North-South Regional Trade Agreements: Prospects, Risks and Legal Regulation
LAW AND DEVELOPMENT PERSPECTIVE ON INTERNATIONAL TRADE LAW, Y.S. Lee, Tomer Broude, Won-Mog Choi, Gary Horlick, eds., Cambridge University Press, 2011
32 Pages Posted: 20 Jul 2011
Date Written: July 17, 2011
The recent decade has witnessed an unprecedented increase in the number of regional trade agreements (RTAs) (mostly FTAs and customs union) and their scope. The on-going proliferation of RTAs intensifies the long-standing debate among scholars and policy-makers regarding the motives and repercussions of RTAs, and whether the WTO system should promote or restrict the formation of RTAs. Developing countries joined RTAs before the recent wave of regionalism but the vast majority of agreements that were concluded by these countries during the 1960s and 1970s were established between countries at similar levels of economic development. Most RTAs at that period were formed between either developing or developed countries, and the number of RTAs between developing and developed countries was significantly smaller. One of the main characteristics of the recent wave of regionalism is the increasing number of RTAs between developing and developed countries. The prominent examples are the North American Free Trade Area (NAFTA), and trade agreements concluded by the European Union (EU), such as the custom union between the EU with Turkey, and FTAs with many Mediterranean countries.
Section II of this article outlines the regulation of RTAs in the WTO legal system. The section briefly discusses the relevant legal provisions (Article XXIV of the GATT, Article V of the GATS, and the “Enabling Clause”). Section III discusses the economic prospects of North-South RTAs for developing countries, employing the Heckscher-Ohlin model, the economies of scale theory, and Ethier’s approach that views RTAs as a signaling device to foreign investors. Section IV presents certain disadvantages of RTAs for developing countries, especially RTAs that apply restrictive rules to trade in labor intensive goods (in which developing countries have comparative advantage). This Section also explains the deficiencies of such RTAs, prominently those relating to political economy considerations and the parties’ asymmetric bargaining positions. Section V briefly recaps the main conclusions drawn from preceding sections and emphasizes the central role of domestic institutions in economic development.
Keywords: WTO, regional trade agreements, regionalism, developing countries
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