Evolution of Regional Trade Agreements

May 23, 2023

The evolution of regional trade agreements (RTAs) has been a significant development in international trade. RTAs are agreements between countries in a geographic region aimed at mutually enhancing trade flows, reducing trade barriers, and promoting economic growth.

The concept of RTAs dates back to the early 20th century when countries began forming customs unions, which eliminated barriers to trade within a region while maintaining a common external tariff. The first customs union was established between Belgium and Luxembourg in 1921. However, it was the formation of the European Economic Community (EEC) in 1957 that paved the way for the proliferation of RTAs around the world.

The EEC, which eventually became the European Union (EU), was unique in that it allowed for the free movement of goods, services, capital, and people within the member states. This approach was more ambitious than previous customs unions and set a precedent for future RTAs. The EU’s success has made it a model for other regional blocs, such as the Association of Southeast Asian Nations (ASEAN), the Mercado Común del Sur (MERCOSUR), and the North American Free Trade Agreement (NAFTA).

Since the formation of the EEC, the number of RTAs has exploded. According to the World Trade Organization (WTO), there were only about 50 RTAs in force in the early 1990s. By 2019, that number had risen to over 300. This growth has been driven by several factors, including the desire for greater market access, geopolitical considerations, and the stalled progress in the multilateral trading system.

Despite the proliferation of RTAs, there is still debate over their effectiveness. Critics argue that RTAs can divert trade away from other countries, leading to trade diversion rather than creation. Furthermore, some smaller countries may be left out of these agreements, leading to asymmetric trade outcomes. However, proponents argue that RTAs can be a stepping stone towards greater trade liberalization and that they can help foster economic growth within a region.

The future of RTAs is uncertain, particularly in the wake of the COVID-19 pandemic, which has disrupted global supply chains and trade flows. However, there are signs that RTAs may continue to play an important role in shaping the international trading system. The EU and the United Kingdom recently signed a new trade agreement, while the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) continues to gain momentum as a potentially influential RTA in the Asia-Pacific region.

In conclusion, the evolution of regional trade agreements has been a significant development in international trade. While there is debate over their effectiveness, RTAs have proliferated in recent decades and continue to shape the international trading system today. As the global economy continues to evolve, it will be important to monitor the role that these agreements play in promoting economic growth and reducing trade barriers.