Regional Trade Agreements: Integration or Discrimination?

 In a recent meeting, Russia and China reiterated their commitment to support each other's core interests, signaling a strengthening alliance. Meanwhile, Russian President Putin pledged to enhance economic ties with Brazil during a meeting at the Kremlin. The relationship between Africa and China was also in focus as Senegal hosted the 2021 Forum on China-Africa Cooperation.

Amidst growing global tensions and the erosion of globalization, economists are divided on the impact of regional alliances on trade. Some argue that a fragmented world will strengthen regional partnerships, while others, like Michele Ruta, a trade economist, believe it will weaken them. Ruta suggests that the current age of conflict may change the nature of regionalism, leading to more discriminatory practices. Regional trade agreements (RTAs) increasingly include provisions that favor member countries while imposing trade barriers on non-members. For instance, export bans on food and the use of local content requirements in subsidy schemes create discriminatory trade practices.

Regional trade agreements serve as a means to establish market rules and reduce tariffs among member countries. While the World Trade Organization (WTO) facilitates multilateral trade agreements, regional agreements have their advantages. They allow a group of countries to deepen integration beyond what is possible at the multilateral level. However, some countries may exploit regional trade agreements to discriminate against non-members. Market forces alone do not guarantee fair trade practices within regional agreements. Governments may have other motivations, such as national security or industrial policy, for discriminatory practices. Ruta highlights that trade agreements have become more complex over the past three decades, covering a wide range of policy areas beyond traditional trade aspects.

Despite the increase in the number and complexity of regional trade agreements, their success in promoting trade and integration between member countries is evident. These agreements have also shown positive impacts on non-members by reducing trade costs and promoting environmental regulations. For instance, provisions protecting against deforestation have led to significant reductions in forest loss. However, not all provisions have been successful, as bans on child labor have inadvertently affected educational outcomes and increased poverty in some cases.

The World Trade Organization has limited authority over regional trade agreements. Although countries are required to notify the WTO about their agreements, the organization has little power to enforce regulations. Regional trade agreements continue to play a significant role in shaping trade dynamics, with both positive and negative implications for global integration.

Michele Ruta's research, titled "The Rise of Discriminatory Regionalism," explores these trends in greater detail and is available in the June edition of Finance & Development magazine.

Source:https://www.imf.org/en/News/Podcasts/All-Podcasts/2023/06/01/michele-ruta-on-discriminatory-regionalism?utm_medium=email&utm_source=govdelivery