The World Trade Organization (WTO) & Free Trade Agreements

A key rule of the multilateral trade system is that reductions in trade barriers should be applied, on a most-favoured nation basis, to all WTO members. This means that no WTO member should be discriminated against by another member's trade regime. However, regional trade agreements (RTAs) are an important exception to this rule. Under RTAs reductions in trade barriers apply only to the parties to the agreement. This exception is allowed under Article XXIV of the General Agreement on Tariffs and Trade (GATT) for trade in goods, in Article V of the General Agreement on Trade in Services (GATS) for Trade in Services and in the Enabling Clause for developing countries.

There are two major types of regional trade agreements under the WTO - customs unions and free trade areas. Some countries may also sign interim agreements, which operate during a transition period, ultimately leading to the creation of a customs union or a free trade area.

RTAs must be consistent with the WTO rules governing such agreements, which require that parties to a regional trade agreement must have established free trade on substantially all trade within the regional area, and that the parties cannot raise their tariffs or other barriers against countries outside the agreement. The RTA section of the WTO website contains further information on these requirements.

Compliance with the WTO rules is important to ensuring an agreement is beneficial to all parties in the multilateral system.

Regional Trade Agreements and the Doha Round of Negotiations

Rules Negotiations for RTAs

WTO members have agreed that some of the existing WTO rules governing RTAs need clarification. This lack of clarity has hindered the work of the Committee on Regional Trade Agreements (CRTA) in considering individual RTAs against these rules.  WTO members formally adopted a new Transparency Mechanism for RTAs on 14 December 2006. The mechanism establishes a standardised review process for all RTAsWTO members continue to consider ways to improve the transparency mechanism, and are discussing how to measure substantially all trade and whether to agree additional flexibilities to afford special and differential treatment for developing countries in the establishment of an RTA.

Committee on Regional Trade Agreements

The Committee on Regional Trade Agreements (CRTA) was established following the Uruguay Round of negotiations to monitor the consistency of RTAs with the WTO Rules. The CRTA plays an important role in ensuring regional agreements do not undermine the multilateral system. WTO members are required to notify their regional trade agreements to the CRTA. The adoption of the Transparency Mechanism in December 2006 has improved the notification procedures and examination of all RTAs including those between developing countries.

Once an agreement has been notified to the WTO, the WTO Secretariat prepares a detailed analysis of the RTA (called a Factual Presentation) which is used by other WTO members to examine and scrutinise the agreement against WTO rules.

WTO members, including Australia, have welcomed the increased information provided by the factual presentations and the opportunity to question parties to the RTA. The factual presentations and question and answer documents are available to the public on the WTO website.