Introduction
Trade and all the operations that surround trade are governed by set regulations both locally and internationally. Trade is a key area in the economy of nations and makes immense contributions to the growth of nations. There are several organizations that govern the dimensions and the nature of trade worldwide and regionally. These organizations are healthy for the sustainability of trade in the world.
Some of these organizations are the world trade organization and the regional trade agreements. They work to push for considerable reductions in the trade tariffs and subsidies. They are also good tools of securing improved export opportunities for the producers. The world trade organization is a market mover in the world of trade. It is the major firm that supervises and liberalizes trade worldwide.
Through the world trade organization, many agreements have been formed and made to stabilize the field of trade. The trade organization has been highly involved in conflict resolutions processes and helping the member countries to adhere to the agreement rules.
In this highly competitive trade era, there has been a rapid growth of regionally oriented trade agreements which has contributed to the weakening of the multilateral trading systems. The trade agreements are a pertinent part of the world trade organization but they can strengthen trade or at times break the already built up pillars of trade.
Globalization, neoliberalism, free trade and open markets are criticized at a very high rate. In the global market big economies are shaping trade and their interests rule the market. The politically and the economically stable nations are dominating the market trends which simply dictates their interest.
How WTO relate with the regional trade organizations
Regional trade agreements are a segment of the international trade and a key feature of multilateral trading systems that presents the members of the world trade organization with opportunities and challenges. They promote free trade at the regional level helping implement reforms domestically.
This helps lesser economies to wheedle aggressive environments, by addressing factors affecting production, which helps them to embrace competition at a suitable pace thus incorporating the amalgamation to the world economy.
The growth of the regional trade agreements heaves a concern about the declining power of the multilateral trading system. In the European countries, they are mainly pivoted on the European Union. These agreements are deeply rooted in the domestic regions and their coverage is immense.
They have extended to the service industry. Regional trade agreements open up a freedom in competition in the international market. They help build up complex set of connections and regulatory regimes which focus on the trade policies.
There have been some points in the RTAs some disagreement has been depicted in elucidation of some elements pertaining to their procedures with the WTO. But over time they have made up agreements on the procedures to apply to their members. For example, streamlining the examination processes by the WTO which was solved through the creation of the committee of regional trade agreements
The RTA operates under the guidance of regulations and tariffs which are upheld regionally. They are maintained for substantial commerce in the regions. RTAs are the mediums for promoting deeper incorporation in their economies than is presently through the WTO.
It has become hard to scrutinize the consistency of RTA with WTO due to the divergence of the trade agreements. Though this is not the only problem, there has been a pressure for them to clarify the rules for multilateral negotiations to put a clear line of rules.
The RTA builds the base for the WTO agreements with more comprehensive discipline. They assist strongly in the reinstatement of trade roles and solving the global economic predicaments which enhance economic growth and development.
The agreements are generally introduced so as to deal with the issues that revolve around trade and investment. They therefore resolve the crisis in these areas where they also closely identify areas for on capacity building.
Nature and characteristics of RTAs
Traders in economies where they operate without government interventions, they are often forced to form policies that govern their businesses. These policies are commonly referred to as free trade agreements. The policy authorizes mutual gains from the trade. These policies make easier communication of the true supply and demand leading to effective resource allocation.
According to the Office of the United States Trade Representatives (2010, 1), the trade agreements have continually become complex in that they are not only opening up free trade within the signatory countries but they have shaped both international trade and investments flows within their localities or regions.
They are affecting the large regions they are located in for example Asian Pacific regions. The trade agreements have had major implications to the political, social and economic status in the local and domestic levels.
Comparing with the coverage of the earlier agreements the RTAs have expansive coverage. The coverage is approximately 100 percent, even though it has been challenged in the field of agriculture. Under the examination of world trade organization the RTAs, in the industrial sector there is full coverage while in agriculture it is selective coverage.
Another characteristic of the trade agreements is that they eliminate or reduce exercise duties charged to the member countries while trading with each other. They have offered coverage of investments, intellectual property, and deal with technical barriers to trade. The agreements deal with quantitative restrictions (Dent, 2010).
RTAs use the synchronization and elimination of trade procedural barriers to help its members accomplish economies of scales and help them gain a competitive edge internationally. The most imperative one is the ability of establishing a common single market in the region of existence. The RTA help simplifies the rules set for the third world countries which are a great advantage to them.
Though the harmonization of standards has not ventured well in the international level, it has been effective to the regional agreements. These harmonization yields sunshine internally in that they lead to gains internally but yield undesirable effects on the third parties.
In comparison to the unsuccessful trade agreements of the 19th century the modern RTA‘s operations are more widespread and established better.
They have been designed specifically to achieve trade diversions. In consequence trade within the RTA has extensively been enhanced and developed in a rapid rate than trade from the non-members. There has been more than 2 percent a growth difference between the member nations and the non-members.
Though trade agreements have to some extent promoted growth of trade within the members’ states; we cannot be ignorant that some regional trade agreements have led to the breakdown of the trade in these regions. Some states have taken an advantage of dominating the market using regional trade agreements to limit markets for their commodities.
The whole quintessence of regional growth by the RTAs deflects the attention from multilateral trading systems. According to the views of Lawrence (1999) liberalizations brought forth by the regional free trade agreements, enhance and strengthen the hand of export and pro-trade forces. They are an open opportunity for the countries joining the multilateral trading systems have to compete among themselves.
According to Allan Winters, RTAs are likened to street gangs which most of us don’t like but they are allover in our neighborhood. He also says that the models been applied in the regional free trade agreements have not been clearly determined where they encourage or discourage the evolution towards free trade. In his view the regionalism increases the risks of upheaval of trading systems.
The free trade agreements have enable the nations enjoy good environment, social and economic health. This is mainly as a result of effort to make trade good for the advantage of the countries economy.
To make business run well among the signatory countries the governments of those countries make sure the infrastructure with the nations are good. This improves the living standards of the people and opens up opportunities for them hence they are able to improve their living standards.
The trade agreements have changed from regional to preferential agreements within the years. This is because countries have signed them with the nations they would like to interact with in business. This makes other nation end up been locked out of the deals and the have to labor hard in order to trade with some of these nations (Khor, 2005).
The bilateral agreements are said and thought to lead to trade diversions. This is where by the partner divert away products that may be more cheaply priced in favor of products from their partner. They therefore sell their goods at a lower price than expected to gain favor with the partners or they end up been inefficient.
The trade agreements between the developing nations lead to low bargaining capacity of the economies which ends up to weaker political situations and negotiation of resources. The developing are able to work well on the basis of non-reciprocity and thrive well in non- reciprocal outcomes n which they are obliged to open air markets (Dent, 2010).
The RTAs have tried to lift up some of the policies and allow flexibilities. The inclusion of many policies puts a lot of pressure on financial resources in developing countries and requires a lot of technical expertise.
Impact of Regional free trade agreements on WTO
Regional trade agreements (RTAs) have grown at a high rate in the recent years. These trade agreements are aimed at reducing trade barriers within the member states in a given region. They are enacted in the belief that they will enhance economic growth and development among the member states. The increasing growth of regional trade and trade agreements has created interdependence between the trade partners (Khor, 2005, 1).
The terms of trade within a given regional trade only favors the members of the agreements and discriminates the non members. This has great impact on the World Trade Organization (WHO) whose aim is to enhance multilateral trade between nations.
The Regional trade agreements attempts to increase trade efficiency through eliminating tariff barriers. WHO tries to liberalize international trade and its mandate is to ensure that there is fair trade between nations in the world.
World Trade Organization is superior to the RTA but gives the member of the RTA a certain degree of autonomy. The members of the regional trade agreements are considered exceptional by the WHO. They are allowed to operate within the framework of the RTAs and may not be members of the WTO.
The regional free trade agreements have also improved interdependence and trade between member countries. Countries come together and agree to eliminate trade tariffs between themselves in order to make trade efficient and more beneficial to them. This is meant to promote economic growth between the countries.
There have been debates on whether Regional Free Trade Agreements (RFTA) promotes or undermines the WTO processes in eliminating trade and investment barriers. The economies that come together to form RFTA argue that they are heading towards realizing global trade liberalization that is a major goal of WHO.
It has not been made clear on how the RFTA complements WTO process and therefore the contribution of RFTA in WHO remains not fully unraveled. One of the principles of the WTO is to ensure there is non-discrimination in trade between the members. The members of WTO should be given equal treatment while trading with the other members because they operate under the same conditions.
The same terms applied by one member to another member should be the same to all members. RFTA discriminates non members because they do not apply the same conditions to members and non members. This contradicts the stipulations of the WTO and therefore there is no complementation.
Arguing in this direction, the RFTA are not headed towards assuring future multi-lateralization because they discriminate against non members. Despite this argument, it seem that GATT/WTO rules allows the RFTA to be discriminatory in nature because they categorize them as exceptional because they have potential to discriminate against non members.
Most economies are therefore claiming that RFTA are in keeping with the WTO. Non-discriminatory global free trade in this case is of great benefit to the trading partners as they enjoy the same tariffs for similar commodities. This shows that the superiority of WHO over RFTA is still in place (Viner, 1950, 12).
There is a big challenge in using RFTA in the evaluation of the multilateral rules because the RFTA have varied rules and may not be unified with ease. If RFTA could be allowed to run without any external interference, they can boost investment, labor and environment but may not be the best ground to measure the effectiveness of WTO.
The RFTA are mostly formed by likeminded economies and they are therefore effective regionally and domestically. Though RFTA may not directly meet the goals of WTO, they greatly develop the economies of the member counties. However, the same could be achieved through multilateral approach.
The RFTA may make investments by the member countries inefficient especially where there is proliferation of FTAs in various regions (Krueger, 1997, 8). This creates many rules and regulations that are hard to unify and therefore the partners belonging to more than one RFTA are unable to make investment decisions.
It may pose a challenge in identifying the rules, regulations and incentives that apply to a certain partner belonging to more than one trade pact. Proliferation of FTAs also causes a product to have different tariffs because the tariffs that apply in one region are different from the others (Schiff, 2000, 19).
This causes confusion to the member states as they are not able to make decisions with ease especially if they belong to more than one trade treaty. The presence of differing rates for the same product is against the principle of WTO that there should not be any form of discrimination among trading partners.
The prices of the same commodity will also bring conflict in the market because it will have different rates depending on the treaty that govern the country from which they are imported.
This will greatly hinder the realization of the goals of the WTO in those regions. Proliferation of FTAs with different terms and rules of trade if not well regulated, it may cause a stagnation of multilateral liberalization which is the main goal of GATT/WTO.
According to Rajan and colleagues (2001, 18), RFTAs emphasizes on integrating market operations for its member states in order to improve trade diversions and trade creation within the region covered. This creates new and competitive business environment that will increase productivity and also depreciates prices as appropriate in order to facilitate trade.
RFTAs also try to include in their framework the agreements on tax and investments that help boost the realization of WTO goals. Financial markets are also integrated and product standards between member state s are harmonized in order to ensure effective trade.
There also important issues like labor and environment that may not win immediate support from the WTO though they are important in multilateral trade liberalization (Findlay & Pangestu, 2001, 17).
Today’s RFTAs are very supportive to WTO and can be used as grounds for testing complex trade issues and trade negotiations at multilateral level. This is due to their diverse coverage that not only includes trade issues but also other issues affecting a large number of counties like the environmental issues.
Since RFTAs are very effective at the regional levels, their operations can be made multilateral so that they can help in making international levels effective world wide. For the RFTAs to become fully consistent with the global Most Favored Nation trade that the WTO seeks to achieve. RFTAs can be made multilateral and discriminatory if the issues are discussed outside their framework.
That is, WTO should continue pursuing liberalization and not concentrate much on RFTAs. In so doing, RFTAs will gradually be made multilateral and non discriminatory. Alternatively, measures can be put in place within RFTAs that will enable them to become multilateral. Some of these measures should include allowing automatic membership (Sager, 1997, 341).
Any country that wishes to join RFTAs should be allowed to join on the same terms as the members that joined during the formation of those RFTAs.
There have been restrictions on who should join RFTAs and this has created discrimination that is against the stipulations of WTO. If such restrictions could be eliminated, most of the countries that could not join at the current terms will be able to join and benefit as the other countries (Bhagwati, 1995, 23).
Pursuing global multilateral trade should also be one of their core goals. This will make them consistent with the WTO both in the long run and short run. This will also help eliminate the barriers to trade and investments that are pursued by the world trade organization.
Conclusion
Trade in any country is important because it allows people to acquire goods that they do not produce and sell what they produce. This enhances interdependence between countries and regions. In the increasing need for countries to trade with one another has lead to the establishments of trade agreements in order to ensure there is fair trade between nations.
World Trade Organization was formed in order to ensure that there is fair trade between nations and that nations acquire economic growth and development through trade with each other. Nations have also come together to form regional trade blocs which are regulated through regional trade agreements.
Mostly the members of regional trade agreements have common economic interests and establish laws and regulations that govern trade between their member states. One of the major characteristics of regional trade agreements that have raised issues in the international trade is their discriminative nature (Steinberg, 2002, 341).
They charge different trade tariffs to non members which to some extent are against world trade organization stipulations. The members of regional trade organizations have eliminated trade barriers among themselves in order to come up with what they call Regional Free Trade Agreements (RFTAs).
These agreements due to their discriminative nature may not necessarily be in keeping with the WTO. WTO categorizes RFTAs as exceptional to avoid the contradiction brought about by their discriminative nature.
Reference List
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