Currently, there are a bit less than 300 regional trade agreements RTAs (free trade areas and customs unions) notified to the GATT/WTO and in force. Almost none of them comply with stringent prescriptions of Art 24 GATT, so comprising virtually all trade without impairment of WTO benefits accruing to all members. Important sectors like agriculture, not to speak of services are usually excluded. Today, only a handful of WTO members are not yet participants of a regional or bilateral free trade area. What started in the late forties as an exception to the rule of non-discrimination and most-favored nation treatment has actually developed towards the biggest source of eroding rules discipline in the global trading system.
This is not to deny that apart from efficiency-impeding effects through trade discrimination RTAs can also be efficiency-enhancing. The latter evolves through more efficient intra-regional trade (or investment) at the expense of less efficient domestic production, while the former evolves by more inefficient intra-regional trade at the expense of more efficient extra-regional trade. As a rule of thumb, the efficiency-enhancing effect is more important for countries with high intra-regional trade shares and high shares in world trade (so typically RTAs between industrialized countries), while the efficiency-impeding effect prevails in RTAs among developing countries with low shares in world trade and low intra-regional trade.
Thus, with the EU and the US announcing to start negotiations on a Transatlantic Trade and Investment Partnership TTIP (a politically more correct paraphrase for a free trade agreement), one can expect the efficiency-raising effects to be sizeable. Nevertheless, to assume that the TTIP will have negligible discriminatory effects for non-participants or will be a stepping stone rather than a stumbling block to a comatose Doha Round, is naïve and not supported by any evidence from the recent past. First, TTIP excludes the emerging markets as the most dynamic trading partners and especially China, being the main target of US and EU “grey” contingent measures such as antidumping duties or countervailing duties. Given other areas of conflicts with China, such as the debate on currency manipulation and global imbalances, TTIP must appear to China as a confrontation with a Transatlantic concerted action against the world’s most dynamic trading partner. Second, if the TTIP negotiations are really meaningful and for instance, will include all areas of bilateral conflicts such as Boeing/Airbus export subsidies, health standards for food ( GMO and hormone-treated beef), liberalization of audiovisual services to the benefits of the US movie and TV industry, etc., then all US and EU resources available for trade negotiations will be absorbed by TTIP and nothing will be left for the Doha Round. If they are not meaningful and deep but “shallow”, they will have no effects but will damage the WTO principles for which TTIP is still an exception and not the rule. It is a completely different story whether the trade giants EU and the US “overstretch” Art. 24 or whether Armenia and Ukraine do it. Third, to argue that the TTIP is “open regionalism” for everybody to accede, will remind non-participants of the Blair House Agreement between the US and the EU in the early nineties when that agreement paved the way to the conclusion of the Uruguay Round (UR). Later, the developing countries and the emerging markets learned a painful message that their trade interests did not receive much attention in the UR thanks to the Blair House Agreement. The TTIP will never be approved by the non-participants as “Blair House Reloaded”. Fourth, the TTIP might serve US interests and targets to double their exports by 2015 as it may serve EU trade interests to diversify trade away from the stagnant EU market but it can drive a further wedge between Euro North countries and crisis-ridden Euro South countries. To recover from the crisis, Euro South countries will not assess stronger competition of their domestic suppliers with US goods and services suppliers as overly helpful. Demands for exceptions have already been launched and will make the TTIP porous and shallow. In its current crisis, why should the EU open a new battlefield of internal conflicts without any need?
In a mercantilist world, trade negotiations are costly in terms of resources needed to come to an agreement. More than ten years of unsuccessful Doha Round negotiations bear witness to these costs. It is therefore critical to use these resources as efficiently as possible. The place to do this is Geneva and not Washington or Brussels.