Regional Route to Multilateralism: Proliferation of PTAs among Developing Countries and WTO Negotiations

Abstract

Multilateralism and regionalism are seen as forces that pull the world apart in opposing directions. But, the incentive structure of the new generation PTAs, as they are mostly FTAs, is loaded in favour of freer trade. In FTAs members are free to enter into PTAs with third countries. They also have the freedom to reduce MFN tariffs. In the absence of strong rules of origin, FTA members might also end up competing among themselves to reduce tariffs to the level of the lowest tariff member lest all imports will get admitted through the lowest tariff country. Thus, what the FTA contagion does is to make the markets more contested. As developing nations enter into different networks of PTAs they would be exposed to international competition in a wide range of products. This for instance is what ASEAN-India FTA does in the case of trade in tropical commodities. The proliferation of FTAs, therefore, would render the developing world’s opposition to possible MFN cuts in bound tariffs with respect to many of the products redundant. The paper argues that the PTAs, especially the recently formed ones are likely to weaken the resistance against non-discriminatory, i.e., MFN liberalization of trade barriers.