Economists have long debated over their virtues and vices, NGOs and some special interests groups have combated them, and several governments have reluctantly signed them – at least in appearance. Yet, regional trade agreements (RTAs) have recently experienced an unprecedented growth in number and importance, becoming the most prevalent avenue to trade liberalization in the last 15 years. As the economic importance of RTAs has continued to grow, their scope has also broadened having become more complex. Indeed, they have gained importance in areas beyond tariff-reduction for merchandises, such as technical barriers to trade (TBTs), trade remedies, services, investment, and competition.
The book edited by Estevadeordal, Suominen, and Teh aims at expanding the knowledge of RTA rules in these key areas and analyzes their relationship to multilateral trade rules in order to provide a firmer basis for policy debated and policy-making on regional agreements. The book is a collection of six articles, each focusing on one of six policy key areas in regional agreements: market access (Chapter 3), trade remedies (anti-dumping, countervailing, and safeguard measures) (Chapter 4), TBTs (Chapter 5), services (Chapter 6), investment (Chapter 7), and competition policy (Chapters 8). They are preceded by the editors' remarkable introduction (Chapter 1) that outlines the objectives and content of the book, and by Richard Baldwin's examination (Chapter 2) of the theoretical arguments on whether regionalism is a stumbling block or a building block to multilateralism.
The choice of these six areas strikes a good balance between ‘traditional’ areas covered in trade agreements, such as market access and trade remedies, a well as ‘newer’ but growing areas such as TBTs, services, investment, and competition. The authors focus mainly on regional rules for which corresponding multilateral rules are established or under negotiation in the Doha Round. Yet, some of the regional rules applied in a significant number of RTAs have no multilateral counterpart, as in the case of competition policy.
To carry out their analysis, the authors perform a colossal exercise consisting in mapping hundreds of pages of legal texts of dozens of the main RTAs in the world and covering countries at different levels of development to extract detailed information on these six areas that can be comparable across preferential agreements. The detailed data allow for a comparative look across RTA provisions to deepen understanding of their economic effects and to provide a foundation for recommending policy measures to further compatibilities between regional and global rules, and it can be used in further empirical work.
The volume makes a useful contribution to existing literature and will be of interest not only to a policy audience, but also to researchers. Readers interested in the topic treated in each chapter separately can find a useful reference and a starting point for further research.
In the rest of this brief review, I outline the content of the book and conclude with some policy-related lessons drawn from the essays in this volume.
As a preamble to the six key issues treated the rest of the volume, Richard Baldwin provides a review of the effects of the stumbling-blocs as well as the building-blocs of RTAs in Chapter 2. Indeed, he discusses several economic mechanisms (Smith's certitude, Haberler's spillover, and Viner's ambiguity) that help determine whether preferential trade arrangements help or hinder multilateral trade liberalization. The author critically reviews the long line of literature on both sides of the debate and identifies four distinct types of stumbling blocs in the literature – preference-erosion, goody-bags, cherry-picking, and the bargaining-model stumbling blocs. The building-bloc effects include the juggernaut effect, the Kemp–Wan effect, and the veto-avoidance mechanism. The economic arguments underlying these various effects are then discussed. Although Baldwin's analytical review is critical and comprehensive – Haberler's spillover discussion dates back from the 1930s – a brief section reviewing the empirical literature of the stumbling bloc vs building bloc effect would have been the cherry on top of the cake.Footnote 1
In the third chapter, Toni Estevadeordal and his coauthors focus on market access regulations in RTAs: from tariff liberalization to other disciplines defining the extent of market access in RTAs, such as non-tariff measures (NTMs), rules of origin, special regimes, and customs and trade facilitation. The authors collect an impressive amount of indicators at the tariff-line level and at the aggregate level on these disciplines in preferential agreements, allowing comparisons across a large number of RTAs. Two main results are drawn from their analysis. First, there is great variability across agreements in terms of products liberalization coverage, length of liberalization, and other market access disciplines. Yet, most RTAs liberalize 90% of their product lines by the tenth year of implementation. There are outlier RTA members (generally developing countries) and sensitive sectors (agriculture, textiles, and footwear) that do not reach this baseline. In addition, some RTAs contain provisions that could be classified as restrictive regulations of trade, such as tariff rate quotas and demanding rules of origin. Second, several PTAs (coined as ‘WTO-plus’) incorporate a larger number and/or more specific provision than currently in force at the multilateral level. Customs procedures and trade facilitation in US agreements are key examples of commitments that are quite comprehensive and specific.
In Chapter 4, Teh, Prussa, and Budetta examine regional provisions on trade remedies – anti-dumping, countervailing, and safeguard measures – to detect whether they lead to potentially higher discrimination against non-members to the regional agreements. The selective nature of trade remedies and the adoption of RTA-specific trade remedy rules can increase the likelihood of discrimination through more trade remedy actions against non-members to preferential agreements, or through greater discipline, or trough the abolition of trade remedies against members. The authors indeed find that about one-sixth of the surveyed RTAs have applied at least one type of trade remedy, and a few RTAs have tightened discipline on the application of these remedies against RTA members. Regarding anti-dumping, for instance, some specific provisions tightened discipline by increasing de minimis volume and dumping margin requirements, adopting a lesser duty rule and shortening the duration for applying anti-dumping duties. In the case of safeguards, they expressed concern as to the exclusion of RTA partners in safeguard measures triggered by GATT Article XIX and the Agreement on Safeguards. This misaligns RTA rules on safeguards from the non-discriminatory principle that underlies multilateral rules on safeguard action and raises the likelihood of trade diversion. Finally, there appears to be less of a problem with countervailing duty (CVD) provisions in the surveyed RTAs. The absence of RTA provisions dealing with significant cuts on subsidies or state aid is a major suspect behind the absence of major innovations in CVD rules and practice in past and present preferential agreements.
In Chapter 5, Piermartini and Budetta attempt to identify the factors behind the design of TBT provisions in RTAs, and whether regional provisions have gone further than the WTO's TBT Agreement in removing these technical barriers. They collect information on regional rules on TBTs from legal texts of over 70 RTAs from different geographic regions and spanning countries at different levels of development, and map them to a template that follows the structure of the WTO's TBT Agreement. The analysis reveals that provisions on technical regulations, standards, and conformity assessment procedures are widespread across regional agreements. In general, RTAs tend to favor harmonization of standards over mutual recognition, whereas equivalence and mutual recognition seem to be the preferred options to deal with TBTs arising from testing and certification. Their analysis reveals that countries at similar levels of development are more likely to introduce provisions for mutual recognition of technical regulations and standards, whereas the link between the adoption of provisions for harmonization of standards and the level of development of partners is not significant. An interesting finding is that regional rules on TBTs tend to develop according to a hub-and-spoke structure, especially in the case of the EU and US hubs. Indeed, RTAs signed by the EU tend to promote European standards. RTAs involving the US share some common characteristics regarding TBTs, such as the creation of institutions for the administration of TBT regional provisions, the resolution of disputes on TBT issues, and the encouragement of mutual recognition. The authors wonder whether standards can act as barriers to trade between major regional groups because of the ‘cloning’ tendency of hubs. To the extent that TBT provisions in regional agreements are successful to lock-in spoke-countries to ‘regional’ standards, RTAs act as a stumbling bloc in the process of multilateral liberalization.
Trade in services is one of the areas where liberalization in RTAs tends to go significantly beyond multilateral rules. In Chapter 6, Roy, Marchetti, and Lim reach this conclusion by analyzing services liberalization commitments undertaken by 35 countries and the EU (taken as a single bloc) under mode 1 (cross-border supply) and mode 3 (commercial presence) in 32 RTAs with services commitments concluded since 2000. They compare regional commitments to prevailing GATS commitments and Doha Round offers and find that services trade liberalization in RTAs takes the form of new bindings in sectors uncommitted under the GATS, as well as more liberal bindings in sectors committed under GATS schedules or offers. The authors provide other interesting conclusions. First, countries having opted for a negative-list approachFootnote 2 have bound market access of services at least at the existing level of openness for most sectors. This enhances predictability in bilateral relations, and, therefore, cross-border investment and trade. Second, several larger developed countries tend not to go as far beyond GATS market access than smaller developing countries. A possible reason behind this imbalance is the asymmetrical negotiating power among partners as well as the lack of room for larger developed countries to improve their already extensive GATS schedule and offers. Third, as a consequence, the most protected service sectors in larger developed countries remain largely unaffected by RTAs, e.g. audiovisual for EFTA and the EC, and maritime transport in the US. The authors also suggest two ways in which regionalism can reinforce multilateralism regarding the liberalization of trade services. First, country members of RTAs could propose level of services commitments in the WTO closer to those agreed under RTAs. Second, better multilateral surveillance of the implementation of services commitments in RTAs could be proposed, along the lines of China's transitional review mechanism in the WTO. According to this mechanism, China has an obligation to provide information on policies affecting trade in services that is subsequently reviewed by WTO overseeing bodies.
In Chapter 7, Barbara Kotschwar analyzes investment provisions in 52 RTAs and finds that most cover different areas, such as MFN treatment, national treatment, transparency, denial of benefits and restriction of transfers, nationality of management and board of directors, performance requirements, expropriation, and investor–state dispute settlement. US RTAs are an example of agreements with comprehensive investment provisions that often go beyond what can be found in multilateral instruments regulating investment, such as the Agreement on Trade-Related Investment Measures (TRIMs) and the General Agreement on Trade in Services (GATS).Footnote 3 The author discusses two main phenomena: the increasing commonalities in investment provisions at regional levels regarding the scope of application, treatment, transfers, expropriation, and mechanisms for settlement disputes; and the importance of flexibility in the making of investment provisions that allow countries to customize their investment relations in the depth of liberalization, the extent of protection, and demands by developing countries to address the development dimensions of FDI. Although the increased commonalities of investment can allow to envisage an eventual multilateral investment regime, widespread exercise of flexibility may ensure that investment provisions at the regional level drive the evolution of the investment regimes, so that a single and comprehensive regime looks unlikely in the near future. In addition, Kotschwar points out the multilayered nature of investment rules, as countries regulate investment not only through regional or multilateral instruments, but also through bilateral investment treaties (BIT). Ensuring complementarities between RTA's, BITs, TRIMs, and other mulitilateral investment rules is one of the more salient policy challenges in the years ahead.
The last chapter (Chapter 8) by Robert Teh focuses on competition-related provisions in RTAs. Its main contribution is to focus not only on competition-related disciplines and principles that can be found in the proper competition policy chapter of regional agreements, but also in other RTA chapters, such as chapters on investment, services (in maritime transport, financial services, and telecommunications), government procurement and intellectual property. Indeed, between a third and a half studied in the chapter have horizontal provisions cutting across the entire agreement on transparency, procedural fairness, and non-discrimination. Several patterns emerge from the author's analysis. First, in the competition policy chapters, the main obligations involve application of competition laws to curb anti-competitive behavior and for closer cooperation among competition authorities of RTA members. The types of anti-competitive behavior that are of concern are concerted actions, abuse of a dominant position, monopoly, state enterprises, or undertakings with special or exclusive rights and state aid. Second, for the most part, the scope of cooperation among national competition authorities is limited to exchange of information, notification, and consultation. However, a small number of RTAs give a substantial role to regional bodies in carrying out surveillance, investigations, and taking measures to curb anti-competitive behavior. Third, several RTAs carve out competition policy, either partially or completely, from dispute settlement. This further underscores the importance of the competition-related provisions in the sectoral chapters and the horizontal principles, since for the RTAs with carve-outs they are the only provisions on competition that could be enforced through the RTA's dispute-settlement mechanism. Finally, many benefits of the elements of competition rules in RTAs cannot be denied to non-RTA members. This non-discriminatory character applies in great measure to horizontal principles of transparency, procedural fairness, and non-discrimination. But, beyond these principles, the requirement to apply competition law, or to establish a competition authority, or to subject state aid and public monopolies to disciplines, all improve the conditions of competition in the marketplace, and should enhance economic opportunities to firms already operating in the market regardless of whether they are domestic or foreign from an RTA member or other country.
Three broad policy-related lessons can be summarized from the book. First, as regionalism and multilateralism are being pursued simultaneously by several countries with no major apparent conflict in the pursuit of both policies, a key policy objective must be to exploit RTAs as facilitators to deepen multilateral liberalization. Second, regional rules and their economic impacts are complex as reflected in all essays in the volume. The chapter on trade remedies highlights the discriminatory impact of what appears to be trade-friendly elimination of such measures. The chapter on TBTs points to the pitfall of harmonized product standards that may lock RTA members into a particular regulatory framework that is costly to escape from. On the other hand, the chapter on competition discusses that a significant number of RTA rules on competition create benefits that are non-discriminatory and being extended beyond firms from RTA members. A similar finding is made in the chapter on services; however, there may be lasting advantages to first-movers in services that might be hard to reverse through subsequent extension of access to other countries. Finally, RTAs can have far-reaching implications for domestic politics – they form coalitions and vested interests as any policy of trade liberalization does. The key lesson for any signatory is that the negotiation of regional agreements is only the beginning of a long process of implementing and investing in the implementation of numerous regional provisions while at the same time seeking to ensure compatibilities between a country's old and new RTAs as well as between RTAs and multilateral commitments.
