REGIONAL TRADE AGREEMENTS AND GLOBAL JUSTICE

Authored By:

Anushita Dubey (Research Intern)


ABSTRACT:


Trade Law is one of the concepts which fall under the domain of International Law. International Trade Law is an area that is particularly known for its trade unity and dispute settlement along with providing remedies for trade-related disputes among the nations, with the ultimate aim of achieving Global Justice. The scope of Regional Trade Agreements is exceptional from the beginning of the 1990s. This was made possible by obstructing the worldwide trade negotiations. In recent years, the proliferation of Regional Trade Agreements has made a fluid pathway for the Multilateral System of the World Trade Organization (W.T.O) through providing a substantial and wide range of dispute settlement mechanisms. In the contemporary world, Regional Trade Agreements are considered as the driving force of Liberalization in trade. In this research paper, the author would like to discuss the question of whether the sudden proliferation of Rational Trade Agreements is proving a stepping stone or an obstacle in terms of achieving multilateralism and also in providing global justice (equal opportunities of trade) to all the nations. The author would also like to focus on the legality of Regional Trade Agreements.


KEYWORDS: International Trade Law, Global Justice, World Trade Organization, Regional Trade Agreements, Liberalization, Dispute settlement, and Multilateralism.

HISTORICAL EVOLUTION:


Regional trade agreements were a relevant feature of the world economy throughout the half-century. The evolution of puzzling over such agreements has half-tracked policy developments. The primary wave of regionalism was the junction rectifier by the western European Union that followed the 1957 accord of Rome, which was analysed among the framework of the Vinerian union theory. The second wave, which was characterized by agreements within the Eighties going on the far side of advantageous tariff reduction towards deeper integration, was thought-about to be a "New Regionalism" requiring new tools. The third nod of bilateral agreements in the early 2000s continues showing more trends towards deeper integration, though it's in some respects hardly even regionalism(Pomfret, 2006).


BRIEF SNAPSHOT:


Economic nationalism is on its peak, while the process of decision-making is like a clumsy struggle within multilateral and regional trade institutions. Discrimination and distractions have always played a very significant role in implications for the trading system from a broader perspective. One of the cruces of the World Trade Organization is its non-discriminating principle for all trading partners. Regional Trade Agreements, the reciprocal preferential trade agreements, carried between two or more countries/partners in trade, forms exemptions, authorized under the World Trade Organization norms governed by a certain set of rules. Regional Trade Agreements ("RTA's") have become a fundamental mode of international trade negotiation and regulation. The further reduction of tariff and non-tariff barriers and general collaboration between nations in trade matters is now primarily negotiated within the setting of RTA's,(Kukovec). Regional Trade Agreement (RTA) is a treaty between two or more governments that define the rules of trade for all signatories. RTA's are a very impactful tool for increasing the development of any country. This agreement is signed to increase the free movement of goods and services among the member nations where they follow certain internal guidelines. Similarly, for non-member countries, they have constituted external rules. Examples of regional trade agreements include the North American Free Trade Agreement (NAFTA), Central American-Dominican Republic Free Trade Agreement (CAFTA-DR), the European Union (EU), and Asia-Pacific Economic Cooperation (APEC), (Smillie, 2020).

Average World Trade Organization's members now have an agreement with more than fifteen countries across the globe. RTA's include the North American Free Trade Agreement ("NAFTA"), the Regional Comprehensive Economic Partnership ("RCEP") between the Association of Southeast Asian Nations ("ASEAN"), the envisaged Trans-Pacific Partnership ("TPP") between twelve Pacific-rim countries, the Canada-EU Comprehensive Economic and Trade Agreement ("CETA"), the envisaged Transatlantic Trade and Investment Partnership ("TTIP") between the United States and the European Union, which would account for almost half of global GDP, and others. TTIP and CETA involve only advanced economies whereas RCEP and TPP are trade agreements between developed and developing countries, (Kukovec). Through RTA's member countries can gain traditional trades while strengthening their domestic policy reforms. It also increases multilateral bargaining powers. Through RTA's a member, the country is with the view that for sure they will get equal access to the trading process. They can also develop a strategic linkage between them and other trading countries.


TYPES:


Regional Trade Agreements are classified in the form of ranks, ranging from the basic type i.e. the free trade area to the customs union, and then to the common market and finally up to the economic union. The preferential trading agreements are a political expression, usually limited and non-reciprocal. It helps developing nations to gain larger market access. In free trade agreements, all the trade barriers among member countries are deducted which helps in the free movement of goods and services among themselves. Member countries of custom unions remove trade barriers among the partners by adopting common external trade barriers with further integration. A common market is a type of trading wherein there is the removal of internal trade barriers by the member countries and also adopt common policies when it comes to dealing with the non- member countries and allow members to move resources among themselves freely. An economic union is an agreement by which members eliminate trade barriers among themselves by adopting common external barriers and allow free import and export of the goods and services. A certain set of rules i.e. the economic policies and one currency trading system is also adopted by the members. Lastly, the full integration is an agreement of members who are considered as the final level of trading agreements.

The wide majority of RTA's include the North American Free Trade Agreement (NAFTA) and the ASEAN Free Trade Agreements. Due to these free trade agreements, less or minimum restrictions are imposed upon the national governments in terms of policy autonomy. The governments of the member countries are obliged to coordinate their policies in areas such as tariffs, immigration, taxation, and capital movements. There are few customs unions, which are Mercosur and the Southern African Customs Union. There exists one economic union i.e. the European Union.


PURPOSE OF REGIONAL TRADE AGREEMENTS:


Through RTA's, the states restrict how the trading manner should be and what types of goods and services to be traded within a particular state by adopting rules and policies. Every state herein has formulated their own rules and regulations, policy frameworks so that there won't be any confusion for the laws applicable. Also, all the states sign treaties by which the transactions of the trading can be carried out in a smooth regulating manner. In short, we can say that RTA's improve the diplomatic ties between the member nations.


TRADE CREATION AND TRADE DIVERSION:


Any form of arrangement in which countries have to comply with, coordinate their trade, fiscal, or financial policies with each other, is said as economic integration. There are various degrees of integration. In general, trade creation means increasing the level of economic welfare simply by entering into a free trade space. As a result, it provides a more efficient producer of the merchandise. Altogether in such cases, trade creation can raise a country's national welfare. On the other hand, a trade diversion means a trade space that diverts the trade far from a more-efficient provider outside the FTA and toward a less-efficient provider inside the FTA. Trade diversion can scale back a country's national welfare however, in some cases, national welfare might improve despite the trade diversion,(2010). For the trade creation and diversion, the potential required depends upon the extent of RTA's external tariffs. In an alternative approach, one can say that the higher the external tariffs, the larger the trade diversions, possibly to occur. Trade creation (TC) happens once the introduction of an RTA gets permitted from an additional economical producer of the merchandise,(Impact of Regional Trade agreements: Trade creation and Trade Diversion in Western Hemisphere).

There is always a dominance of trade creation over trade diversion. Why is it so? The solution is in 2 elements. Firstly, the governments appear to be selecting their RTA partners well. As an example, variables that advice larger gains from a bilateral RTA (such as proximity between the members, a similarity in their GDP's and an oversized distinction in their issue endowments) are sharp predictors of whether the 2 countries even have a typical RTA. Secondly, once countries sign an RTA, their governments are not the ones who solely lessen their tariffs vis-à-vis their RTA partners, they do this allegedly, they jointly bring down the trade barriers on imports from countries outside the axis. This cannot be a part of the agreement, thus governments liberalize outwardly, as a result, they favour to do this — and with none form of reciprocity from the favoured non-members of the axis,(Regional Trade Agreements: Blessing or Burden, 2010).


REGIONALISM VS. MULTILATERALISM:


Many nations after World War II, prompted to adopt the policy of Liberalization. To achieve this objective, the General Agreement on Tariffs and Trade (GATT) was one of the main instruments along with the World Trade Organization. Earlier, less than 50 countries were the signatories of GATT but as of the reports of 2010, it comprises nearly 153 members. As both the GATT and World Trade Organization agreement makes mandate for all the member nations to reduce their trade barriers, these agreements simultaneously are referred to as a Multilateral trade practice. The formation of preferential trade arrangements, free trade areas, customs unions, and common markets are some of the alternative ways adopted by many countries as these regional trade agreements contain geographical proximity. This is known as the concept of Regionalism.

The preferential trade arrangements are supported because they significantly represent a shift in the direction of free trade agreements and if it is economically the most effective trade policy, it would seem to follow that any shift in terms of free trade will prove beneficial, having an economic efficiency. When a free trade area or the customs union is made among two or more member countries, then they agree to reduce their tariffs up to zero among themselves but they try to maintain their tariffs against other WTO member countries. Hence, the free trade area is a discriminatory policy. The matter of concern here is that although regional trade agreements are liberalized forms of trade among the member countries, the arrangements may increase incentives to raise protectionist trade barriers against countries that are non-members of WTO. The logic behind this is larger the regional trade area relative to the size of the world market, the larger will be that region's market power in trade. The increased market power, the higher would be the region's optimal tariffs and taxes earned through taxes. Thus, the regional trading approach in the form of liberalization could lead to the formation of larger blocs of trade that can freely trade among members but choke off trade with the rest of the world. For such reasons, some economists have put forth the argument that the multilateral approach to liberalization in trade activities help to achieve international free trade than the regional or preferential approach. Much has been written on this subject recently. Here we have merely scratched the surface,(sylordotorg.gitbub.io).


EVOLUTION OF RTA’S, 1948-2020:


Figure 1 below, shows all RTA's notified to the GATT/WTO (1948-2020), including inactive RTA's, by year of entry into force, (World Trade Organization ).


Figure 1

The growth of Regional Trade Agreements, its expansion, and the strengthening process have remarked significant growth since the period after the 1990s. From this period, it began going beyond the traditional trade practices like Liberalization, encompassing disciplines going beyond World Trade Organization rules on various multi-disciplinary issues such as services, investment, competition, government procurement, environment, and labour,(UNCTAD).


LEGAL CONCERNS:


The credit for the trade liberalization taking place internationally goes to RTA's. Due to the vast domain of RTA's, it has raised several concerns about the democracy and legalities of the agreements. RTA's are also known as monopolized trading, in which productivity is increased among the nations while excluding the other trading partners. Whether RTA's are proving to be a stepping stone or an obstacle by the multilateralism process or is favourable or conflicting is a very heavily debated topic in the contemporary context.

Those having concern with the undesirable tendency towards regionalism emphasizes on its prospective to divide the Multilateral Trading System into several closed, competing blocs. As these trade blocs get expanded their market power too gets increased and thus the incentive to influence the terms of trading in their favour provides an incentive to use the trade policy for restricting the imports. Thus, the argument presumes that the trade blocs are nothing but the customs unions, having a similar trade policy, when in fact the emerging continental blocks incline towards the free trade areas (FTAs). Further, there is no such evidence to put forth for the consideration regarding the RTA's that they have pursued this incentive to increase the external barriers. As stated above, it is inclined towards creating regionalism as the outsiders attempt to minimize the cost related to trade diversion by being a part of it as an insider. This raises one of the new phenomena of overlapping RTA's which has increased their complexity and their relationship with the MTS. One highlighted issue is the negative effects on trade of different rules of origin, and how rules of origin can be designed to have a protectionist impact. There is a sense of fear that, as the member nations pursue deeper integration within RTA's, the provisions related to the dispute settlement provides that the New Generations RTA's could build conflicting jurisprudence associated with WTO. The complete view of the relationship between RTA's and the MTS is based on various arguments. In the first place, it is argued that RTA’s by moving at a faster pace than WTO rules, while sharing its goals, represent a way of strengthening the latter. Secondly, it is argued that the formation of smaller regional groups might be more effective in tackling the newly emerging areas such as services, investment, intellectual property protection, cooperation in competition policy, technical standards, and government procurement compared to multilateral rule-making. By acting as a medium to try the best alternative possible strategies and policies to encompass the issues, it is argued that by easing the reach of agreements on these issues at the multilateral levels. Third, despite the fear of trade diversion, the empirical evidence suggests that trade-creating effects dominate in major RTA's thus enhancing world welfare. In one of the studies conducted by the WTO, it shows that there had been a fixed trend toward broader as well as faster market access liberalization on non-tariff measures in RTA's, in response to developments in the MTS. Although on an easy static analysis third parties could also be deprived by trade diversion, this is often less obvious in an exceedingly dynamic context of overall growth, and therefore the demand for imports is enhanced as a result of the combination method. Fourth, it is argued that RTA's have had a positive impact by facilitating the combination of developing countries into the global economy. The fact that this discussion exists highlights the importance of World Trade Organization rules governing the institution of RTA's to reduce their adverse general effects on the MTS,(Alan Matthews, 2003).

It is also argued that present rules lack clarity in addressing the issues related to integrating WTO commitments on the reduction of agricultural support in RTA's. Also, the developing nations have a particular interest in having very strict rules and regulations on RTA's of WTO in the current development phase of world trade.


OTHER IMPLICATIONS:


There are a variety of institutional problems within the design of RTA's which can affect their capability to act effectively. Most RTA's between developing countries are intergovernmental with very little proof that countries are ready to cede authority to international bodies. As a result, the 'commitment institutions' underpins the property of those arrangements which seem to be weak. The pliability provided in the setting of integration ambitions is more often valuable together with creating an allowance for variable speed pure mathematics (geometry) formulations for the developing country, the economic groupings with overlapping memberships, and different integration aims and objectives. Excellence may be created between regional integration by supporting the exchange of trade preferences and policy coordination. The objective of such integrations is to push an additional economical allocation of resources, to intensify competition, and to underpin political quality vis-à-vis personal investment. A successful RTA could have positive spin-offs in upping the availability of regional public merchandise. The inferiority principle will be accustomed to organizing a discussion on the acceptable role and competences of regional authorities’ vis-à-vis national and native ones. This can be a decent place to begin to rely on the role of regions in promoting food security. It is exactly those regional food security activities that add worth to national efforts through stabilization or distribution, or wherever there are sturdy potency arguments for a regional approach that ought to be inspired at the regional level.


GLOBAL JUSTICE:


The fairness of institutions of global economic governance ranks among the most pressing issues of our time. The approaches adopted for understanding the complexity of the treaties and inter-governmental organizations like WTO are inclined towards uncritical acceptance of an economic focus which highlights the gains from trade and the positive effect of progressive trade and investment liberalization. While the economic arguments are compelling, other ways of thinking about the roles of these institutions have received less attention,(EconPapers, 2013).

Regional trade agreements include customs unions and free trade agreements. The inequality lies within the non-existence of a standard customs border within the case of customs unions. Therefore, suppose if 2 countries- A and B are FTA partners, can notwithstanding impose different duties on country C imports, whereas at an equivalent time granting advantageous treatment to everyone. A significant criticism is that in every RTA's, customs unions and FTA's alike, discriminate against non-parties. In distinction, Most Favoured Nation (MFN) treatment operates within the multilateral system to increase concessions created by any member of the World Trade Organization (WTO) on to any other economy to all members. RTA's don't seem to be, however, the sole forms of selective trading arrangement. At the peak of the conflict, the developing countries secured 2 temporary waivers before finally securing a permanent GATT (General Agreement on Tariffs and Trade) call (the supposed "Enabling Clause") i.e. preferential market access. The developing countries had sought-after two conceptually distinct modifications to international trade rules – (a) non-reciprocity and (b) advantageous market access. Each of these ideas became preferential options for the mercantilism system. However, non-reciprocity continues to be contentious in world trade policy discussion and the current Doha round multilateral negotiations, preferential market access for developing and least-developed countries (LDCs) has become a widespread, well- established feature of the global trading system,(Lim, 2013).

In a world where tariffs and non-tariff trade barriers have diminished, alternative trade prices came to the fore, and as markets become additional regionally or globally integrated there are increasing pressures for harmonization in an exceedingly larger range of policy areas. In this method, regional arrangements have a role to play as some policy regimes are desirably supra-national. Regional arrangements may additionally be testing grounds for innovations in policy coordination or harmonization, and thus act as building blocks towards distinctive well-designed international policies. On the other hand, the increased complexity of regional arrangements that cover such areas release opportunities for managed trade that may profit insiders and become an obstacle to progress at a worldwide level.

CONCLUSION:


In the contemporary global world, the conflicts between domestic equality, global procedural fairness, and global distributional equality are a matter of serious concern. Trade liberalization is having much significance in improving the economic prospects of undeveloped or poor countries. This is practised for achieving humanitarian global distributional equality reasons. Despite all this, any nation's participation in such trade agreements represents nothing but the contributions of the nation's remarkable policies. These policies have the most important role to play in the domestic space of underdeveloped or poor countries. The WTO plays a noteworthy role in allocating, concerning the rights, privileges, opportunities, and burdens created by the laws they administer and the productive social relations they structure.

BIBLIOGRAPHY

1. Alan Matthews, Food and Agriculture Organization of the United Nations. 2003. Legal Aspects of Regional Integration. Regional Integration and Food Security in Developing Countries. Rome: Food and Agriculture Organization of the United Nations, 2003, 2003.

2. 2010. Economic Integration: Free Trade Areas, Trade Creation, and Trade. [book auth.] Maurice Obstfeld, Marc Melitz Paul R. Krugman. International Trade: Theory and Policy. Steve Suranovic, George Washington University: The Saylor Foundation, 2010.

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10. Smillie, Dana. 2020. World Bank IBRD.IDA. World Bank. [Online] 5 April 2020. [Cited: 22 July 2020.] http://www.worldbank.org/en/topic/regional-integration/brief/regional-trade-agreements.

11. sylordotorg.gitbub.io.Economic Integration: Free Trade Areas, Trade Creation, and Trade Diversion.

12. UNCTAD. Regional Trade Agreements. United Nation Conference on Trade and Development. [Online] [Cited: 29 July 2020.] https://unctad.org/en/Pages/DITC/TNCD/International-Trade-and-Regional-Trade-Agreements.aspx.

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