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

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  • Park, Innwon
  • Park, Soonchan

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.

Suggested Citation

  • Park, Innwon & Park, Soonchan, 2009. "Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade," MPRA Paper 14217, University Library of Munich, Germany, revised 23 Mar 2009.
  • Handle: RePEc:pra:mprapa:14217
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    References listed on IDEAS

    as
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    1. repec:idb:idbbks:6668 is not listed on IDEAS
    2. HAYAKAWA Kazunobu & URATA Shujiro & YOSHIMI Taiyo, 2017. "Choosing Between Multiple Preferential Tariff Schemes: Evidence from Japan's imports," Discussion papers 17002, Research Institute of Economy, Trade and Industry (RIETI).
    3. Hamanaka, Shintaro, 2012. "Evolutionary paths toward a region-wide economic agreement in Asia," Journal of Asian Economics, Elsevier, vol. 23(4), pages 383-394.
    4. Park, Innwon & Park, Soonchan & Kim, Sangkyom, 2010. "A Free Trade Area of the Asia Pacific (FTAAP): Is It Desirable?," MPRA Paper 26680, University Library of Munich, Germany.
    5. Kazunobu Hayakawa & Fukunari Kimura, 2015. "How Much Do Free Trade Agreements Reduce Impediments to Trade?," Open Economies Review, Springer, vol. 26(4), pages 711-729, September.
    6. Hayakawa, Kazunobu & Kimura, Fukunari, 2014. "How do free trade agreements reduce tariff rates and non-tariff barriers?," IDE Discussion Papers 446, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. Juan S. Blyde & Christian Volpe Martincus & Danielken Molina, 2014. "Fábricas sincronizadas: América Latina y el Caribe en la era de las Cadenas Globales de Valor," IDB Publications (Books), Inter-American Development Bank, number 86755 edited by Juan S. Blyde, February.

    More about this item

    Keywords

    regional trade agreements; rules of origin; cumulation; gravity; GATT Article XXIV; Enabling Clause;

    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; Spatio-temporal Models

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