Regional Integration Agreements (RIAs)

WTO members are permitted to enter into RIAs under specific conditions. RIAs must be consistent with the WTO rules, which require that the parties to the agreement (1) establish free trade on most goods in the regional area within 10 years, and (2) refrain from raising their tariffs against countries outside the agreement.

The number of RIAs and their share in global trade has been steadily rising over the past decade (Table 2.1). Since January 1995, about 546 RIAs have been reported to the WTO, with 354 currently in effect. A large percentage of these agreements (more than 80 percent) are mostly bilateral free-trade deals (free-trade agreements) intended for market access and do not require a high degree of policy coordination between participating countries. Fewer than 10 percent of the agreements provide for high levels of integration as well as harmonization of trade policies (customs union). (International Perspective 2.2)

Small countries enter into RIAs not only for market access but also to deal more effectively with larger economies in multilateral trade talks and other areas. Although RIAs are not often considered a potential threat to multilateralism, some scholars believe that (1) they lead to large volumes of trade diversion, often leading to substantial welfare losses; (2) they create lobbies and interest groups against multilateral trade liberalization; and (3) their differing regulatory regimes, including rules of origin, pose a challenge to the multilateral trading system (Das, 2004).

The major drivers of RIAs are stated as follows:

  • Consolidation of peace, regional security and free market reforms in many countries
  • Promotion of deeper levels of economic integration than is available under the WTO (issues pertaining to competition, investment, labor, and the environment)
  • Market access and a means of attracting Foreign Direct Investments (FDI). Discrimina­tory liberalization in favor of partner countries is likely to provide firms (from these countries) with competitive advantages.
  • Sluggish progress in multilateral trade talks.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

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