The latest round of trade negotiations among WTO members was launched in the end of 2001. It’s two main aims are further reduction of trade barriers and trade rules revision. The fundamental objective of the round is to improve the trading prospects of developing countries. However, lower barriers and common standards would  definitely enhance conditions for multilateral deals, the Doha round is dead in all but name.  

Since the beginning of ’90 of XX century, there has been a significant increase in number of RTAs. Paul Krugman indicates that the main reason for turning away from cooperation under WTO to regional integration is disappointment from multilateral trading system. With evolution of the system, the number of members in such negotiations increased, which in turn decreased its effectiveness. Moreover sophisticated tools of protectionism meant that negotiations and monitoring compliance of their findings became more complicated. P. Krugman argues that diminution of cooperation within WTO results from regulatory differences among member countries.  

Bernard Hoekman and Michal Kostecki point out that regional integration offers better (than WTO) access to partner country’s market. The scope of obtained preferences depends on  the size of partner’s market and level of trade barriers which apply to countries that are outside the bloc. Described mechanism distinguish RTAs from trade regulations in WTO, which offers equal benefits for all member states and does not regulate all sectors of the economy. In a dynamically changing economic, political and social environment, regional collaboration may be more efficient, as countries clustered in small groups are able to respond rapidly for  changing business conditions.  

Another substantial cause of regionalism escalation is change of the USA position from the leader in multilateral cooperation to the partner in bilateral agreements with emerging economies. Developing countries seek to ensure their presence at the market of rich economies (mainly USA and UE) and if it is not implemented, such countries initiate creation of RTA which brings together another excluded countries. This mechanism triggers described by Baldwin domino effect (in which another South countries join agreement) and allows to improve their competitiveness and strength in the struggle for North partner sales market.  

Parthapratim Pal draws attention to the fact that after Uruguay Round developing countries were dissatisfied with WTO regulations, mainly because North countries promises about expanding global trade had not materialized in practice.  

As cooperation within WTO does not bring  expected effects, countries direct their efforts towards regional agreements.  

General Agreement on Tariffs and Trade (GATT) regulates rules of WTO insiders functioning in RTAs. Article I of GATT provides all WTO insiders Most Favored Nations clause (MFN). According to the provision, if any member of the organization grants privileges to contracting party, those advantages should be accorded to all other contracting parties. Hence, creating any regional agreements is contrary to this provision and require additional regulations. Among provisions governing notification of RTAs two most important are indicated: Article XXIV and so called Enabling Clause.  

Article XXIV stipulates that each two or more members are allowed to create free trade agreement (FTA) or customs union (CU) under condition, that all restrictions in trade are eliminated with respect to substantially all trade.  The  crucial assumption implies that, in case of FTA’s external tariffs cannot be raised, and in case of CU, common external customs duties cannot be higher than duties in contracting countries before forming union.  

Subsequent provision regulating cooperation of countries at various level of economic development is Decision on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries commonly known as Enabling Clause. This clause forms the basis for Generalized System of Preferences created to promote export from developing to developed countries. Provision allows developing countries to create preferential agreements, however implemented reductions do not have to lead to substantially free trade.  Enabling Clause permits exemption for developing countries from Article I GATT respecting MFN. According to that, developing countries are allowed to grant each other preferences without extending them to remaining members. Provisions stipulate that any more favourable treatment shall be designed to facilitate and promote trade of developing countries and in cooperation with developed partner, the latter should not expect reciprocation in reduction or elimination of tariffs and other barriers in trade.  

On the basis of described provisions (from WTO insiders) new RTAs come into force in order to provide field to reduce trading barriers. Analysis of existing RTAs prove that commonly they affiliate neighbor countries or countries from the same geographical region. Since RTAs apply trade liberalization only between member states, agreements worsen the position of third-countries (is discriminatory towards third countries).  

In the end of ’80 XX century, European Common Market establishment has initiated  new wave of regionalism, called new regionalism. However in various extend, contemporary RTAs have few inherent features. First of all, RTAs involve at least one emerging market which creates agreement with relatively rich country. Furthermore, South partners implement unilateral reforms aimed at trade flows liberalization and adjustment law and trade regulations to international standards.  

Almost all WTO’s members have notified participation in at least one RTA. During GATT rule, in the period 1948 – 1994, organization has received 123 notifications of RTAs and after forming WTO in 1995, over 300 additional arrangements have been notified. The following chart shows RTAs notified in GATT/WTO in the period 1948 – 2012. Significant increase in number of RTAs since ’80 confirms existence of the new wave of regionalism.
     

OECD’s report provides RTAs analysis of fifty five agreements for over twenty five years since their initial year in force. Elaboration takes into consideration  coverage of trade barriers elimination with respect to income per capita and geographic aggregates, as presented on Figure 2 and 3.
    
Using aggregates based on income per capita, South – South agreements make the greatest efforts in tariff elimination with duty free tariffs increase from 28% to 92 %. Analogical statistics for North – North notifications raised from 68% to 87%.  

Agreements in the Asia – Pacific region, just after the entry into force liberalize approximately 70% of trade and after twenty five years almost 97% of trade apply to zero duties. The greatest influence on such indicators have Singapore, Australia and Hong Kong, which immediately provide zero tariffs for substantial part of products. The Latin – American agreements also achieve significant trade liberalization. Initially, only 27% tariff lines are duty free, after ten years of functioning almost 85% of tariff lines are duty free and after 25 years over 95% of tariff lines are duty free. The Inter-regional group (which unites members from different regions) has, in contrast to Latin America and Asia-Pacific region, over 68% of duty free tariff in the beginning. Both, at ten and twenty five year period remains below those groups with approximately 86% of zero duty tariff lines.  

Despite benefits presented above, few concerns about RTAs still remain. First is the possibility that RTAs insiders develop at the expense of outsiders trough the appearance of  trade diversion static effect. Second risk is  that RTAs, in comparison to WTO, does not state all members equal, which may discriminate small insiders and turn trade liberalization into a hub-and-spoke model.  

J. Wieloch