Overview | Research | Data
Overview
A regional trade agreement (RTA) is a treaty between two or more governments that define the rules of trade for all signatories. Examples of regional trade agreements include the North American Free Trade Agreement (NAFTA), Central American-Dominican Republic Free Trade Agreement (CAFTA-DR), the European Union (EU) and Asia-Pacific Economic Cooperation (APEC).
Regional trade agreements are increasing in number and changing their nature. Fifty trade agreements were in force in 1990. There were more than 280 in 2017. In many trade agreements today, negotiations go beyond tariffs to cover multiple policy areas that affect trade and investment in goods and services, including behind-the-border regulations such as competition policy, government procurement rules, and intellectual property rights. RTAs that cover tariffs and other border measures are “shallow” agreements; RTAs that cover a larger set of policy areas, at the border and behind the border, are “deep” agreements.
Deep trade agreements are important institutional infrastructure for regional integration. They reduce trade costs and define many rules in which economies operate. If efficiently designed, they can improve policy cooperation across countries, thereby increasing international trade and investment, economic growth and social welfare. World Bank Group research finds that:
- Deep agreements boost trade, foreign investment and global value chain (GVC) participation more than shallow agreements. On average, deeper agreements increase goods trade by more than 35 percent, services trade by more than 15 percent, and GVC integration by more than 10 percent.
- Aspects of deep agreements are public goods. Certain provisions of these agreements benefit all trading partners, and have positive welfare effects through expanded trade and an improved policy environment. But their efficient design requires a balancing of interests between different members and between member and nonmember countries.
- Regional Trade Agreements (RTAs) are currently at the center of many policy debates and are likely to shape trade and economic relations in the coming years. Some of these discussions are about reversing or renegotiating current arrangements, as in the case of Brexit and the North American Free Trade Agreement. In many other cases, often involving developing countries, new trade agreements have been concluded or are being negotiated, including the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP), the European Union–Mercosur trade agreement, the Regional Comprehensive Economic Partnership between the Association of Southeast Asian Nations (ASEAN) countries and six of their major trading partners, and the Continental Free Trade Area (CFTA) in Africa.
Working with partners such as the WTO and OECD, the World Bank Group informs and supports client countries that are seeking to sign or deepen regional trade agreements. Specifically, WBG work includes:
- Data and indicators – on the content and depth of regional trade agreements.
- Analysis – on the impact and efficient design of regional trade agreements.
- Advisory services – inform the design of regional trade agreements, to strengthen capacity.
WBG research on regional trade agreements:
Maliszewska M, Z. Olekseyuk and I. Osorio-Rodarte, March 2018, Economic and distributional impacts of comprehensive and progressive agreement for trans-pacific partnership : the case of Vietnam. Washington, D.C. : World Bank Group.
Mattoo, A., A. Mulabdic, and M. Ruta. 2017. “Trade Creation and Trade Diversion in Deep Agreements.” Policy Research Working Paper Series 8206, World Bank, Washington, DC.
Mulabdic, A., A. Osnago, and M. Ruta. 2017. “Deep Integration and UK–EU Trade Relations.” In The Economics of UK-EU Relations, edited by Nauro F. Campos and Fabrizio Coricelli, 253–282. Springer.
Osnago, A., N. Rocha, and M. Ruta. 2017. “Do Deep Trade Agreements Boost Vertical FDI?” World Bank Economic Review 30 (Supplement): 119–125.
Osnago, A., N. Rocha, and M. Ruta. forthcoming. “Deep Trade Agreements and Vertical FDI: The Devil Is in the Details.” Canadian Journal of Economics.
Ruta, M. 2017. “Preferential Trade Agreements and Global Value Chains: Theory, Evidence, and Open Questions.” Policy Research Working Paper Series 8190. World Bank, Washington, DC.
Data
Dataset: Content of Deep Trade Agreements
The Europe 2020 strategy presented by the European Commission sets out a vision of the EU`s social market economy for the twenty-first century. It shows how the EU can emerge stronger from this crisis and how it can be transformed into a smart, sustainable and inclusive economy that offers high levels of employment, productivity and social cohesion. It calls for stronger economic governance in order to achieve rapid and sustainable results.28 In general, trade creationA situation in which a free trade area creates trade that would not otherwise have existed. means that a free trade area creates trade that would not have existed otherwise. As a result, delivery is made by a more efficient producer of the product. In any case, the creation of businesses will increase the national well-being of a country. With regard to the term free trade area, the General Agreement on Tariffs and Trade (GATT 1994) originally meant that it covered only trade in goods. [4] An agreement with a similar objective, namely to promote the liberalization of trade in services, is referred to in Article V of the General Agreement on Trade in Services (GATS) as the “Economic Integration Agreement”. [5] In practice, however, the term is now often used to refer to agreements that concern not only goods, but also services and even investment. With hundreds of free trade zones currently in place and under negotiation (around 800 under ITC`s Rules of Origin Facilitator, including non-reciprocal trade agreements), it is important for businesses and policymakers to keep an eye on their status. There are a number of custodians of free trade agreements that are available at the national, regional or international level. Among the most important are the Latin American Integration Association (LAIA) database on Latin American free trade agreements[18], the database of information agreements of Asian countries managed by the Asian Centre for Regional Integration (ARIC)[19] and the portal on European Union free trade negotiations and agreements.
[20] The simplest way to do this is to imagine that a country that joins a free trade agreement could have import markets where trade formation would take place and other markets where trade diversions would take place. Trade-generating markets would certainly generate national welfare gains, while trade-diversion markets could result in national welfare losses. It is common for economists to make the following statement: “If the positive effects of trade creation are greater than the negative effects of trade diversion, then the free trade agreement will improve national well-being.” A more concise statement, albeit a little less precise, is: “If a free trade agreement results in more trade creation than trade diversion, then the free trade agreement improves prosperity.” For a variety of reasons, it often makes sense for nations to coordinate their economic policies. Coordination can generate benefits that are not otherwise possible. A clear example of this is the discussion of trade wars between major countries in Chapter 7 “Implications of Trade Policy with Perfectly Competitive Markets”, Section 7.9 “Retaliation and Trade Wars”. It shows that if countries work together and set zero tariffs relative to each other, both countries are likely to benefit from them compared to the case both countries try to gain short-term benefits by setting optimal tariffs. This is just one of the advantages of cooperation. Countries that liberalize cross-border movements of labour and capital, coordinate fiscal policy and resource allocation for agriculture and other sectors, and coordinate their monetary policy. One might ask, if free trade is the most economically effective policy, how is it that a move towards free trade by a group of countries can reduce economic efficiency? The answer is quite simple if we put the history of FTA education in the context of the theory of the second best. Recall that the theory of the second best suggests that if there are distortions or imperfections in a market, the addition of another distortion (such as a trade policy) could actually increase prosperity or economic efficiency.
In the case of a free trade agreement, the policy change is to remove barriers to trade rather than adding a new trade policy. However, the second best theory works the same way in the opposite direction. Challenges for businesses include being outside a new trading bloc or changing the “rules” of their industry due to new trade agreements. .
Please follow and like us: