5 - Legal requirements for PTAs under the WTO

Summary

I. Introduction

The global trading system is now comprised of an inter-locking, ever-growing, network of bilateral, plurilateral and multilateral trade agreements. It would be easy to assume that trade agreements, whether bilateral, plurilateral or regional, are necessarily beneficial for trade. After all, such agreements pursue the common goal of trade promotion through liberalisation. More trade agreements of whatever type might, therefore, translate into more trade liberalisation. The shortcoming of this assumption is, however, that bilateral, plurilateral and multilateral agreements pursue this goal in different and often conflicting ways. A core objective of the multilateral trading system is ‘the elimination of discriminatory treatment in international trade relations’. In pursuit of this objective, WTO Members must accord equal treatment to the goods and services of all other WTO Members (through ‘most-favoured-nation’ or ‘MFN’ treatment). In contrast, bilateral and plurilateral trade agreements – preferential trade agreements (PTAs) – pursue trade liberalisation through precisely this type of discrimination. The parties to a PTA liberalise trade solely among themselves, creating a network of special preferences within the PTA that are not available to other WTO Members. PTAs, therefore, entrench the very discrimination that WTO rules seek to eliminate. This key difference in approach makes the relationship between multilateralism and regionalism both complicated and controversial. In economic terms, it is still not clear whether maintaining an ever-growing network of PTAs alongside multilateral rules produces an overall increase or decrease in economic welfare. In legal terms, the coexistence of the WTO and PTAs among WTO Members creates a complex system of competing international rights and obligations.

As PTAs involve discrimination contrary to the general MFN obligation, they would normally give rise to inconsistencies with WTO rules. However, the WTO Agreements contain a series of exceptions for PTAs that allow limited derogation from WTO rules for PTAs meeting certain conditions. Only PTAs falling within one of these exceptions are valid under WTO law. In other words, a WTO Member must ensure that any PTA to which it is a party complies with the conditions of the relevant WTO exception. Otherwise, the Member risks acting inconsistently with its WTO obligations. The PTA exceptions are contained in: Article XXIV of GATT 1994; paragraph 2(c) of the Enabling Clause; and Article V of GATS.