The Hindu Business Line : Making RTAs transparent

The new transparency mechanism in the WTO would help present comprehensive information on RTAs to all members. This may not straighten out the `spaghetti bowl' but would definitely help unravel its mysteries.

While the Doha Round remains in suspended animation, a provisional agreement has been reached in the World Trade Organisation on an important issue covered by the Round. This relates to a mechanism for ensuring transparency in the regional trading arrangements/agreements (RTAs) being entered into by various countries.

The WTO General Council adopted a decision establishing the transparency mechanism, on a provisional basis, on December 14, 2006. RTAs are a deviation from the cardinal obligation of the WTO members to extend the same tariff treatment to all countries — in WTO terminology called the MFN (most favoured nation) treatment.

For goods trade, a deviation from the MFN is permitted under GATT Article XXIV and certain other provisions. These provisions basically allow WTO members to exchange preferential tariff treatment with other countries. As a result, goods can enter the borders of RTA partners at nil duty or at a rate lower than the MFN level. Certain disciplines in Article XXIV ensure that such concessions are extended in a manner that aids trade creation.

Positive features of RTAs

On the one hand, the RTAs have several positive features. They are regarded as the building blocks of the multilateral trading system. The tariff liberalisation agreed on under RTAs can lead to a wider liberalisation embracing. But these very same RTAs are also complicating not just the trading regimes of individual countries but the multilateral system, as a whole. The bewildering variety of rules of origin of the various RTAs, different negative lists of goods, and different levels of tariff preference have created the notorious `spaghetti bowl' effect.

Since the last decade, RTAs have been growing exponentially. Indeed, all WTO members, except Mongolia, are engaged in RTA negotiations. Arguably, the slow progress of the Doha Round has contributed to this acceleration. The new RTAs are deeper in content and complex in structure.

It is important to ensure that such a complex regime does not undermine the multilateral trading system. One way to do this is to have greater transparency on RTAs and a better understanding of their structure and features.

Ensuring transparency

To ensure transparency of RTAs, the WTO has rules that require that these agreements be duly notified to it and they be examined by members for consistency with general WTO provisions and to ascertain that they are not creating barriers to trade for non-RTA members. The WTO body responsible for this task is the Committee on Regional Trade Agreement (CRTA).

However, these rules have barely been implemented and RTAs have mushroomed. The new transparency mechanism will apply to all RTAs, covering both goods and services sectors. It has some important features. The first is a provision for early announcement. Under this, members participating in new RTA negotiations shall provide the WTO Secretariat information such as its official name, scope and date of signature and timetable for entry into force.

Notifying RTA

The second feature is that the parties to the RTAs have to notify the CRTA by the time of its ratification and before the application of the preferential treatment between the parties. The notification must consist of the full text of the RTA and related schedules and annexes in one of the three WTO official languages — English, French or Spanish. The notification also has to specify as to under which provision of the WTO agreement this has been signed.

The third, and the most important, feature is that, on the basis of the data submitted by the RTA partners, the WTO Secretariat shall prepare a factual presentation of the RTA. On the basis of this document, a notified RTA will be discussed in a single formal meeting of the WTO; any additional information exchange shall take place only in written form.

Two-tier meeting system

These provisions show that in an increasingly globalised world, WTO members favour enhanced transparency about RTAs and greater information on its contents to help their business people. At the same time, they do not want it to be an onerous mechanism requiring additional bureaucracy at home or in the WTO Secretariat.

During the initial phase of discussions of this transparency mechanism, there were suggestions to have a two-tier meeting system, one to exchange factual information and the second for consistency assessment. However, countries across the development divide felt that this would put additional burden on the members. Hence, the final mechanism is simpler and practical.

Another feature of this mechanism is that this transparency exercise has to be completed in one year. Thus, there would be a final outcome to the process in the WTO unlike the current system, where a finality is to be reached after years of discussion. For this, the RTA members are expected to submit data in a time bound manner. For RTAs involving only developing countries, the time frame is within 20 weeks and for those between developed countries or between developed and developing countries, it is 10 weeks.

Any changes to the RTAs, such as modifications to preferential treatment, will also need to be informed to the WTO. It is envisaged that at the end of the implementation period of the RTA, the parties shall submit a short written report to the WTO on the realisation of liberalisation commitments.

Reverse notification

An interesting feature of this mechanism is that any WTO member can bring to the attention of the relevant WTO body, information on any RTA that it considers ought to have been submitted to the members. In WTO jargon, this is called a system of `reverse notification'. In the initial phase of discussion, several WTO members had strongly argued that the transparency exercise for all RTAs should be conducted by the CRTA. The developing countries were concerned that this could, in the long run, dilute the efficacy of the Enabling Clause which permits formation of RTAs between developing countries on much more liberal terms. It does not have some of the more stringent disciplines of GATT Article XXIV, such as the requirement that trade liberalisation should cover `substantially all trade.'

Concerns were raised that examination in CRTA could be more burdensome. The agreement now provides that the transparency exercise for RTAs signed under the Enabling Clause will be conducted in the Committee on Trade and Development (CTD), the existing designated body for notification of Enabling Clause RTAs.

It is expected that the new transparency mechanism would help in presenting comprehensive information concerning new RTAs to all members in an objective and detailed manner.

This may not straighten out the `spaghetti bowl' but would definitely help unravel its mysteries. Traders need to have correct information on the trade policy regime of their export destinations and transparency of this nature would greatly help towards this goal.

Positive partnership

Government representatives in the WTO can have a positive partnership with their traders and seek inputs from them regarding the kind of information they may require for various RTAs in place. There is a provision that members can seek additional clarification in course of this transparency exercise and this opportunity can be used constructively.

However, the developing and the least developed countries would need to improve and streamline their system of data collection in order to meet the data submission requirements laid down under this mechanism.

(The author is an IRS — Customs and Central Excise — officer and has dealt with negotiations in WTO on RTA and other issues. He works as Additional Director in the office of the Directorate-General of Export Promotion in the Ministry of Finance. The views expressed are personal. He can be reached at shashankpriya@hotmail.com)