1 - Features of FTAs

Summary

Although the process of globalization of the world economy started in a small way in the nineteenth century before World War I, it has subsequently gained momentum since the early nineties. This is reflected in the rapid pace and widening scope of economic activities that have been taking place across national boundaries, increasing in both pace and scope. Globalization has led to an increased integration of financial and capital markets among different countries, irrespective of their levels of development. This in turn has had far-reaching implications for the economic, social, and political systems, both within and between these countries. It is this process which has thus increased the need for consultation and co-operation among different countries in small geographical regions in order to have greater sub-regional co-operation within a multilateral framework. “Regionalism”, defined by the World Trade Organization (WTO) as “actions by governments to liberalize or facilitate trade on a regional basis through detailed negotiations” thus emerged as an alternative to the rule-based multilateral trading system for all its members. It was first advocated by the General Agreement on Tariffs and Trade (GATT) and now by the WTO, consisting of 146 countries as of 4 April 2003, including the ASEAN countries except Lao PDR and Vietnam.

Regional trading agreements (RTAs) (also known as preferential trade agreements or PTAs) became an instrument to foster regionalism. The simplest variant became known as the free trade agreements (FTAs), given the freedom that such agreements provided to its member countries in terms of pursuing their trade policy vis-à-vis non-members.

FTAs were thus the first building blocks for regional economic integration. They specified a set of rules or standards that governed trade among the members that were a signatory to those FTAs. In the initial years, FTAs focussed almost solely on providing preferential treatment for trade in goods among the members, by specifying a set of across-the-board and product specific rules of origin (ROOs) that identified the originating point of a product, in order to ascertain whether it qualified for preferential tariff treatment under a specific FTA.