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Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade

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Author Info
Park, Innwon
Park, Soonchan

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Abstract

Some economists worry about the ‘spaghetti bowl phenomenon’ expected from proliferating regional trade agreements (RTAs). In particular, the complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin (RoO) and trade diversion or suppression effects. This explains why almost half of the RTAs notified to the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) are currently inactive. This research attempts to provide best practices for RTAs to enhance global free trade by mitigating these negative effects. More specifically, we quantitatively estimate the trade creation and diversion effects of harmonized and cumulated RoO (bilateral, diagonal, and full cumulation) for RTAs established under GATT Article XXIV and under the Enabling Clause by adopting a Gravity regression analysis. We find that (i) RTAs in general create trade among members and divert trade from nonmembers; (ii) RTAs should be established under the comprehensive GATT Article XXIV, rather than the piecemeal Enabling Clause; and (iii) full cumulation is the most optimal provision in terms of creating the most intra-bloc trade and diverting the least extra-bloc trade. Overall, we strongly recommend that RTAs should employ full cumulation of RoO under GATT Article XXIV. This strategy will enable regionalism to be compatible with multilateralism, to be sustainable in the long run, and finally to lead us to global free trade.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14217.

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Date of creation: 14 Jan 2009
Date of revision: 23 Mar 2009
Handle: RePEc:pra:mprapa:14217

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Related research
Keywords: regional trade agreements; rules of origin; cumulation; gravity; GATT Article XXIV; Enabling Clause;

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. El-Agraa, Ali M, 2002. "The UTR versus CU Formation Analysis and Article XXIV," Applied Economics Letters, Taylor and Francis Journals, vol. 9(9), pages 621-24, July. [Downloadable!] (restricted)
  2. Rajapatirana, Sarath, 1994. "The evolution of trade treaties and trade creation : lessons for Latin America," Policy Research Working Paper Series 1371, The World Bank. [Downloadable!]
    Other versions:
  3. Patricia Augier & Michael Gasiorek & Charles Lai-Tong, 2007. "Multilateralising Regionalism: Relaxing the Rules of Origin Or Can Those Pecs Be Flexed?," CARIS Working Papers 03, Centre for the Analysis of Regional Integration at Sussex, University of Sussex. [Downloadable!]
  4. Park, Innwon & Park, Soonchan, 2008. "Free Trade Agreements versus Customs Unions: An Examination of East Asia," MPRA Paper 11301, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Medalla, Erlinda, 2008. "Rules of Origin: Regimes in East Asia and Recommendations for Best Practice," Discussion Papers DP 2008-19, Philippine Institute for Development Studies. [Downloadable!]
  6. Baldwin, Richard, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," CEPR Discussion Papers 5775, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Michael G. Plummer, 2007. "'Best Practices' in Regional Trading Agreements: An Application to Asia," The World Economy, Blackwell Publishing, vol. 30(12), pages 1771-1796, December. [Downloadable!] (restricted)
  8. Hadi Soesastro, 2003. "Challenges to APEC Trade Policy: The Doha Development Agenda and RTAs/FTAs," Governance Working Papers 73, East Asian Bureau of Economic Research. [Downloadable!]
  9. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "Impacts on NAFTA Members of Multilateral and Regional Trading Arrangements and Initiatives and Harmonization of NAFTA's External Tariffs," Working Papers 471, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  10. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  11. Hadi Soesastro, 2003. "Challenges to APEC Trade Policy: The Doha Development Agenda and RTAs/FTAs," CSIS Economics Working Paper Series WPE069, Centre for Strategic and International Studies, Jakarta, Indonesia. [Downloadable!]
  12. Anne O. Krueger, 1995. "Free Trade Agreements versus Customs Unions," NBER Working Papers 5084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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