Regional trade agreements. Free trade areas

Regional trade agreements - the agreements whereby members accord preferential treatment to one another, concluded by two or more countries to establish a free trade area (FTA), a customs union or other unions with a higher level of integration.

Фото: Евгений Павленко, Коммерсантъ

FTA – a type of trade bloc, where a designated group of countries (two or more customs territories) have agreed to eliminate tariffs and other barriers to substantially all trade between the countries, forming such a union. A common external tariff on a good imported from outside countries is not applied.

By the end of 2011 509 RTAs had been notified to the WTO Secretariat. As of 1 reFebruary 2014 546 RTAs are notified to the WTO.

The idea of the Free trade agreements is to promote efficiency, fairness, openness of trade and to eliminate discrimination between FTA Member - states.

The positive effect of the establishment of an FTA.

- Reciprocal tariff elimination;

- Progressive removal of non-tariff barriers (quotas, technical barriers to trade and others);

- Promotion of economic integration;

- Enhancing the capacities and opportunities of nationals and market members;

Dynamic of change of the number of WTO Member-States and regional integration groupings

Scope of the FTA Agreements

Admissibility of FTA Agreements

• The possibility to conclude an FTA Agreement is envisaged under the rules of the WTO Agreements. Such kind of agreements should contribute towards development of free trade but not lead to the creation of the impediments to trade amongst the members of such trade agreements.

• The establishment of an FTA (as well as the establishment of a Customs Union) represents a deviation from a fundamental principle of a WTO system on granting equal conditions to all WTO Member – States – Most - Favoured - Nation Treatment principle.

• States wishing to conclude a regional trade agreement are to notify WTO in this regard (no later than the parties' ratification of an RTA, Council for Trade in Goods, council for Trade in Services Committee on Trade and development).

WTO rules on FTA Agreements

The GATT Article XXIV and the GATS Article V provide for a set of criteria that should be met by the States concluding an FTA Agreement, without impairing the interests of other parties to international trade – WTO member states.

Article XXIV of the GATT -1994 criteria

• the objective of an FTA Agreement is to facilitate, liberalize and promote trade between the territories, forming a free trade area;

• not to raise barriers to the trade of other contracting parties with the territories, forming a free trade area;

• duties and other regulations of commerce towards the contracting parties not included in such free trade area/not parties to such agreement shall not be higher or more restrictive than those existing prior to the formation of the free trade area (para 5b);

• a schedule/plan for the formation of a free trade area needed (para.5с);

• duties and other restrictive regulations/measures (excluding those where necessary/permitted under certain articles of the GATT) should be eliminated on substantially all the trade between the territories, forming a free trade area in products, originating in such territories

The Panel was established only three times to consider the legitimacy of a free trade area in light of the Article XXIV of the GATT. In all three cases the report of the Panel was not adopted.

Article V of the GATS criteria

• substantial coverage of services sector in the Agreement (is expressed in the number of sectors covered, the volume of trade affected and modes of supply);

• elimination of discrimination between the parties, in the sectors covered by the agreement;

• elimination of existing discriminatory measures and prohibition of implementing new ones

and more discriminatory ones in the sectors covered by the agreement;

• not to raise barriers towards the countries – not members of such a free trade area;

• possibility to set a timeframe/schedule to remove discriminatory measures;

• measure affecting payments and transfers, restrictions to ensure the balance of payments, measures permitted under general exceptions and security exceptions from the GATS agreement may be maintained by the parties to an FTA agreement.

«Substantially all trade» criterion

- It can be confidently stated that for the last 50 years since the first FTA Agreements were concluded in 1950s, the gap between «substantially all trade» and «all trade» has narrowed considerably.

- At present a widespread view is that the Agreement covering less than 90% of trade cannot be considered as a comprehensive agreement on FTA, while already in 1960s the 70% coverage of trade presented to be an acceptable limit. However, up to this time there is no unanimity on how this percentage ratio should be calculated

The North American Free Trade Agreement obviously meets the criterion provided for in the provisions on FTAs of the GATT (Article XXIV) and on the liberalization of trade in services of the GATS(Article V). NAFTA by all reasonable and appropriate measures removes almost all tariffs and restrictions of trade between Canada, Mexico and the US, removes almost all barriers in respect of trade in services in most services sectors covered by the Agreement.

The CIS Free Trade Area Agreement (signed in 2011) is aimed at trade in goods regulation, without covering trade in services matters, which however partially covers other trade related matters. Exceptions to the Commodities Nomenclature to which import duties are applicable, are reduced to a minimum.

Participation of the Russian Federation in an FTA

Today, the Eurasian Economic Commission is in process of negotiating an Agreement on the formation of a free trade area between the Customs Union (Russian Federation, the Republic of Kazakhstan, and the Republic of Belorussia) and the Socialist Republic of Vietnam.

Customs Union-Vietnam FTA Agreement

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