Essay Sample. Assessing the Relationship between RTAs and WTO

Since its formation, the World Trade Organization (WTO) has had its main objective to liberalize trade among all its member states and shares these objectives with Regional Trade Agreements (RTAs). According to Crawford and Laird (2001), RTAs in the WTO are understood to be reciprocal agreements that involve two on more nations that do not necessarily hail from the same geographical area or region. The RTAs is always seen as discriminatory in their dealings as opposed to WTO. Both WTO and RTAs pursue similar objectives using different approaches which, as a result, create tension in how they relate. For many years, the emergence of several trade regimes and RTAs has seen a gradual erosion of the Most Favoured Nation (MFN) principle of General Agreement on Tariffs and Trade (GATT) as well as WTO. Some of the trade regimes were formed to help in accounting for various levels of development among member states. Others like RTAs were introduced when GATT was incepted to allow members who were willing to liberalize trade deeper and faster and were also like-minded to enhance progress that might have been slowed by the multilateral level.

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According to Leal-Arcas (2010), RTAs play an essential role in international trade relations even though they undermine the principle of non-discrimination in one way or the other. Over the past years, RTAs have increased in numbers as well as complexity about the liberalization of trade among member states of WTO. Even though RTAs promote trade among a few members states, they have negatively impacted some operations and objective of WTO. As a result, members of WTO and the secretariat have been working together to gather the information that would lead to the discussions that would improve the transparency of RTAs and also make them understand how they impact the more extensive multilateral trading system.

Research Objective

The objective of this research is to assess the relationship between WTO and RTAs and evaluate how the operations of RTAs influence the impact of WTO on trading activities of various countries. The research also aims to assess whether or not the increase in the number of RTAs results in the violation of the WTO principle of non-discrimination.

Research Questions

Why Regional Trade Agreement may accelerate trade amongst its member, yet it violates WTO principles of non-discrimination?

Do the regional free trade agreements support or undermine progress in the WTO towards removing barriers to trade and investment?

Thesis

The Regional Trade Agreements undermine progress in the WTO towards removing barriers to trade and investment.

Analytical Framework

Explain WTO principles of Non-Discrimination

According to Diebold (2010), a principle on non-discrimination is an essential aspect of policy and law in WTO. In WTO policy, the two main principles of non-discriminatory include the national treatment obligation and the Most Favored Nation (MFN). The principle of the most favored nation impedes a country from discriminating between other countries in trade matters and expects all countries to be treated equally by their partners. On the other hand, McGovern (2018) posits that the national treatment principle prohibits a country from discriminating against other countries. Both principles are expected to be applied by various nations in the process of trading goods and services amongst and between themselves.

During the great depression of the 1930s, discrimination against and between countries was considered a significant aspect of protectionist trade laws that were pursued by various countries. According to Diebold (2011), the discriminatory policies were regarded as the significant contributors in causing the political and economic crisis that led to the Second World War. When discrimination about trade matters arise, hostility arises among manufacturers, workers, and traders originating from the discriminated country, and as a result, socioeconomic activities are adversely affected hence hindering the development of trade and environments that are friendly for trading. The hostility deters good relation among countries that may result in political and economic confrontation leading to conflict.

Also, when there is discrimination, little economic sense is made since the market is distorted and as a result giving room for the trade of product and services that are of lower quality and also more expensive. The discriminating country ends up bearing the costs and effects, resulting from the discriminatory trade policies that are pursued. It is, therefore, essential to eliminate the context of discrimination in the WTO, which, as a result, will lead to the elimination of discriminatory treatment in international trade relations. The removal of discriminatory treatment is thus viewed as one of the ways that aid the WTO to achieve its objectives of meaningful and fruitful international trade relations amongst different countries.

According to Dolzer and Schreuer (2012), their view on the Most Favored Nation (MFN) principle refers to treating other people equality in matters relating to trade. They further posit that under the World Trade Organization agreements, countries are not allowed to discriminate between their partners during trade activities. His would mean that if a state grants another special country trade favors like lowering custom duties for some products, it has to lower such rate s to all other countries that are members of the WTO. The principle of the most favored nation treatment is essential since it is the first article of the General Agreement on Tariffs and Trade (GATT) that helps in governing trade in goods.

Gowa and Hicks (2012) posit that the principle of the Most Favoured Nation is a priority in article two of the General Agreement on Trade in Services( GATS) and article four of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. The principle is, however, handled differently in each agreement and all the three agreements encompass all the three significant areas of trade that are handled by the WTO.

However, some exceptions apply to the principle and make it easy for individual countries to achieve particular trade objectives. For instance, states can at times set up a free trade agreement that is only applicable to goods that are traded by countries in the group and thus leading to discrimination of goods from countries, not within the group. It can also lead to allowing developing countries to access the markets. Another exception is that a country can be allowed to put barriers against products that might have been unfairly traded from particular countries. The limitations in the service industry include allowing some countries to discriminate services offered by other countries in a limited capacity. However, the agreements accept the application of these exceptions under strict conditions. Generally, MFN intends to lower discrimination in the sense that in circumstances where a particular country opens up its market or lowers a trade barrier, the state must open the same barriers and markets for goods and services from all its every trading partners regardless of their economic status and whether weak or strong.

The national treatment as a principle refers to treating both foreigners and locals equally when it comes to trade matters. According to Ming Du (2011), the implementation of National Treatment principle is essential when transacting since it enables both imported and locally produced goods and to be treated equally once they get into the market of a particular country. The principle is intended to apply to foreign and local trademarks, foreign and local services, patents as well as copyrights. The principle involves giving foreigners the same treatment as their nationals, and it is found in all the main WTO agreements thus article 17 of GATS, article three of GATT, and article three of TRIPS. As in the case of MFN, the principle, in this case, is handled differently in all the three agreements. It is worth noting that the policy of national treatment only applies to the products, intellectual properties, and services that have already entered the market of that particular country. Therefore when a country charges a custom duty on imported products or services, it has not violated the national treatment principle even if the services and products that are produced locally do not face an equivalent tax charge.

Relationship between WTO and RTAs

According to Diebold (2010), non-discrimination is a core principle of WTO that, as a rule, are greatly affected by the trade activities by RTAs. Members of the WTO have committed not to discriminate or favor one partner over another during trading activities. However, the RTAs act as exceptions to this rule by WTO since their dealings are discriminatory by their very nature and only the signatories are enjoying the more favorable trade conditions. The members of WTO, therefore, are aware of the roles of RTAs as enhancing and facilitating trade between its partners without raising any barriers with regards to other countries or third parties. Members of WTO are eligible to enter into RTAs under specific terms that are spelled out in the various set of rules which cover the establishment and operation of free trade areas and customs unions that include trade in goods, regional arrangements for a trade involving products from developing countries and also agreements that cover trade involving services.

The members of WTO outlined that RTAs have to remain complementary and not a substitute to the multilateral trading system a statement that has since been violated with deteriorating power and effects of WTO to members, making an unfriendly relationship between the two bodies (Bown, 2017). WTO cited that the many essential issues, including service liberation, trade facilitation, fisheries subsidies, and farming, could only be efficiently addressed when every party is involved in the negotiation process. WTO ensured the participation of every country, including the most vulnerable and helps in their integration and development into the world's economy, an objective that RTAs would not achieve. Over the past few years, there has been mixed reactions and opinions on the effects of RTAs on global trade liberalization since expected benefits may be limited in instances where investment and trade diversion, as well as distortion in resource allocation, are not minimized.

On the WTO work on RTAs, members of WTO have always highlighted the essence of gathering information on RTAs and provide an avenue for discussion on their impact since the establishment of the RTA committee. According to Lejarraga, Shepherd, and van Tongeren (2013), all RTAs have always been subject to the procedures as well as provisions relating to transparency mechanism for agreement by regional trades since 2006. The mechanisms were established in 2006, and since then, they have been applied provisionally to give particular guidelines about timelines of notifying new RTA to the WTO followed by the provision of related data and information. The information helps the secretariat in preparation of presentations that are factual about RTA, which eventually help WTO members in considering the agreement.