Regional trade agreements, neither building blocks nor stumbling blocks: dismantling a tired dichotomy

The proliferation of regional trade agreements (RTAs) has continued unabated since the early 1990s.[1] In December 2008, the World Trade Organization (WTO) had been notified of 421 RTAs.[2] “There is a serious and long-lived tension between seeking freer trade in a non-discriminatory manner through the [General Agreement on Tariffs and Trade] 1994 and the other WTO Agreements, and by way of regional trade agreements,” observes Professor John H. Jackson.[3]

In the eyes of many, regionalism and multilateralism stand stubbornly pitted against one another, despite implicit recognition of the “desirability” of RTAs in Art. XXIV:4 of the 1947 version of the General Agreement on Tariffs and Trade (GATT).[4]

Since the establishment of the Committee on Regional Trade Agreements (CRTA) in 1996, the WTO has scrambled to find ways to effectively control the impact of RTAs. This futile mission to tighten RTA regulation has been driven by a persistent fear of trade diversion, as well as by the assumption that regionalism—and the agreements springing from it—is subordinate to the multilateral regime.

WTO regulation of RTAs has evolved since 1947, notably with the introduction of the 1994 Understanding on the Interpretation of Article XXIV of the GATT 1994 and the creation of the Transparency Mechanism for RTAs in 2006. These regulations remain however, narrow and ambiguous. Article XXIV thus continues its long history of being systematically flouted by member states with the WTO as little more than “an innocent bystander” to the overwhelming spread of regionalism.[5]

Under the GATT 1947, regionalism was permitted as an exception.[7] RTAs were accepted, but only to the extent that they complied with the terms of GATT Art. XXIV. It is this exception ethos that reinforces the “conceptual primacy of multilateralism,” which undermines the legitimacy of RTAs.[8] In many respects, this attitude has contributed to the disregard of GATT Art. XXIV.

It is time to reconceptualize the relationship between the WTO and RTAs. Regionalism is a permanent feature of the multilateral trading regime and “a natural path of human civilization.”[6] WTO regulation of regional trading blocs must begin by acknowledging this firmly entrenched reality. Many discussions of regionalism use the “building blocks” versus “stumbling blocks” rubric to debate the trade creation/diversion effects of RTAs on the multilateral regime. Scholars and policymakers line up along one side or the other, vehemently espousing the benefits or drawbacks associated with regional trading blocs.

These criticisms however, miss the point. Firstly, regional blocs are not necessarily a step on the way to something else; they are an end themselves. Secondly, it is no longer constructive to debate the advantages and disadvantages of RTAs, particularly within this building block/stumbling block paradigm. Doing so artificially narrows the scope of analysis. The impacts of RTAs are part of a single category: effects of regionalism. Separating these effects into the “good” and the “bad” has lost its practical relevance. The WTO should instead focus its efforts on redefining the broader relationship between regionalism and multilateralism. The question remains: where do we go from here?

[2] Ibid.

[3] John Jackson quoted by David A. Gantz in Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009) at 31.

[4] General Agreement on Tariffs and Trade, 30 October 1947, 58 U.N.T.S. 187, Can. T.S.1947 No. 27 (entered into force 1 January 1948) [GATT 1947], Art. XXIV:4.

[5] Richard Baldwin, Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade (2006) NBER Working Paper No. 12545 at 37.

[6] Sungjoon Cho, “Breaking the Barrier Between Regionalism and Multilateralism: A New Perspective on Trade Regionalism” (2001) 42:2 Harvard International Law Journal 419 at 419.

[7] Ibid, at 421.

[8] Ibid.