In cooperation with partners such as the WTO and the OECD, the World Bank Group informs and supports client countries wishing to sign or deepen regional trade agreements. Specifically, the World Bank Group`s work includes: Wto Agreements recognize that RTAs can benefit countries if their objective is to facilitate trade between their parties. They also recognize that, in certain circumstances, these agreements could harm the commercial interests of other countries. Normally, the establishment of a customs union or free trade area would be contrary to the WTO principle of non-discrimination against all WTO Members (“most-favoured-nation treatment”). However, Article 24 of the General Agreement on Tariffs and Trade (GATT), Article 5 of the General Agreement on Trade in Services (GATS) and the enabling clause (paragraph 2(c)) allow WTO Members to conclude RTAs as a special exception provided that certain strict criteria are met. In particular, the agreements should help to make trade between RTA countries freer without creating barriers to trade with the outside world. In other words, regional integration should complement the multilateral trading system, not threaten it. Regional trade agreements appear to compete with the WTO, but often they can actually support the WTO`s multilateral trading system. RTAs, defined in the WTO as mutual preferential trade agreements between two or more partners, have enabled countries to negotiate rules and commitments that go beyond what was possible at the multilateral level. In turn, some of these rules paved the way for an agreement at the WTO. Services, intellectual property, environmental standards, investment and competition policy are all issues raised in regional negotiations and have subsequently been the subject of agreements or topics of discussion in the WTO.
These agreements have increased in number and complexity since the early 1990s. One of the most frequently asked questions is whether these regional groups support or hinder the WTO`s multilateral trading system. WTO members on various committees are working to address these concerns. A quick glance at the data suggests that CIFTA has been associated with significant trade and productivity gains in Canada: average commodity trade flows (Canadian exports plus imports to and from the United States) increased by 118% between 1988 and 1996, while labour productivity growth in the Canadian manufacturing sector was 30%. In comparison, in the period before liberalization in 1980-1988, growth rates were only 44% (trade) and 17% (productivity). As mentioned earlier, documents such as Trefler (2004) have also provided more rigorous econometric evidence that these increases may indeed be linked to tariff reductions implemented under CIFTA. The objective in Breinlich and Cuñat (2016) is to see to what extent different heterogeneous business models can quantitatively replicate these increases in trade and productivity and thus potentially useful for forecasting purposes. Holger Breinlich is Professor of International Economics at the University of Nottingham. He is also a researcher at the Centre for Economic Policy Research (CEPR), a research associate at the Centre for Economic Performance (CEP) and an internal researcher at the Centre for Research on Globalisation and Economic Policy (GEP).
His research interests lie in the fields of international trade, economic geography and applied econometrics. Holger Breinlich received his PhD from the London School of Economics in 2006. Over the past three decades, countries and trading blocs around the world have made considerable efforts to remove barriers to trade. In recent years, these efforts have mainly taken the form of regional free trade agreements (RTAs), in which countries liberalize trade outside the multilateral framework of the World Trade Organization. For example, Kehoe (2005) and Balistreri, Hillberry and Rutherford (2011) criticize the predictive performance of CGE models, pointing out that they overlook the impact of trade on overall productivity and trade growth along the so-called extensive margin (i.e., trade gains due to more firms trading or companies trading more products). A new generation of quantitative trading models based on the groundbreaking contribution of Melitz (2003) has recently been developed to address these shortcomings. However, a thorough evaluation of the predictive performance of these models is still in its early stages. In a recent article, we use the Canada-U.S.
Free Trade Agreement to conduct such a test. .