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Being open with regional trade

The approval by the World Trade Organisation's (WTO's) Negotiating Committee on Rules of a new transparency mechanism for regional trade agreements (RTAs) is a development that is inevitable in the context of the proliferation of RTAs. It is ironical that RTAs, which in essence represent a derogation from the basic principles of non-discrimination of the WTO, are being concluded at a frenetic pace precisely after the birth of the WTO. Before 1995, there were very few regional agreements, and among them only three were of any consequence — the North American Free Trade Agreement (NAFTA), the European Communities (which represent an economic integration well beyond the concepts of RTAs and Customs Unions) and Mercosur in South America. A total of 197 regional agreements have so far been notified to the global organisation and dozens more are under negotiation. Hence it is natural that, as an empowered regulator of world trade, the WTO is keen on ensuring a minimal level of transparency in RTAs. The proposed mechanism will enable the WTO's committees to review all RTAs for their consistency with the norms it has prescribed for them, that is, coverage of "substantially all the trade" between members of any RTA within a "reasonable" period of time (but not more than 10 years), and absence of new barriers to other members of the WTO. The Director-General of the WTO, Pascal Lamy, was not off the mark when he observed that the new mechanism on RTA transparency is vital to ensure that such agreements are, in fact, "building blocks [of], not stumbling blocks to, world trade." The need for openness in regard to RTAs is all the greater because such agreements increasingly tend to embrace services too and thus run the risk of falling foul of the General Agreement on Trade in Services (GATS) of the WTO.

However, another aspect of the reality of RTAs, including free trade agreements and preferential trade agreements, is that their implementation has been beset with problems, one of the reasons being that parties to such agreements have not been transparent and open even among themselves. The effectiveness of RTAs is undermined by several factors — conclusion of agreements without a frank discussion of different approaches to the Rules of Origin (which are crucial to determine the eligibility of products and services for preferential treatment); imposition of non-trade barriers such as technical and phytosanitary standards, and restriction of ports of imports; vagueness in respect of enforcement agencies in member-countries; unduly long `negative lists' of excluded products; and, above all, failure to appreciate the need for give-and-take. In the case of the South Asian Free Trade Area (SAFTA), the inability to put aside political differences is another major hurdle. If they are to serve their proclaimed objectives, RTAs require a modicum of trust and goodwill between members.

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