Introduction

The WTO is a central element for the provision of security and predictability in the multilateral
trading system. The Member nations recognize that it serves to protect the rights and obligations
of all Members under the covered agreements, and to clearly show all existing provisions of
these agreements in accord with customary rules of interpretation of public international law.
The World Trade Organization (‘WTO’) offers the institutional basis for global trade relations
that is built on pre-existing structures found in the General Agreement on Tariffs and Trade
(GATT 1947). Its principal objectives include reducing the existing trade barriers and expanding
international trade, to raise the standard of living, attain sustainable development, and secure an
adequate share in the growth of international trade for developing nations (WTO 1995).

The institutional system of the WTO provides a number of trade agreements. The GATT 1947
and 1994) provide the basic legal instrument for substantially reducing tariffs and the other
barriers to trade in goods and for removing discriminatory treatment. The General Agreement on
Trade in Services (GATS) integrates services into the WTO system.

Regional trade agreements (RTAs) are an important fixture in international trade relationships.
Over time the RTAs have not just increased in number but also in both depth and complexity.
WTO members and the Secretariat always work hand in hand in informing and fostering the
discussions on RTAs so as to enhance transparency and to widen the understanding of their
effect on the wider multilateral trading system. The RTAs in the WTO are understood to be a
reciprocal trade agreement between two or more partners, that do not necessarily belong to the
same region. As of June 2016, all WTO members had the RTA in force. Several documents, that
include factual presentations, on the various regional trade agreements notified to the WTO are
available in the RTA Database.

Non-discrimination is a critical principle of the WTO. Members nations are have committed, in
general, not at point favor one trading partner over the another. An exception to this rule is
RTAs. By nature, these deals, are discriminatory as their signatories are only the ones that enjoy
more favorable market-access conditions. The WTO members realize that the legitimate role of
RTAs is to facilitate trade between its parties but which do not raise trade barriers vis-à-vis third-
parties.
All the members of the WTO are allowed to enter into RTAs under specified conditions which
can be spelled out in 3 sets of rules. These rules cover the formation and operation of customs
unions and free-trade areas that cover the trade in goods (Article XXIV of the General
Agreement on Tariffs and Trade 1994), regional or global arrangements for trade in goods
between developing countries (Enabling Clause), as well as agreements that cover the trade in
services (Article V of the General Agreement on Trade in Services). The general idea of RTAs is
that it must cover substantially all trade – as long as they are under the Enabling Clause - and
help trade flow more freely among the countries of the RTA without raising any barriers to trade
with the outside world (Yang, S 2014) .

The members of the WTO have also professed that RTAs must remain complementary to, not
just be substitutes of the multilateral trading system. Director-General of the WTO has Stated
that many important issues such as trade facilitation, services liberalization, and farming and
fisheries subsidies would only be tackled broadly and efficiently when everyone has participated
at the negotiating table (Azevêdo, R 2013). Furthermore, a multilateral system guarantees the
participation of the smallest and most vulnerable countries and assists to support the integration
of developing countries into the world economy.

There are several mixed views on RTA's effects on global trade liberalization. Even though
RTAs are intended only to benefit signatory countries, the expected benefits may be undercut if
distortions in resource allocation as well as trade and investment diversion are well maximized.

The increase in RTAs has formed the phenomenon of overlapping membership. This hampers
trade flows when traders are struggling to meet multiple sets of trade rules and regulations.
Further, as the scope of RTAs widens to include the policy areas that are not regulated
multilaterally, there may be increased risks of inconsistencies among the distinct agreements.
Most older RTAs cover tariff liberalization and other associated rules such as trade defense,
standards and rules of origin only. Increasingly, RTAs have now advanced to include
liberalization of services as well as commitments in service rules, competition, investment,
intellectual property rights, electronic commerce, environment and labor. This is what gives rise
to regulatory confusion and the implementation problems.
Since the establishment of the Committee on RTAs (CRTA) in February 1996, the WTO
members have consistently highlighted the need to collect information on RTAs as well as the
provision of a forum for discussions on their influence.

Starting December 2006, all the RTAs have been subjected to the provisions and procedures of
the Transparency Mechanism for Regional Trade Agreements. That where established through a
General Council decision in December 2006, which has been applied provisionally since then,
the mechanism provides some specified guidelines on when a new RTA should be notified to the
WTO and the other related information and data that has to be provided. This information helps
the Secretariat to prepare a factual presentation of the RTA, which assists all the WTO members
in their consideration of the agreement. At the 2015 Nairobi Ministerial Conference, the
members of the WTO agreed to work towards the transformation of the current provisional
Transparency Mechanism into a permanent mechanism. More information on the transparency
mechanism can be found here.

The mechanism has generally been observed as a success for enhancing transparency and
forming a comprehensive body of information on RTAs that can help members' candid
discussions in the CRTA.

Most of the RTAs create free trade areas among the signatory countries through eliminating both
tariff and non-tariff trade barriers. These FTAs can either be bilateral agreements, such as the
Jordan-U.S. Free Trade Agreement, or they can be multilateral agreements, like the European
Union ("EU") agreement. In addition to creating free trade, multilateral FTAs form powerful
economic entities, which is the case with the EU, the North America Free Trade Area
("NAFTA"), the Association of Southeast Asian Nations Free Trade Area ("ASEAN"), and the
Mercado Comum der Sur: The Southern Common Market in Latin America ("MERCOSUR")

"The WTO approves formation of an RTA where it removes trade barriers with respect to
substantially all the trade among its members and where it does not impose trade barriers to non-
members after its formation." The latter requirement is designed to ensure that RTAs do not
develop into limited trade blocs, such as those that thrived in the 1930s' and made significant
contributions to the deepening of the worldwide depression and provided a cause for the Second
World War.' The rationale for the authorization of an RTA is that its membership eventually
grows to include more countries so that they benefit from free trade.
It has been observed that RTAs have increased because multilateral negotiations on a global
scale have become more difficult in some areas, as the subjects of multilateral negotiations in the
WTO framework have grown into politically sensitive areas such as trade and investment, trade
and competition policy, intellectual property rights, and epidemics (Matsushita, M 2004). As the
alternative to multilateral negotiations on a global scale that could take years to come to any
consensus, several nations have to resorted to trade negotiations among a more limited number
of countries that share some common interests in trade and investment, closer economic and
cultural ties, and even the geographical proximity. This trend has led to the formation of a
number of RTAs across the world, as noted in the past. In 2002, the four largest free trade areas
account for 64.5% of world exports and 69.5% of world imports (ibid). Concerns have been
expressed against this proliferation of RTAs, since they may erode WTO disciplines and distract
members from important multilateral negotiations.

Article XXIV of the General Agreement on Tariffs and Trade (GATT) allows member
countries to form preferential trade agreements with respect to trade in goods. The article
covered:

1. The customs unions, where barriers between the member states of the union are removed,
and where a common external tariff was imposed by each member country; and
2. free-trade areas, where barriers between the members of the agreement removed, but each
member country was permitted to set their own external tariffs.

The rules required that the actions to reduce the trade barriers between member countries should
result into the removal of duties and the other restrictive regulations of commerce on
‘substantially all the trade between the constituent territories in the products that originated
within such territories. However, what is meant by ‘substantially all the trade’ has not defined
within the GATT.

In the case of free-trade areas, the GATT rules require that the members to an agreement
maintain the duties and the other regulations of commerce that are applicable to trade with third
parties at the levels not higher or more restrictive than those applied prior to its creation. Because
the formation of a customs union requires a common external tariff, the GATT rules provide that
the post-customs union duties and other regulations of the commerce applied to non-members
must not be ‘on the whole’ higher or more restrictive than those that apply prior to the formation
of the customs union. Where the customs union members are not able to achieve this balance to
the satisfaction of their external trading partners, they must negotiate compensation or potentially
face retaliatory actions.

A rule for agreements similar to the GATT exists in the GATS, and likewise requires agreements
to have substantial sectoral coverage, and provision for the reduction of substantially all
discrimination that might happen between the foreign and domestic service providers.

Additional to the GATT and GATS provisions, in 1979, member countries have agreed to allow
developing country members to form the agreements that lowered barriers to trade amongst
themselves now known as the ‘Enabling clause’. This clause has been continued in the
subsequent WTO agreements.

Generally, the principle of transparency is also applicable to the formation of customs unions and
free-trade areas. The WTO formed a Committee on Regional Trade Agreements. The role of this
committee is to examine a proposed agreement that ensures that the outcomes are transparent and
comply with the WTO rules. The Information is provided to the committee by the member states
that enter the agreement, and by written responses to questions posed by the committee
members.

There is no examination report that has been finalized this far by the committee in the past, this
is in part because of the disputes between members states of the committee over the
interpretation of the WTO agreements (WTO 2010a). Nevertheless, the committee does report
frequently on the agreements that have been notified to the WTO.

In conclusion, discussions in the WTO about RTAs are seen to be extremely helpful in ensuring
continued balance and inclusiveness. During the 10th Ministerial Conference in Nairobi in 2015,
the WTO members adopted a ministerial declaration that where instructing the Committee on
RTAs to discuss systemic implications of RTAs for the multilateral system and that they should
relate with the WTO rules.

Reference
Andrew J. Crozier (1997), For the economic causes of the Second World War, the Causes of the
second world war.

GATT (1947). Agreement Regarding International Trade in Textiles.

World Trade Organization (1995), Analytical Index: Guide to GATT Law and Practice, sixth
edition. Geneva: World Trade Organization.

World Trade Organization (2010), From GATT to the WTO: The Multilateral Trading System in
the New Millennium. The Hague: Kluwer Law International.

Roberto Azevedo, R (2013) as new head". BBC News Online. UK.