Benefits and Drawbacks of RTA

Topics: International trade, Free trade, World Trade Organization Pages: 7 (2069 words) Published: February 8, 2013
3.4Benefits of RTAs

Under the current legal system of the World Trade Organisation (WTO), there are two categories of rules on the RTAs in the area of trade in goods: the first is based on the Article XXIV of the General Agreement on Tariffs and Trade, which generally applies to all RTAs; the second is based on the so-called Enabling Clause, which in exceptional circumstances, provide special and differential treatment (SDT) for RTAs among developing countries.

3.4.1. Advantages of Regional Initiatives

Regional initiatives have a number of advantages which explain why so many countries are members of such agreements:

Region Specific Issues
Firstly, a regional agreement can help in dealing with region-specific issues, such as border controls, transit, migration, or movement of labour. Countries recognize that other more opaque barriers than tariffs can hinder trade. These include border controls, phytosanitary restrictions, weak transport systems, and regulatory differences. RTAs therefore increasingly cover some of these issues, which are more suitably addressed at the regional level. Some RTAs have also included dispute resolution mechanisms, which, in the implementation phase of the arrangement, have proven to be extremely useful.

Reinforcement Of Internal Regulatory Or Structural Reforms Secondly, RTAs can reinforce internal regulatory or structural reforms. This can be done through external treaty obligations and visible political commitments. Often, small countries participating in a RTA have just made, or are trying to push ahead, major reforms.

Liberalization Of Services
Turning to large industrial countries, trade in goods as such no longer appears to be the dominant factor for participating in RTAs. A growing number of RTAs includes provisions on liberalizing services (including financial), investment, protecting intellectual property rights, labour and environmental standards, and dispute resolution. Industrial countries are keen to include such issues to counter what they regard as unfair competition due to, for example, piracy or poor labour standards. They also desire to open up markets for their services sectors, where they have a comparative advantage. •Political Objectives

Leaving aside economic goals for a moment, for some countries, political objectives are another important reason to enter into a RTA. Countries that may have far-reaching integration as a goal typically start out with trade agreements as a first step toward a deepening of political relationship. For e.g. initial agreements can cover trade and investment, then member countries later form an economic and monetary union, and then enhance the process towards a fully-fledged political union with a common constitution. Similarly, forging bilateral and regional trade ties is often linked to geopolitical and security considerations. Trade policy is a key instrument of foreign policy to secure regional stability by promoting the development of participating countries. In addition, political cooperation can reduce the potential for military conflicts among member nations.

Defensive Motive
A last reason to enter into regional agreements may be defensive. As more and more countries enter into regional agreements, the cost of non participation rises. While some countries may prefer the multilateral route, they may also feel that not entering into regional agreements can lead to a competitive disadvantage relative to countries that have entered into RTAs.

Greater Consensus
The benefits of trying to eliminate trade barriers in smaller groups of countries is facilitated through RTAs i.e. it can be easier to gain consensus among the relatively few members of a regional agreement as opposed to among all the member countries in the WTO.

While RTAs are signed for a variety of reasons, the impact on trade, growth, and employment seems crucial in determining the extent to which broader objectives are...
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