has increasedPage 261 significantly in recent years. Trade within RTAs covered a third of world trade in 2002; however, if MFN rates of zero are excluded, the RTA share declines to 20 percent (World Bank 2005).
Some countries favour bilateral or regional trade strategies over multilateralism There are three major reasons. First, countries may hope to maximize their benefits through so-called first-mover advantages, i.e., they focus on the gains they could obtain from signing an agreement with a large trading partner before competing countries do so. Or they may seek to pre-empt other countries, by denying them first-mover advantages. The validity of this argument will be analyzed in the next section. Second, countries may seek to guarantee permanent access to particular markets. Signing an agreement bilaterally or regionally may be the quickest and easiest way of achieving that goal. Third, a bilateral agreement may be used as leverage to facilitate domestic reforms, particularly in areas that are not dealt with multilaterally, such as investment, competition, and environmental and labour standards.
The agenda of the eleventh Conference of UNCTAD (UNCTAD XI) centred on the coherence between national development strategies and global economic processes to promote economic growth and development, particularly of developing countries. A central aspect of the agenda was international trade and trade negotiations both at the multilateral level under the WTO, and at the regional (including bilateral, subregional and interregional) level. The interface between the two processes has important implications for the trade and development prospects of developing countries. They can be complementary and coherent with the multilateral trading system (MTS), and thus facilitate international trade and enhance development prospects, or they can be divergent and hence undermine the collective and national effort to use international trade as an engine of growth and development3. The coherence between multilateralism and regionalism becomes an opportunity and challenge for countries, as well as their regional arrangements and the WTO to manage in the evolving international trading system in order to maximize their potential benefits and minimize their potential adverse effects.
Effectively managing the interface between regional and multilateral initiatives requires greater synergy between national development objectives and external commitments. Central to this challenge facing developing countries is to design and implement an appropriate and strategic pacing and sequencing of national, regional and multilateral liberalization, so as to maximize development gains from these processes of trade liberalization and regulatory commitments, by rendering regional processes and multilateral liberalization mutually supportive and coherent. A challenge is that simultaneous participation by countries in a web of regional trade agreements (RTAs) while also engaging in the evolving MTS, both of which have overlapping agendas, increasingly affects sensitive development policies and overloads the limited negotiating capital of developing countries. Negotiating and benefiting from RTAs requires important human and institutional resources and infrastructures and resolving underlying asymmetries, including with respect to size and economic conditions. This new interface between multilateralism and regionalism in terms of coherence and compatibility deserves special attention by policy makers and requires careful and in-depth study.
The obvious answer is that multilateral trade negotiations under the World Trade Organisation (WTO) have been too slow. One recourse is to negotiate bilateral or plurilateral free trade agreements (F.T.As) in order to secure immediate market access.
Ironically, even though some 40% of global trade takes place among developing countries, there have been no serious efforts to negotiate trade liberalisation among the developing countries in a multilateral forum. The only feeble attempt was the General System of Trade Preferences (GSTP), launched under the auspices of the United Nations Conference on Trade and Development (UNTACD), but the offers made were meagre and symbolic. This could be explained by the tradition, rightly or wrongly, among the developing countries that they should not demand and negotiate market access among themselves in order to preserve a semblance of G77 solidarity. One way out is therefore to choose a special trading partner and negotiating a regional trading agreement4 (R.T.A.) either bilaterally or among a group of developing countries. It is therefore no coincidence that there has been a dramatic rise in the number of R.T.As since the Uruguay Round. As of January 2005, notification of 312 R.T.As has been made to the WTO. They are driven as much by perceived economic benefits of regional integration as by strategic and political calculations, if not more.5
Page 262
The conclusion of the Uruguay Round of multilateral trade negotiations in 1994, and the establishment of the WTO in 1995 to provide the institutional support to the multilateral trade agreements, constituted a significant milestone in the evolution of the multilateral trading system. The principle of "single undertaking" bound all WTO members to all the results of the Uruguay Round negotiations (with the exception of plurilateral agreements), thereby reinforcing the fundamental principle of most-favoured nation (MFN) treatment. With the conclusion of the Uruguay Round and the strengthened MTS, there was an expectation that exceptions to multilateralism, such as regional trade agreements, even though legally covered by the WTO under certain conditions, would either become less of an alternative policy option for countries or will need to be adapted and conducted in such a manner as to become outward-oriented, not inward-looking, and thus constitute building blocks for the new multilateralism ushered in by the WTO. This is apparent from the Doha Declaration6 where WTO Members stressed their...
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