The World Trade Organization aims at furnishing a common institutional framework for the manner in which trade relations should be conducted amongst its members.

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RESEARCH DESIGN

 

 

1.      STATEMENT OF THE PROBLEM

The World Trade Organization aims at furnishing a common institutional framework for the manner in which trade relations should be conducted amongst its members. The main aim of the WTO is the MFN (Most Favored Nation clause) which is given in Article I of the General Agreement on Tariffs and Trade, disallows member countries from using policies which are discriminatory against each other. Hence, the members of WTO must provide a treatment which is equal in dealing with goods and services of other WTO countries. Regional Trade agreements go against this fundamental premise of the WTO by creating a framework which caters to special preferences of the countries involved in the RTAs for the purpose of making the trade liberal only amongst them.  These kind of special preferences are not made available to the other WTO countries. So, inconsistencies will naturally arise within the WTO provisions as RTAs cause discrimination against the MFN obligation.[1]

 But Article XXIV of the GATT is an exception to the MFN principle enshrined in the GATT where some deviation from WTO rules for RTAs was permitted for the creation of “customs unions” and “free trade areas” if they fulfill certain criteria by WTO. [2]The coexistence of the RTAs amongst WTO countries and WTO nurtures a troublesome ad complex framework of international obligations and rights. Considering that there is a major difference in the approaches of the RTAs and multilateral trading agreements and there exist complexities and controversies involved in RTA, it is of prime importance to look into the problem area and making multilateralism and regionalism coexist peacefully.[3]

2.       BACKGROUND OF THE INFORMATION

Article XXIV of the GATT, counted as one of the most complex provisions of GATT[4], lays down rules which WTO members must follow so as to establish RTAs encompassing trade in goods.[5] These rules are created to keep in mind that the countries which form regional agreements will make sure that they authentically create free trade blocs amongst themselves and give proper compensation for any damage caused to the WTO members’ trade interests.[6]There was practicality ensured by the GATT drafters when they agreed to incorporate Article XXIV as discrimination was the latent feature of the regional trade agreements but whether the establishment of the RTAs would actually be in consonance with the global justice system ensuring trade liberalization at every step will have to be examined. The question that arises is whether this Article would detract the countries from free and fair trade amongst the nations involved in the bloc and with those outside the bloc?

2.1 INTERPRETATION DIFFICULTIES IN ARTICLE XXVI

The WTO countries were eager to make the GATT exceptions liberal for the proper functioning of the RTAs and this amounted to the incorporation of paragraph 4 into the draft of ITO at Havana Conference and eventually led to its inclusion in GATT. This paragraph entails the aim of the exception to WTO obligations for ‘free trade areas’ and ‘custom unions’ and in addition to this encompasses the parameters of liberalization of trade. A free-trade area is that area having a trade arrangement whose members have signed to become a part of a free-trade agreement (FTA). Such agreements encompass cooperation between minimum two countries to lessen trade barriers – import quotas and trade tariffs  in addition to increase trade of goods  with each other. On the other hand a custom union means a type of trade arrangement which is basically a free trade area  incorporating an additional feature of a common external tariff. The countries involved in a custom union come up with a common external trade measures towards other countries not part of the custom union.  The objective for creating a customs union is to make the economy function more efficiently and maintain and creating deeper cultural and political ties between the member states. It comes at the third building stage of economic integration. Customs unions are created through trade Agreements. Eurasian Custom Union is one such type of Custom Union.

Article XXIV of GATT provides exception to only custom union and free trade area and not preferential trading arrangement. The difference between these two is that where the free trade area aims at abolishing the trade tariffs absolutely whereas the preferential trading arrangement aims at reducing significantly the trade tariffs between countries but not eliminating completely. European Union is a type of FTA where the aim of this union is to facilitate trade between the member countries by abolishing the trade tariffs completely. Also the Preferential Trading Agreements do not cover all trade whereas FTAs aim to cover all trades.[7] PTAs have the aim of converting themselves into FTAs in accordance with the principles of GATT. The purpose of the paragraph 4 is to expand the meaning of freedom of trade and to increase the trade between the countries in the regional arrangement without creating any barrier to the trade between the other countries. The purpose of the paragraph 5 is to lay down the exception provided for the free trade areas and the Custom Union from the many WTO obligations. The rule entails the conditions to be met by the CUs and the FTAs so that they do not have adverse consequences on the trade of third countries.



[1] Baldwin, R. 1997. The Causes of Regionalism. The World Economy, 20(7): pp.865- 888.

[2] Best, E. and Christiansen, T. 2008. Regionalism in International Affairs. IN: Baylis, J., Smith, S. and Owens, P. (eds.) The Globalization of World Politics. 4th ed. New York: Oxford University Press, pp. 436-439

[3] Baldwin, R. 1993. A Domino Theory of Regionalism. Nber Working Paper Series, No. 4465. Cambridge, MA: National Bureau of Economic Research.

[4] Article XXIV of the GATT, has been widely criticized because it is against the basic spirit of the GATT-WTO framework and it permits members of a trade block to follow the policy of discrimination against non members.

[5] Jackson  John, World Trade  and GATT, The Bobbs Company, New York pp 575-580

[6] G. Arun(Ed;), WTO in the new millennium, Business Studies Academy, New Delhi, 2003

[7] Bhagwati, J. N. 1993. Regionalism and multilateralism: an overview. IN: De Melo, J. and Panagariya, A. (eds.) New Dimensions around Regional Integration. London: Cambridge University Press, pp. 22-51.

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