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Countries need to ensure regional agreements further global trade liberalization

Countries must ensure that a growing number of regional trade agreements become an instrument to liberalize trade at a multilateral level, according to newly published book by the Inter-American Development Bank (IDB) and the World Trade Organization (WTO).

“Regional trade agreements are here to stay. Virtually all countries are a member of at least one regional trade agreement,’’ said Antoni Estevadeordal, head of the IDB”s Integration and Trade Department. “These agreements have very complex and specific regulations. Governments must ensure these rules will not hurt but help countries achieve the ultimate goal of freeing markets to trade worldwide.”

The book, Regional Rules in the Global Trading System, produced by a team of economists led by Estevadeordal, is a detailed study of regional trade agreement rules and their relationship with multilateral trade regulations. The book offers an empirical analysis of the existing regional trade agreements (RTAs) around the world, filling an important gap in the trade literature, which until recently has been focused on the theoretical impacts of such accords.

The book gives important insights for policymakers at a time nations are investing heavily in regional trade accords. Currently more than half of the world’s merchandise trade flows among countries connected by a common regional trade pact. Some 200 RTAs currently in force have been notified to the WTO and the number will continue to rise given that several nations are currently negotiating and proposing new agreements.  If one takes into account the accords not in force or under negotiation, the number of RTAs is likely to rise to 400 by 2010.

The study finds that RTAs are deeply liberalizing. Most RTAs freed more than 90 percent ofproducts by the tenth year they were implemented. RTA members have at the same time liberalized their markets at the multilateral level, as well, which has helped make the RTAs trade-creating, rather than “trade-diverting”. Often containing rules that go beyond WTO provisions in scope and specificity, RTAs have also helped further international rule-making in such areas as services trade and foreign investment, However, in some sensitive sectors, like in agriculture and textiles, for example, some agreements contain regulations such as quotas or special safeguards that restrict liberalization.

Findings and Policy Implications

In terms of adoption of trade remedies -- anti-dumping rules and countervailing and safeguard measures, which can be used to curb trade against non-members-- the book found that 17 percent of the RTAs surveyed had given up the adoption of at least one type of trade remedy. Moreover, several accords had provisions that limited the scope of trade remedies against other RTA members.

The book also shows that besides goods, many RTAs now regulate trade in services, investments, standards, intellectual property and competition rules as well as other issues not directly related to trade such as labor and environment. 

It found that commitments to liberalize trade in services in regional accords tended to go beyond schedules set at the multilateral level and offers in <?xml:namespace prefix = st2 />Doha. Moreover, a significant number of RTA rules on competition created benefits that are non-discriminatory and benefitted firms beyond RTA member.

The study warns that countries in RTAs -- in their efforts to harmonize product standards with their partners -- may find themselves trapped in a particular regulatory framework that it is costly to change.

“These developments suggest that RTAs have become a major and strategic part of commercial policy for many countries,” Estevadeordal said. “Regional agreements are just the beginning of a long and complex process for countries to further their market access and competitiveness in global markets. But the first important issue is to ensure the RTA rules are compatible with those in the multilateral trading system.”

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