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Regional Economic Integration: Legal Aspects

RTA’s were originally conceived as instruments to broaden the principles of multilaterism but have such RTA’s complied with its mandate of expanding the multilateral trading system, that is, whether RTAs have functioned as ‘building blocks’ or ‘stumbling blocks’ vis-à-vis the multilateral process has been a subject of debate. The school of thought which is sceptical about the recent trends towards regionalism are pondering over its potential to segregate the multilateral system into a number of closed, hostile blocks. With RTA’s growth and expansion they have assumed advance abilities to manipulate, the stipulations of trade in their favour using their trade policies to block imports, prioritising and giving preference to the products within their region. Regionalism also has an inclination to create distinctive marked regions as outsiders endeavour to minimize the costs of trade diversion by becoming insiders. This has resulted in a new phenomenon of overlapping RTAs which has made them more complex both in structure and in their relations with the MTS. The way in which rules of origin can be designed to have a protectionist impact and the differing rules of origin in RTAs having a negative impact on international trade is being highlighted prominently recently. Those opposing regionalism are also probing the jurisprudential conflict that could possibly arise between dispute settlement provisions contained in the ‘new generation’ RTAs and that of WTO. The other school of thought, positivists favouring the formation of regional associations also has number of arguments to support their claim. First, it is argued that RTA’s can have greater reach and progress more rapidly than WTO rules while contributing to its goals thus strengthening the latter. Second, such small groupings can prove to be more efficient in engaging new areas such as cooperation in competition policy, technical standards, services, investment, intellectual property protection and government procurement compared to multilateral rule-making. Such bilateral systems can experiment with alternative rules and strategies to employ the said sectors within their framework and can ease consensus on these issues at the multilateral levels. Third, although trade diversion does happen, the empirical evidence implies that trade-creation take place dominantly in RTAs. A study conducted by the WTO Secretariat showed that though there had been a explicit inclination towards broader as well as faster market access, liberalization on non-tariff measures in RTAs happen parallel to developments in the MTS. Also, it RTA’s can be criticized that on a simple statistical analysis outsiders may be affected negatively by trade diversion, it becomes irrelevant since overall growth, and the demand for imports, boosts up because of such integration process, it is thus argued that RTAs do have a positive effect by smoothing the progress of merging the economies of least developing countries and developing countries with world economies. The existence of the above mentioned debate emphasizes the importance of WTO rules governing the establishment of RTAs to diminish their unfavourable effects on the MTS. This paper summarizes the current rules which RTAs should concur before such arrangements are approved, as well as highlighting some of the controversies around these rules. The paper also analyses the argument that such rules lack precision in addressing the particular problems of integrating WTO commitments on reduced agricultural support in RTAs. The recent jurisprudential conflict between the dispute settlement mechanisms of RTAs and WTO have also been reasonably dealt with in this paper.