Preferential Trade Agreements and Regional Integration

Abstract

AbstractBoth the GATT and the GATS make explicit allowance for preferential trade agreements among a subset of members. Such agreements can be of two types: reciprocal and nonreciprocal. This chapter deals with the former; the latter are discussed in Chapter 12 as they arise in trade relations between industrialized and developing countries. Both types of preferential trade are inconsistent with the MFN principle and are therefore subject to multilateral disciplines that define minimum conditions that must be met for an agreement. The WTO also provides for multilateral scrutiny of such agreements. This chapter discusses the rationales for preferential trade agreements (PTAs) between WTO members, the WTO rules and their application in practice, and the economic literature exploring the relationship between PTAs and multilateralism (the trading system)—both theoretical and empirical. Given the steadily expanding number of PTAs, a critical question for the WTO is whether the network of PTAs create incentives to lower trade barriers on a MFN basis and thus help achieve a major objective of the drafters of the GATT.