The systemic collision of RTAs depends not simply on their internal political dynamics, but also on what non-members do in reaction to them. The most obvious trade-policy reaction of third countries is to persuade the RTA to reduce its barriers to external trade, perhaps in part so as to obtain compensation for any increases in tariffs. Thus, the first part of the Dillon round (1960-1) was stanch to renegotiating a balance of concessions ensuing to the implementation of the EEC's common external tariff (Patterson, 1966).
In practice, regional integration (in particular by the EU) has been a recurring reason for third parties to engage in MTNs under GATT auspices. The second constituent of the Dillon round was to diminish the level of the common external tariff of the EEC, thereby limiting possible trade-diversion effects. The similar objectives played a role in the Kennedy and Tokyo rounds. At the time of the Kennedy round the margins of preference for EEC members had increased considerably, as most of the internal elimination of tariffs had been achieved.
'The record leaves undoubtedly that a compelling factor in the decision of Congress to pass legislation authorizing a 50 per cent linear cut in tariffs. . . was the belief that the Common Market posed a potentially serious threat to the growth, and perhaps even upholding of American exports. ' (Patterson, 1966: 176). Thus, 'the task of the Kennedy Round. . . was to stab to mitigate [the] upsetting trade effects of European economic integration' ( Preeg, 1970: 29).
In this, third countries were to some extent successful, as the Kennedy round apparently prevented one-third to one-half of the trade diversion that might have occurred from European assimilation ( Preeg, 1970: 220). The first enlargement of the EEC in 1973 — to contain Denmark, Ireland, and the United Kingdom — was one issue behind the launching of the Tokyo round, as was the force of the CAP. A major objective of the United States was to progress its market access for agricultural products and to curb the EU's use of export subsidies.
Links between regional assimilation and the Uruguay round integrated the adoption of the Single European Act (the EC-1992 programme), the accomplishment of the Canada-USA FTA, the negotiations on the NAFTA, and the ongoing distortions of world agricultural trade induced by the EU's CAP. The preceding does not imply that RTAs are good because they give countries an incentive to practice concurrent MTN-based liberalization.
Without the EEC, much more progress might have been made towards multilateral liberalization (Winters, 1994b). Another trade-policy option for third countries is to search to join existing RTAS. The primary instance here is again the EU, which extended from six to currently fifteen member states, with a number of added accessions likely in the coming years. In North America, Mexico was encouraged to seek accession to Canada-US FTA, the result being a renegotiated trilateral FTA, the NAFTA.
Other Latin American countries have also expressed their interest in joining NAFTA, Chile being the first candidate. To some extent succession is motivated by market-access insurance motives, as well as non-economic objectives. The goal is not so much to get duty-free access to the regional market, as standard MFN tariffs are comparatively low for most products, and many prospective members tend to be treated preferentially in any event.
More significant is the abolition of the threat of contingent protection and a wish to enhance the credibility of recent unilateral liberalization and structural restructuring efforts (Hoekman and Leidy, 1993). An alternative to accession — which often will either not be on offer by member states or will be measured by third countries to entail too great a loss in sovereignty — is to seek substitute forms of association with an RTA. often this will take the form of a preferential trade arrangement with the members of an RTA.
Examples of this strategy abound, particularly in the European context. The EU has negotiated some two dozen preferential trade agreements with third countries (Xafa et al. , 1992). Recent examples are between the EU and the CEECs, many of which are expected to agree to the EU at some point. The EU also has numerous co-operation and association agreements with Mediterranean countries. These agreements exemplify the hub and-spoke nature of European integration.
A main difference with accession is that they offer less insurance in terms of market-access guarantees. Instruments of dependent protection generally remain applicable. Regional assimilation efforts in Africa and Latin America were driven partly by a wish to strengthen their bargaining position in relation to major trading partners, reflecting a belief that this would permit them to 'better defend themselves against prejudiced effects of other regional groups' ( Patterson, 1966: 147). The EFTA is a significant case in point.
It was recognized in 1960 in reaction to the formation of the EEC, its membership consisting of European countries that did not desire to join the EEC because of concerns linking to its supranational aspects and the likely level of the common outside tariff (most EFTA countries tended to be relatively liberal). The EFTA reaction to the configuration of the EEC was not unique. Japan informally proposed a Pacific Free Trade Area with the USA, Canada, Australia, and New Zealand in the mid sixties for the same reason (De Melo and Panagariya, 1993).
More lately, Pacific nations agreed to pursue regional free trade under the auspices of the Asian-Pacific Economic Cooperation (APEC) agreement (Joseph Buongiorno, Shushuai Zhu, Dali Zhang, James Turner and David Tomberlin, 2003). Conclusion Participation in a regional integration agreement is an alternative allowed under the WTO. though subject to conditions contained in Articles XXIV of the GATT and V of the GATS, WTO disciplines are comparatively weak. An example is the absence of any disciplines with reverence to preferential rules of origin in the WTO.
Another is the lack of an obligation that RTAs be open to new members that are keen to satisfy their obligations. Multilateral surveillance is partial the WTO Secretariat has no authorization to monitor the trade effects of RTAs. WTO-consistency is not sufficient to make sure that RTAs are a set off to the multilateral trading system. As, developing countries can be able to opt out of GATT's disciplines on RTAs altogether by summoning the Enabling Clause, and negotiate favored tariff-reduction agreements for a limited number of products.
Such agreements can really distort trade flows, generating substantial welfare-reducing trade diversion. More usually, much depends on the different holes and loopholes that are personified in an RTA. Notwithstanding these requirements, RTAs may embody numerous good practices and some go far beyond the WTO in terms of liberalizing markets. Thus, in the EU there are no tariffs, no defend mechanisms, and full binding of policies.
To a large extent the present bench-mark for good practice in trade policy is the set of policies and rules that pertain to the movement of goods, services, labor, and capital inside the ELI. However, this is positively not the case as regards ELI external trade policies that pertain to non-member countries. The challenge then is to practice multilaterally what the serious RTAs are implementing internally. This has been the development. Indeed, it appears that developments in RTAs are often reflected in analogous developments on the multilateral front.
Differences between the RTAs and the GATT/ WTO at any point in time have been partial in part because efforts to negotiate RTAs have enthused concurrent — and mostly successful — efforts to achieve further multilateral trade liberalization.
Anderson K. and Norheim H. ( 1993), "'History, Geography and Regional Integration'", in Anderson and R. Blackhurst (eds. ), "Regional Integration and the Global Trading System". ( London: Harvester-Wheatsheaf). Andrew Mitchell (ed), Challenges and Prospects for the WTO (Cameron May, 2005) 115-163