Regional trade agreements

trade policy brief

Regional trade agreements

February 2020

Regional trade agreements (RTAs) are a means of reducing trade costs, increasing trade flows, and spurring inclusive economic growth. omprehensive and progressive RTAs are developing in ways that go beyond existing WTO C rules, but elements could serve as “building blocks” to future international trade policy-making.

OECD research has found that regional provisions in WTO-plus measures have become more widespread and similar over time.

What’s the issue?

Many countries actively seek to establish new bilateral and regional trade agreements (RTAs) to increase trade and spur economic growth, reflecting a demand for deeper integration. Over 280 RTAs have been notified to the World Trade Organization (WTO), a significant increase over the past 30 years (figure).

In fact, regional provisions that deepen (“WTO-plus”) or expand multilateral commitments exist across a broad range of policy areas. While the concept of “multilateralising regionalism” remains an interesting political discussion, OECD research has found that regional provisions in WTO-plus measures have become more widespread and similar over time, suggesting capacity to endorse higher levels of commitments and a possibility for regional commitments across different policy areas to serve as ‘building blocks’ for future multilateral policy-making.

Many of the newer agreements are developing in ways that go beyond existing multilateral rules. The areas they cover – digital trade, anti-corruption, good regulatory practices, small and medium enterprises, investment, and intellectual property rights – are essential policy issues that need to be addressed in today’s more interconnected markets.

Regional trade agreements notified to the WTO by year of entry into force Goods notifications

Services notifications

Cumulative Notifications of RTAs in force

Cumulative Number of Physical RTAs in force

Accessions to an RTA

500

40

450

35

Number per year

350

25

300 250

20

200

15

150

10

100

5 0

50 1948

1953

1958

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1963

1968

1973

1978

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1983

1988

1993

@OECDtrade

1998

2003

2008

2013

2018

0

Cumulative Number

400

30

Regional trade agreements Some of the benefits conferred regionally in terms of enhancing transparency, pro-competitive practices, and environment protection, as well as stronger anticorruption and copyright enforcement not only generate benefits for all operators in those markets, but also include exporters and importers from third-party countries.

Over the years, the OECD has analysed a number of specific policy areas covered by RTAs – from agriculture, to environmental provisions, to trade facilitation, to government procurement, to trade in services, to investment and competition.

For example, recent OECD research has shown that including deep provisions in the areas of Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) in RTAs has a significant and positive effect on trade flows.

This result holds even when controlling for WTO-related provisions and dispute settlement procedures, implying that binding commitments are important in maximizing post-RTA trade flows. The work also shows that transparency and international regulatory co-operation (IRC) are significant and robust factors in increasing trade, and reinforces the view that the impact takes some time to materialise, which is important when evaluating the effectiveness of deep IRC mechanisms.

Recent RTAs also offer pathways for addressing some of the current trade policy challenges, including intellectual property and investment disciplines that could shelter potential investors from the compelled transfer of technology; or principles of good regulatory practice that could allow the digital transformation deliver more inclusive outcomes for all, despite regulatory requirements that differ across markets.

Looking at the treatment of agriculture, recent analysis of the impact of RTAs on agricultural global value chains (GVCs) finds that reducing tariff and non-tariff barriers for members of an RTA can lead to greater sector linkages with an increase in the GVC participation – both forward and backward – for most sectors. The majority of increased agricultural trade in value added under the RTA occurs via indirect linkages through other domestic sectors to GVCs, indicating that the agro-food sector is heavily reliant on other domestic sector linkages to GVCs as the pathway for their overall growth. However, in general, agriculture continues to receive special treatment in RTAs, and sensitive areas remain – in many cases, the high percentage of tariff elimination belies numerous product exemptions within tariff headings, as well as the use of tariff rate quotas.

of rules policy makers should explicitly examine options that would help transfer select emerging practices to a more genuinely global rulebook.

Further reading • Disdier, A., S. Stone and F. van Tongeren (2019), “Trade and Economic Effects of IRC – Further Empirical Evidence from SPS and TBT Provisions”, OECD Trade Policy Papers, No. 224, OECD Publishing, Paris, https://doi.org/10.1787/8648b6ca-en.

• Andrenelli, A., J.Gourdon and E.Moise (2019), «International Technology Transfer Policies», OECD Trade Policy Papers, No.222, OECD Publishing, Paris, https://doi.org/10.1787/7103eabf-en.

• Casalini, F., J.Lopez Gonzalez and E.Moise (2019), “Approaches to market openness in the digital age”, OECD Trade Policy Papers, No.219, OECD Publishing, Paris, https://doi.org/10.1787/818a7498-en.

• Thompson-Lipponen, C., J. Greenville (2019), “The Evolution of the Treatment of Agriculture in Preferential Trade Agreements” OECD Food, Agriculture and Fisheries Papers, No. 126, OECD Publishing, Paris, https://doi.org/10.1787/751d274f-en.

• Greenville, J., K. Kawasaki and M. Jouanjean (2019), “Influencing GVCs through Agro-Food Policy and Reform”, OECD Food, Agriculture and Fisheries Papers, No. 125, OECD Publishing, Paris, https://doi.org/10.1787/9ce888e0-en.

• Lejárraga, I. (2014), “Deep Provisions in Regional Trade Agreements: How Multilateral-friendly?: An Overview of OECD Findings”, OECD Trade Policy Papers, No. 168, OECD Publishing, Paris, https://doi.org/10.1787/5jxvgfn4bjf0-en.

• George, C. (2014), “Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers”, OECD Trade and Environment Working Papers, No. 2014/02, OECD Publishing, Paris, https://doi.org/10.1787/5jz0v4q45g6h-en.

What should policy makers do?

Policy makers are mindful that RTAs must be consistent with multilateral rules and that coherence across regional arrangements, as well as between regional and multilateral systems, is necessary. Policy makers can also use RTAs to set a precedent for future international rule-making and to foster convergence in trade rules and practices. In order to achieve this global conversion

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