Are the Regional Trade Agreements (RTAs) losing appeal to countries worldwide? Since 2021, when the total number of RTAs that came into force in a year reached a record level of 44, there has been a decline in RTAs both in terms of notification and enforcement. Seven RTAs came into force last year when only one RTA was notified to the World Trade Organization (WTO). At the end of 2024, the cumulative number of RTAs in force stood at 373, whereas RTAs notified to the WTO reached 582. Thus, the enforced against notified RTAs ratio stood at 64 per cent last year.
The cumulative number is estimated since the inception of the General Agreement on Tariffs and Trade (GATT), which has regulated world trade since 1948. Ten years later, two RTAs were notified to the GATT, and one came into force. Before WTO began its journey on January 1, 1995, succeeding GATT, only 39 RTAs were notified to GATT, of which 37 were enforced. The negotiations and implementations of RTAs started to gain pace in later years. During the last three decades, the surge in RTAs was remarkable compared to the previous five decades.
RTA is the term used in the WTO for trade preferences, such as lower or zero tariffs, which a member may offer to a trade partner unilaterally. These include the Generalised System of Preferences (GSP) schemes, under which developed countries grant preferential tariffs to imports from developing countries. They also include non-reciprocal preferential schemes granted through a waiver by the General Council, meaning the member has been exempted from applying the most favoured nation (MFN) principle. Though named as a regional agreement, meaning any RTA covers a region or sub-region, it is not necessarily confined to a single region as members of the agreement may come from more than one region. Again, an RTA may be a free trade agreement (FTA) or customs union.
Considering all these factors, the term Preferential Trade Agreement (PTA) is also used widely instead of RTA. Any PTA may be bilateral, regional or plurilateral, though different from an FTA. Sometimes, PTA is considered as the first phase of economic integration, followed by FTA, which is the second phase. PTA generally focuses on tariff reduction and, sometimes tariff elimination, while FTA stresses tariff elimination entirely mostly on reciprocal basis. For instance, both the South Asian Preferential Trade Arrangement (SAPTA) and South Asian Free Trade Agreement (SAFTA) are RTAs. Bangladesh is a member of both the agreements. SAPTA has virtually expired as the members adopted SAFTA which is still waiting for completion.
PTAs constitute an exception to the MFN provision of the WTO. Under the provision, all WTO members impose on each other the same non-discriminatory tariff. PTA allows any member of the WTO to extend additional tariff benefits to a specific trade partner or a group that is discriminatory to the rest of the members of the WTO. The core idea behind a PTA is to make trade easier and faster among the countries by reducing tariffs and setting various standards. As these negotiations at multilateral stage under the WTO framework take longer time, countries may go for PTA to avoid the multilateral negotiation for the time being. It doesn't mean that they will discontinue the WTO negotiation process.
A brief on the Preferential Trade Agreement under the Asia-Pacific Trade and Investment Trends 2024/2025 series, published in the last month by UNESCAP, shed light on RTA status in Asia and the Pacific region. It showed that the Asia-Pacific region continues to be the largest contributor to the worldwide build-up of PTAs, accounting for nearly 60 per cent of all PTAs in force. There are 374 PTAs involving at least one party of the Asia-Pacific region. Among these, 229 are in force, 27 are signed and pending ratification and 100 are under negotiation.
The paper, prepared and released by the Economic and Social Council for Asia and the Pacific (ESCAP), also pointed out that in 2024, eight agreements had been signed, and eleven new negotiations had started in the region. One of the 11 negotiations is the ongoing negotiation to strike a deal between Bangladesh and South Korea.
Some key insights from the paper demand attention. It said that though the number of PTAs continues to grow, their scope continues to expand beyond trade in goods and tariff liberalisation. Some of the agreements cover services and investment as well as government procurement, competition, intellectual property, environment and SMEs. It means, the PTAs are no longer limited to the conventional areas and their scopes have also been expanded. As countries are trying to include new issues in the PTAs, the negotiations have also become complex and time consuming. This is one of the reasons behind slowdown in RTAs or PTAs in recent years.
The ESCAP paper also pointed out that several longstanding agreements have been 'renegotiated and upgraded' to make their provisions 'fit for purpose' and enhance their inclusivity and comprehensiveness. Thus, some of the PTAs negotiated earlier have become less relevant nowadays and require revision in line with the new challenges.
Another new aspect of PTA is negotiating digital trade and the green economy, as per the ESCAP brief. More countries are now focusing on digital trade as it is growing across the world. Today, no trade is possible without a link with digital trade. Moreover, environmental issues are also becoming a critical component of trade.
asjadulk@gmail.com