What Is Regional Trade Agreements

Where I am the trade intensity index, IT is intra-regional trade, TA is the whole (global) trade of the region and TW is world trade. If the index is lower (above) the unit, intra-regional trade is less (more intense) than extra-regional trade. African ATRs are largely motivated by the continent`s desire to promote growth through regional cooperation. Many African countries are small landlocked countries with inadequate infrastructure.11 Of the 53 African countries, 39 have fewer than 15 million people and 21 have less than 5 million (ECA, 2004). Although Africa has 12% of the world`s population, it produces only 2% of world production because of its low productivity. In 2003, sub-Saharan Africa`s GDP was 17% lower than Australia`s; if South Africa is excluded, Africa`s GDP is about the same as in Austria. By creating larger markets, African countries should take advantage of economies of scale and strengthen domestic competition, increase investment returns and thus attract more foreign direct investment.12 Africa could achieve most, if not all, of the benefits by unilaterally liberalizing and/or participating in WTO-supported multilateral liberalization (Oyejide, 1997). African leaders also believe that the RTA would strengthen its negotiating power in international trade negotiations and that trade integration would help reduce regional conflicts. Regional trade agreements (ATRs) have multiplied over the years and have achieved, including a significant increase in major multilateral agreements being negotiated. Non-discrimination between trading partners is one of the fundamental principles of the WTO; However, reciprocal preferential agreements between two or more partners are one of the exceptions and are allowed by the WTO subject to a number of provisions. Information on WTO-notified ATRs is available in the RTA database.

RTAs have spread exponentially around the world. Almost all countries are now participating in at least one ATR, and about 300 bilateral and multi-lateral ATRs are now in force.4 A series of events – the failure to launch a round of multilateral trade negotiations in Seattle in 1999, their ephemeral resumption after the Doha ministerial meeting in 2001 and an impulsive collapse in Cancun in 2003 – have sparked renewed enthusiasm for preferential regimes. Of course, RTAs can have dynamic effects that could theoretically dominate the static well-being effects described above. Such benefits could result from increased competition and learning through action. They could also be explained by the increase in imports of capital goods that could be more advanced technologies. But if African RTAs have failed to increase overall trade in the region and have often resulted in fewer imports from the rest of the world, they are unlikely to have made a dynamic profit. A previously cited study (from Melo, Panagariya and Rodrik 1993) found no effect on growth for UDEAC or ECOWAS.