What explains the dramatic increase in the number of Regional Trade Agreements across the world, especially in the last decade-and-a-half? Does the fact that RTAs can have World Trade Organisation (WTO) plus provisions turn them into a preferred negotiating option for developed countries?
WTO negotiations are becoming more difficult for the main developed country players to control in the same manner as before. Regional and bilateral deals have become the preferred framework for determining patterns of cross-border trade and investment, and for enforcing liberalisation and opening up markets in developing countries for capital based in industrialised nations.
RTAs have proliferated at an unprecedented rate compared to previous decades. By the end of 2003, nearly 290 RTAs had been notified with GATT (General Agreement on Tariffs and Trade), and, subsequently, with the WTO. Of these, more than 190 are estimated to be in force, and another 60 or so estimated to be operational but not yet notified.
RTAs have increased dramatically, despite multilateralism, for three reasons. First, RTAs have served to fulfil some aggressively unilateralist attempts by the United States (and later the European Union) to forge specific relations with other partners, independent of what has been happening on the WTO front.
Another factor has been the relative failure of recent WTO rounds, which explains the sharp increase in RTAs post-Seattle and later after Cancun. From the point of view of the developed countries, it is clear that interventions at the multilateral level are now being combined and buttressed with bilateral and regional trading agreements, to ensure control and access to markets across the world.
Finally, RTAs have grown in part due to the desire of developing countries for greater market access, either in developed countries or with each other. As such, the shift has both negative and positive implications for autonomous trade and industrialisation strategies of developing countries.
Would international trade in future be increasingly conducted through RTAs? What are the developmental implications of such a scenario?
International trade is already being conducted through RTAs (according to the WTO’s own assessment, 70% of trade is conducted through RTAs). It is not correct to have one position on RTAs; the exact implications depend on the specific bloc and the nature of the trade preferences provided. However, one needs to keep in mind that there is a world of difference between RTAs, especially in bilateral agreements. These agreements are initiated and pushed through by the governments of major developed countries, under the influence of large capital and aimed at forging trading communities among developing countries to resist the hegemony of large powers in world trade.
While the recent regional and bilateral deals involving major developed countries and weaker developing countries have been unequal and have involved even more extensive opening of markets than is required by the WTO, the uncertainties created by the greater reliance on such arrangements creates some space for engaging in more South-South deals across developing countries. This may have the potential, over time, to reduce the domination of large capital from the major developed economies in global trade and investment.
Should one view RTAs as building blocks to the multilateral trading regime, or as stumbling blocks? Is it possible to have an overall assessment of RTAs as welfare-enhancing or welfare-reducing, from the point of view of developing countries?
The standard economic theory which looked at the benefits of RTAs through either trade-creation (seen as good) or trade-diversion (seen as bad), assumes full employment and no scale economies and therefore is not really relevant to most countries today. In fact, if trade-creation provides cheaper goods for consumers but also destroys employment and livelihoods for large parts of the population (as happened with the peasantry and small producers in Mexico), then it is not good.
Conversely, if trade-diversion preserves some employment in a country in a period of recession or falling employment in other activities (as happened in some Latin American Southern Cone Common Market [or MERCOSUR] countries), then it is good.
So we should not have a doctrinaire approach but assess each RTA separately in terms of its own conditions and implications. It is true that when RTAs are between very unequal partners (usually because the weaker partner desires more market access in the economy of the bigger partner), then it may reinforce existing inequalities.
How do you think countries like India should strategise while deciding for or against RTAs, in light of the current impasse in the multilateral process at the WTO?
Today, most RTAs by developing countries are determined by the desire to get more market access, which, in turn, is driven by the obsession with export growth as the main instrument of economic expansion. This leads developing countries to accept all sorts of very damaging conditions in terms of foreign investment protection, intellectual property rights and the opening up of markets, simply to avail of what may be transient or minor gains in terms of market access.
Sometimes, it is simply the fear of losing existing markets to rivals that leads countries to engage in potentially problematic free trade agreements. Such agreements can then become a means of leverage in the WTO as well, allowing the large players to get more developing countries to accept multilaterally what they have already acceded to on a bilateral or regional basis.
What should be the key elements of a cost-benefit analysis for developing countries like India while engaging with RTAs?
The basic concern for India at present should be the likely impact of RTAs on livelihood and employment. Thus, the impact on agriculturalists, small-scale producers and workers should be the primary concern. All market access considerations should be judged in that light. Also, India should focus its attention on the manner in which RTAs are likely to affect domestic investment and growth in future through investment rules and intellectual property arrangements.
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