Question

Review the WTO and the regional trading agreements. Which do you think is more effective in promoting free trade, the global or regional cooperative agreements? Why?

Answer 1

Trade plays a very important role in economic development as the economic theories on international trade suggests. However, governments around the world are sceptical about free trade. Their concern lies on the welfare of the domestic producers who are hurt due to free trade. Thus, obstructions to trade has been evident.

The World Trade Organization (WTO) is an international organisation that regulates the rules of trade among its member nations. The WTO works to remove trade barriers, facilitate trade and solve trade disputes among its member nations. According to WTO site, it has 164 members that constitute 98% of the world trade.

Regional Trade Agreements (RTA), on the other hand, are treaty that is signed by two or more countries to facilitate trade among themselves. RTAs can take form of Preferential trade areas, Free Trade areas, custom unions, common market or economic union. The rules of trade are set by the member nations depending upon their negotiations.

Regional Trade agreements are an increasing phenomenon. There are hundreds of RTAs already notified to the WTO and it is evident that regional liberalisation is on the rise. Theoretically, the RTAs create two effects, trade creation(between the member countries) which is a positive thing and trade diversion( from non-member to member countries) which is not welcomed (atleast theoretically) due to discriminatory nature against non-members. It has been seen that trade creation has been the dominant effect in RTAs. Thus, RTAs are beneficial. It boosts trade and also help the officials gain expertise in concluding trade negotiations.

If trade negotiations at a regional level is successful, it would be helpful in negotiating international agreements at the WTO.

For now, we can say that RTA are more effective in promoting free trade because they are evidently growing and nations are benefiting. The RTA are easily negotiated whereas multilateral agreements are stuck at WTO. However, WTO looks over the RTAs as well and due to its guidelines and assurances, the RTAs may be on rise.

As the WTO puts it ,RTAs complement WTO rather than challenge it.