Which of the following Can Be the Consequence of a Regional Trade Agreement

Whether trade diversion and its consequences lead to good policy also depends on the opinion of policymakers on economic development. Scientists in the Global South cannot assume that participation in a trade regime is necessarily beneficial. [52] Many researchers have criticized the global free trade system for not being adapted to the needs of developing countries. This research often understood that free trade allowed multinationals in the North to continue the unequal trade they developed with the South during colonialism, with minimal interference and tacit approval from the governments of the Global South. [53] [6] See Fabian Bohnenberger, Mega-regional agreements and global trade governance: Ensuring openness and inclusiveness in an increasing complex system, Bridges Afr., May 2016, 21, www.ictsd.org/bridges-news/bridges-africa/news/mega-regional-agreements-and-global-trade-governance-ensuring. In addition, developing countries may be less diversified than advanced economies and are therefore likely to be more dependent on a particular industry, such as textiles or agricultural products. [87] Trade diversion, as well as changes in multilateral trade relations, could have serious negative consequences for economies. In the context of international trade, it could be argued that the concentration of the externality on a predominant industry in a developing country is a stronger argument for a remedy for trade diversion. [88] A common market is a type of trade agreement in which members remove internal barriers to trade, pursue common policies in their relations with non-members, and allow members to move resources freely among themselves.

However, the distinction between economic and social considerations is weak[70], and the Smits network could only cover exceptional cases of damage. Although the emphasis on the application of social considerations may have important moral value, remedial measures for social demands alone do not necessarily lead to greater equality. [71] The use of “social” or “protectionist” considerations of apparently unprivileged consumers, as opposed to the contractual freedom of businesses in antitrust law, does not guarantee a shift in favour of those in structurally unprivileged positions in society. [72] Similarly, in the context of trade diversion by RTAs, there is a risk that taking into account social protectionist law to the detriment of the right to contractual autonomy will reinforce existing asymmetries rather than lead to fair results. There are two main avenues for potential litigants who want to challenge the legality of trade diversion. The first way would be to take legal action for violating WTO rules, as described by Howse. The second would be the “non-infringement clause”, which allows a GATT/WTO member government to claim compensation from another for the negative trade effects of its respective policies; Even if such a policy were not contrary to specific gatt and WTO treaty obligations, there would be an “adverse change in competition”. [30] In other words, the latter route, the “non-infringement clause”, can be invoked in the event of a breach of the legitimate expectations of the injured business partners. [31] The general conditions preceding the respondent`s conduct would be used as a measure to determine the existence and extent of the harm resulting from the change in trade flows. The analysis of the negative distributional effect of RTAs, the unfavourable change in competition, would then be highlighted. Daniela Caruso`s remarkable article “Non-Parties: The Negative Externalities of Regional Trade Agreements from a Private Law Perspective”[3] addresses the need to take remedial action against trade diversion by RTAs through the prism of private law. By their very nature, contracts exclude third parties.

Restrictions on freedom of contract under private law thus provide analytical information on possible claims for damages for non-parties to RTAs. However, this analysis argues that Caruso`s controversial starting point that participation in a RTA is beneficial and exclusion from a RTA is harmful calls into question subsequent research on remedies based on this hypothesis. The potential positive impact of RTAs on economies is highly controversial. [2] Because of their immense scope and depth, RTAs have been called “mega-regional arrangements” and raise concerns about democratic governance, legality and economic distribution. In addition, RTAs exclude third parties, raising concerns from a global justice perspective. Operators, including entire countries excluded from agreements concluded by other parties, may encounter economic difficulties as a result of the diversion of trade caused by these agreements. Member States benefit from trade agreements, including the creation of new employment opportunities, lower unemployment rates and market expansion. Since trade agreements are usually accompanied by investment guarantees, investors wishing to invest in developing countries are protected from political risks.

However, the starting point of the analysis is controversial, which calls into question further research into remedies based on this hypothesis. In this private law case, a transaction is considered advantageous and the exclusion of a transaction is considered harmful. However, the damage results not only from non-participation in the free trade system, but also from participation in the system. [46] Damage probably always results from creative destruction in a capitalist economic system. [47] For example, innovation and new practices destroy old ones, employment patterns change and productivity increases. [48] It is an endless process of destruction and creation that was supposed to eliminate the inert and ineffective. Every competitive practice involves sacrifices and every change in free trade or maintaining the status quo has winners and losers. The creative destruction and resulting trade diversion therefore occurs constantly in the world trading system. This is done by opening markets to competition and, albeit differently, within closed markets. It operates in both an inclusive multilateral trading system and an exclusive regional trading system.

The WTO system already recognizes the potentially negative consequences of participation in the free trade regime by providing a special regime for less developed countries. For example, some WTO agreements contain provisions that give developing countries longer transition periods before they have to fully implement the agreement, which is further evidence that they cannot always benefit from trade liberalization. According to Noah Chomsky, RTAs have little impact on reducing tariffs, which he says are already low between major trading partners. [16] Instead of promoting free trade, he argues that RTAs are highly protectionist, cementing investors` rights and effectively increasing tariffs by recognizing patents with huge economic implications. [17] [68] The same dilemmas exist in the EU`s internal market. .

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