Regional trade agreements

Preferential trade and WTO

Non-discrimination among trading partners is one of the core principles of the WTO. Members have committed, in general, not to favour one trading partner over another. An exception to this rule is Regional Trade Agreements ("RTAs"). By their very nature, RTAs deals are discriminatory as only their signatories enjoy more favourable market access conditions. WTO Members recognize the legitimate role of RTAs which aim at facilitating trade between its parties provided that they do not raise trade barriers vis-à-vis third parties. WTO Members are permitted to enter into RTAs under specific conditions which are set forth in “three sets of rules”. Those are:

  1. Article XXIV of General Agreement on Tariffs and Trade 1994 ("GATT 1994")
  2. Article V of General Agreement on Services ("GATS")
  3. Enabling Clause 

 

In order to comply with Articles XXIV of the GATT 1994 and/or Article V of the GATS, RTAs must cover substantially all trade, help trade flow more freely and reciprocally lower barriers to trade among the countries in the RTA. By contrast, the Enabling Clause covers preferences unilaterally granted by developed countries to developing countries for their development needs. Developing countries are free from the obligation to accord reciprocal treatment to the countries granting them such preferences. 

 

In accordance with WTO rules, all WTO Members are obliged to notify the RTAs in which they participate. Notifications may also refer to the accession of new parties to an agreement that already exists, e.g. the notification of the accession of Croatia to the EU Customs Union.

 

As can be observed in the chart below, the number of RTAs has increased since the 1990s, and in 2000 the increase reached the peak. WTO statistics show that 459 trade agreements exist in the world at present, 287 of which are active.  

 

(Source: www.wto.org)

 

The RTAs has been increasing not only by the numbers, but also by coverage and complexity as well. Along with trade in goods, the recent RTAs cover among others also provisions on services and intellectual property rights, small and medium entrepreneurship, competition and technological cooperation. On the other hand, modern RTAs have become mega-regional, covering a considerable part of the world trade.  As an example, the Asia-Pacific Region for a Comprehensive and Progressive Trans-Pacific Partnership ("CPTPP") Agreement, which is at the stage of ratification, has been concluded between 11 countries and covers approximately 15% of the global GDP. The United Stated has notified agreements with 20 countries. The European Union ("EU") has more than 70 customs unions and free trade agreements with countries from Europe, Asia, North and South America and Africa. Currently, the EU is negotiating free trade agreements with among others Mexico, Australia and New Zealand. 

 

 

(Source: Institute for International Studies and Training)

 

As an example of regional countries, Turkey, Georgia and Ukraine exhibit special activism in concluding free trade agreements.    

 

Turkey has notified 22 free trade agreements to the WTO, all of them active. The most important among those agreements are the Customs Union with EU, and the Free Trade Agreements with South Korea, Malaysia and EFTA. 42% of the total imports into Turkey originate from countries with which it has RTAs. In turn, 48% of the total exports from Turkey go to RTA partners. Turkey and Azerbaijan are currently negotiating an RTA. 

 

Georgia and Ukraine have notified 12 and 18 free trade agreements to the WTO, respectively. Ukraine is negotiating 3 additional agreements, with Turkey, Singapore and Serbia. The most important agreement for both countries is the Association Agreement/FTA which they concluded with the EU in 2014. The economic impact of the FTAs was felt rapidly, in both countries. The EU-Georgia started being applied in September 2014. While initially exports to the EU fell due to the decrease of world prices of minerals (2015-2016), then they recovered fastly with an increase of 23% (2016-2017). During the same periods, the volume of imports from the EU increased slightly. The EU is Georgia's first trading partner (with 26.6% of total trade in 2017). In turn, the EU-Ukraine FTA is applied since January 2016. While the increase of trade during the first year was modest, in 2017 exports to the EU increased by EUR 3.6 bln or 27% and imports from the EU by EUR 3.7 bln or 22%. The EU was the largest trading partner of Ukraine, representing more than 40% of Ukraine's total trade in 2017. In sum, the FTAs with the EU have in both cases had a positive influence by helping to diversify the exports away from Russia, increase trade flows and expand the number of exported products.

 

Starting from the first years of its independence the Republic of Azerbaijan concluded free trade agreements with a number of former soviet republics to expand economic cooperation and foreign trade volume as well as to enhance trade flows.    

 

Bilateral trade agreements 

Azerbaijan is a party to 9 bilateral free trade agreements, six of which have been notified to the WTO: 

  • Uzbekistan, Tashkent, February 26, 1992
  • Russia, Baku, September 30, 1992 
  • Moldova, Minsk, May 26, 1995 
  • Ukraine, Baku, July 28, 1995 
  • Georgia, Tbilisi, March 8, 1996
  • Kazakhstan, Almaty, June 10, 1997 
  • Kyrgyz Republic, Moscow, January 12, 2004
  • Belarus, Minsk, March 31, 2004 
  • Tajikistan, Baku, July 13, 2007 

 

The core elements of those bilateral agreements can be summarised as follows: 

  • Elimination of customs tariffs and other charges with regard to the import and export of commodities originating from the customs territory of one contracting party designed for the customs territory of another party. The exemptions may be agreed by the parties and amended to the agreement in an annual basis
  • Rules of origin
  • Rules envisaging measures against discrimination and application of national treatment and most-favoured treatment
  • Obligation of parties to avoid quotas and other quantitative restrictions. There are certain exemptions from these provisions and conditions when such restrictions can be imposed. The Agreements also allow the parties to apply quantitative restrictions upon mutual consent  
  • Establishment of cooperation between customs authorities of parties, importance of use of harmonized system for customs classification
  • Coordination of export control policy
  • Provisions regarding unfair business practices and avoidance of unfair competition
  • The right of free transit
  • The right to implement actions necessary to defend vital interests of the parties.  Such provisions, application of which have an exceptional character, exist in all bilateral agreements, in particular to protect national security, public interests, human, animal and plant life, copyright, etc.  
  • Settlement of disputes through negotiations    

 

Despite of generality, each agreement has specific provisions not reflected in other one. For example, the Free Trade Agreement with Russia has provisions enabling parties to establish trade representatives in the territory of the counterparty, as well as provisions regarding prohibition of subsidies and government support distorting free trade regime.  

 

Regional trade agreements

Agreement on the establishment of free trade areas between members of GUAM 

The Agreement was signed on July 20, 2002 and enacted on December 10, 2003. Parties to the Agreement are Georgia, Ukraine, Azerbaijan and Moldova. The Agreement permits the parties to use bilateral agreements only in case if they do not contradict to the provisions of this Agreement. The Agreement is open for joining of third parties. 

 

The Agreement covers trade both in goods and services and it also envisages protection of intellectual property rights. The core elements of the Agreement are elimination of customs duties and other taxes and charges having similar effect, prohibition of application of new quantitative restrictions and any charges after enforcement of the Agreement (with some exemptions), application of national treatment and most-favoured nation treatment, determination of charges with regard to import-export operations (fees for licences, clearance, testing, inspection etc.) in a reasonable amount, harmonization of customs procedures, exemption of application of value added tax and excise tax to the commodities originating from the territory of any party to the Agreement, elimination of export subsidies and subsidies that lead to unfair competition, setting conditions for free transit, and mutual liberalization of services sector. 

  

Implementation of government procurement on a non-discriminatory basis and mutual liberalization of this field is also an interesting part of the Agreement. Parties also agreed to include into the Agreement provisions regarding general exemptions and indirect exemptions outgoing from security matters. Another interesting element of the Agreement existing in the Article 15 envisages the reference to application of provisions of the GATT 1994 during use of anti-dumping, countervailing and safeguard measures.  

 

With respect to dispute settlement, all the disputes between the parties shall be settled through negotiations or put up mechanism determined by the Working Body. If the disputes could not be solved with the above-mentioned mechanisms, the party injured as a result of the violation of provisions of the Agreement may retreat from its obligations under the Agreement and use measures equivalent to compensate the amount of the damage. The Agreement also gives to the parties the possibility to use international legal tools for dispute settlement. 

 

The text of the Agreement can be accessed by clicking here.