The consistency of free-trade agreements (FTAs) with the rules of trade espoused by the WTO has always been an interesting subject of study to students of international trade.

On the face of it, there is an inherent contradiction between an equitable system which aims at promoting a relatively seamless arrangement facilitating the exchange of goods and services among all countries which are members of the WTO and an international trade scene which is punctuated by numerous trade agreements applicable to two or more economic units the rules of which appear to discriminate between those units covered by such agreements and others which are not, all the units concerned however being members of the WTO.

Dichotomy recognised

Like all good, substantive international agreements, the WTO is aware of this seeming dichotomy and, instead of ignoring it, has subsumed it into its legal structure.

This exercise has been performed by Article XXIV of the GATT Agreement, one of the provisions of which stipulates generally that no FTA between WTO members will be proscribed if duties, etc., imposed on exports from non-FTA countries are not higher post-agreement. Yet, the general acknowledgement is that the “most-favoured nation” principle, which forms the bedrock of the GATT Agreement, is inherently violated by the FTA principle.

There is not much that the WTO (that is, its members) can do to avoid this “contradiction” which, in fact, is getting worse with time. As the organisation's Secretariat has pointed out, “the surge in RTAs has continued unabated since the early 1990s”, some 421 such agreements having been “notified to the GATT/WTO up to December 2008”.

Around 230 agreements were in force till the end of last year. If RTAs which are in force but have not been notified are taken into account, as well as those signed but not yet in force, those currently under negotiation, and those in the proposal stage, the WTO Secretariat says that “close to 400 RTAs . . . are scheduled to be implemented by 2010”.

View of sceptics

Sceptics who do not think that the WTO has a future (one of the reasons being the increasing realisation on the part of the erstwhile developed world that the “emerging tigers” of the international economy, which are on the prowl impatiently, cannot be held back for very much longer from taking their seat permanently at the high table of international trade policy-making) will point to the rise of the RTA as evidence of the movement away from trade multilateralism and towards regionalism and even bilateralism.

In other words, while lip service will continue to be paid to multilateral trade liberalisation, most national economies will in all probability seek ways to strike trade deals with select partners to gain economic advantage on a scale they do not think will result by pushing the multilateral trade effort vigorously.

Perhaps, this is the writing on the wall for everyone to see and ruminate over. This is also precisely why India's note on “Strengthening the WTO”, which focuses on the RTA issue apart from four other points, needs to be given importance in any future discussion of the subject within and outside the organisation.

The note draws attention to the RTA transparency-mechanism as well as that regarding preferential schemes and wonders whether the two transparency-mechanisms are enough. It asks: “Is this all that the WTO can do? Or are there other aspects of RTAs that can be fruitfully examined in the WTO? Can more be done to reduce the adverse impact of RTAs on multilateral trade?”

RANABIR RAY CHOUDHURY

(This article was published in the Business Line print edition dated December 2, 2009)
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