Regional trade agreements:

Introduction:
A regional trade agreement refers to free trade among a number of nations in a specified area or region. Regional trade agreements regulate more than one half of global trade. The number of regional trade agreements has grown in the past two decades. Regional Trade Agreements between equal partners can be beneficial to both but between a rich and a poor economy, the stronger economy always comes out on top. A regional free trade agreement removes all barriers to trade and foreign investment, meaning that poor economies are not allowed to use import tariffs to protect their growing industries or their farmers from floods of cheap imports However regional trade agreements can have both positive and negative effects They can be attractive, for example, because it may be easier for a small group of neighboring countries with similar concerns and cultures to agree on market opening in a particular area than to reach agreement in a wider forum such as the WTO. They can also offer new approaches to rule-making and so act as stepping stones on the way to a multilateral agreement. But regional agreements also risk making it harder for countries outside the region to trade with those inside and may discourage further opening up of markets, ultimately limiting growth prospects for all. Moreover, broad-based multilateral negotiations, with more players and more sectors, will offer greater potential for mutual gain than limited bilateral or regional deals.

Trade Barriers

A free trade agreement lifts all trade barriers to trade and foreign investment. Member nations signing a regional trade agreement agree to eliminate trade tariffs on exports and imports. This promotes and increases trade among member nations of a free trade agreement bloc.

WTO Rules

The World Trade Organization (WTO), with its 153 country members, acts as a regulatory organization, spelling out the guidelines for regional trade agreements. According to WTO figures, 193 regional trade agreements are in force as of 2010.

Types of Regional Trade Agreements

Regional trade agreements, sometimes referred to as RTAs, are increasingly important in global trade. Essentially, a regional trade agreement involves one or more countries deciding to liberalize the exchange of goods and services across their borders. RTAs are an important exception to the World Trade Organization's (WTO) multilateral trade policy, which does not allow any country to be discriminated againt by another country's trade regime. RTAs, on the other hand, do allow neighboring countries to enter into preferential trade agreements. Several types of RTAs are commonly used in the world today.

Preferential Trade Areas

First-level RTAs are also called preferential trade areas. A preferential trade area is created when two countries lower their trade barriers with one another, but do not completely eliminate them. This type of RTA does not involve any type of integration of the two countries' labor, capital or money markets. This type of RTA is not allowed by the WTO, and they can have a harmful effect on multilaterial trade.

Free Trade Areas

A second-level RTA is called a free trade area, or FTA. This involves the complete removal of all trade barriers between two countries, but still does not involve the integration of labor or capital markets. In this system, each member of the agreement is allowed to maintain its trade barriers with third parties not involved in the agreement. FTAs represent 84 percent of all RTAs.

Customs Unions

Third-level RTAs are also called customs unions. Under this type of RTA, the member countries must eliminate all trade barriers between one another, but also adopt the same trade policy in regard to other countries not a part of the agreement. This is often referred to as a common external tariff. However, under this type of RTA capital and labor markets remain unintegrated. This type of RTA represents about 8 percent of all RTAs.

Common Markets

Fourth-level RTAs are called common markets. In this type of RTA, all barriers between the movement of labor and physical capital are removed. Essentially, this allows the movement of production factors across borders along with the products produced.

Scope of RTAs
Regionalism is described in the Dictionary of Trade Policy Terms, as actions by governments to liberalize or facilitate trade on a regional basis, sometimes through freetrade areas or customs unions. Regionalism refers to a violation of the nondiscrimination principle in which one member of a regional trade agreement (RTA) discriminates in its trade policies in favor of another member of the RTA and against nonmembers Has been allowed by the GATT/WTO under certain circumstances Free trade areas (FTAs) Customs unions (CUs) Interim agreements leading to a FTA or CU within a reasonable length of time In the WTO context, regional trade agreements (RTAs) have both a more general and a more specific meaning: more general, because RTAs may be agreements concluded between countries not necessarily belonging to the same geographical region; more specific, because the WTO provisions which relate specifically to conditions of preferential trade liberalization with RTAs.

The Advantages of Regional Trade Agreements

A regional trade agreement is a treaty which several countries sign with one another. Some famous regional trade agreements include the European Common Market and the North American Free Trade Agreement. A regional trade agreement requires the approval of the legislators of the countries which sign the trade agreement. There are the following advantages of RTAs:

Lower Prices

Regional trade agreements reduce the tariffs between the countries which are part of the trade agreement. According to Harvard University, the World Trade Organization requires regional trade agreements to reduce tariffs between countries, but does not allow these countries to increase tariffs on countries which do not participate. Tariff reductions allow people to purchase goods from other countries at lower prices.

International Export Advantages

Regional trade agreements provide trade advantages for all countries in a region which improve their worldwide competitiveness, including in the markets of countries not included in the trade agreement. A car manufacturer that can purchase cheap steel from a country with which it has a regional trade agreement can sell cars elsewhere at a lower cost. According to Harvard University, regional trade agreements can also encourage other nations who are not part of the trade agreement to reduce their trade barriers.

Rewarding Allies

Allies can receive rewards through a regional trade agreement. According to Harvard University, the United States delayed signing trade agreements with the nations of Chile and New Zealand since these nations opposed the Iraq War. A country can also reward nations that establish similar economic and political systems with a free trade agreement, and refuse to sign a free trade agreement with nations which violate human rights.

Dispute Resolution

Regional trade agreements include processes to settle trade disputes. Countries come into conflict with one another over agricultural subsidies, dumping products at low prices, and currency manipulation. The trade agreement includes standardized arbitration rules and ensures that trade disputes are resolved according to consistent rules. According to Cornell University, trade agreements often specify the forum in which trade disputes are resolved, reducing disputes about which organization has jurisdiction over the trade dispute.

Dispute Remedies

Dispute remedies are provided by regional trade agreements. A country which uses trade practices that harm a trading partner can be legally punished according to the rules of a trade agreement.