Regional Trade Agreements and the Trading System

Summary

The WTO Forum features a discussion on regional trade agreements (RTAs) and their impact on the global trading system. Jagdish Bagwati from Columbia University argues that while RTAs are WTO-compatible, their rapid proliferation complicates global trade with preferential rules. He highlights concerns for developing nations. Gary Huffbauer of the Peterson Institute offers a different view, stating that RTAs help reduce trade barriers more quickly than the WTO can. Both experts agree that the challenge lies in balancing the regional and multilateral trade systems, especially ensuring fairness for smaller developing countries.

Takeaways

• 🌍 Regional trade agreements (RTAs) are allowed under WTO rules but have become a systemic issue due to their proliferation, creating complexity in global trade.
• 🍝 Jagdish Bagwati refers to the current state of RTAs as a 'spaghetti bowl problem,' highlighting the confusion caused by overlapping rules of origin.
• 💼 Large corporations can handle the complexity of RTAs, but small countries and businesses face disadvantages navigating these chaotic systems.
• ⚖️ Gary Hufbauer argues that while RTAs are not ideal, they help reduce trade barriers faster than the WTO, which often gets bogged down by the need for consensus among many countries.
• ⏳ There are now over 400 RTAs, a significant increase in recent years, driven by dissatisfaction with the slow pace of WTO negotiations.
• 📉 RTAs, while preferential and not fully free trade agreements, are seen as politically pragmatic methods for faster liberalization, especially for developed nations.
• 🚧 Developing countries often face greater risks in RTAs, especially when dealing with large economies like the U.S. or EU, which may impose conditions beyond just trade terms.
• 🛑 India, a developing country, is blocking progress in the WTO Doha round but is willing to negotiate bilateral deals with other large economies, such as the EU.
• 🤔 Jagdish Bagwati emphasizes that RTAs could erode long-term gains for developing countries as preferential advantages may diminish over time.
• 🔗 Both experts agree that RTAs are here to stay and the next challenge is to integrate them better into the multilateral trading system, ensuring fairness for smaller developing countries.

Q & A

What is the main topic discussed in the WTO Forum?

The main topic is whether regional trade agreements are stepping stones or obstacles to a more effective global trading system.

What does Jagdish Bhagwati suggest is a systemic problem caused by regional trade agreements?

Jagdish Bhagwati highlights that the proliferation of regional trade agreements has become a systemic problem for the World Trade Organization (WTO), as they complicate trade by bypassing the most-favored-nation (MFN) clause and creating a complex 'spaghetti bowl' of crisscrossing rules of origin.

What is the 'spaghetti bowl' problem referred to by Jagdish Bhagwati?

The 'spaghetti bowl' problem refers to the complexity created by numerous regional trade agreements, where overlapping and crisscrossing rules of origin make it difficult to identify the origin of products, complicating international trade.

How does Gary Hufbauer view the benefits of regional trade agreements?

Gary Hufbauer believes regional trade agreements are a faster and more effective way to reduce trade barriers compared to multilateral agreements. He argues that while they are not perfect, they allow countries to lower barriers quickly, especially in areas like services and investment.

What is one of the concerns Bhagwati raises about developing countries in relation to regional trade agreements?

Bhagwati is concerned that developing countries, particularly smaller ones, struggle to navigate the complex structure of preferential trade agreements. Large corporations may cope with the complexities, but smaller countries and businesses may face significant disadvantages.

According to Hufbauer, why have regional trade agreements proliferated in recent years?

Hufbauer argues that the proliferation of regional trade agreements is due to the stalemated situation in the WTO. Countries that want to liberalize trade are turning to regional agreements because the WTO's progress has been slow.

Why does Hufbauer believe unilateral trade liberalization is ideal?

Hufbauer believes that, following Adam Smith’s principles, unilateral trade liberalization is the best way to reduce barriers. However, he acknowledges that political realities make this difficult, which is why countries rely on the WTO and regional agreements.

What are some advantages of regional trade agreements according to Hufbauer?

Regional trade agreements can reduce tariffs to zero, go beyond the WTO by addressing areas like services and investment, and deliver benefits faster and more comprehensively than multilateral agreements.

What is Bhagwati's critique of the speed of regional trade agreements?

Bhagwati critiques that regional trade agreements, while faster for some countries, often involve asymmetric negotiations, especially between larger economies like the U.S. and smaller developing countries. This can lead to developing countries signing onto unfavorable terms.

How do Bhagwati and Hufbauer view the future of regional and multilateral trade systems?

Both Bhagwati and Hufbauer agree that regional and multilateral trade systems are here to stay. The challenge is to integrate them, addressing the 'rough edges' of regional agreements and ensuring small developing countries get fair treatment.