The beginning of regionalism coincided with the creation of the World Trade Organization (WTO), which aimed to institutionalize and enforce more effectively the rules and negotiation processes of the General Agreement on Tariffs and Trade (GATT). Concerns about the impact of regional trade agreements (ATRs) on the multilateral trading system include the potential of excluded parties to suffer trade losses, as well as broader issues of systemic effects. The GATT and WTO rules aim to mitigate potential negative effects, but the central question remains: can multilateralism and regionalism coexist peacefully? The potential costs and opportunities of RTA from the WTO perspective have two aspects: the net impact on world trade and well-being and the political consequences on the strength and credibility of the multilateral system itself. The main task of the WTO (and the previous GATT) is to promote freer world trade. But its role in establishing a multilateral system based on non-discrimination is at least equally important for smaller, mostly poorer developing countries, which would otherwise be exposed to the protectionist whims of larger, more powerful trading partners. In addition, the poorest countries are rarely invited to join economically important RTAs and may be at a disadvantage in important markets. In the century following the Second World War, non-discrimination and multilateralism were the pillars of the rules-based international trading system. However, from the early 1990s on, the number of regional and bilateral trade agreements in force increased more than tenfold, from less than 20 years to 279 in 2017. Moreover, the qualitative nature of these agreements has changed, starting with the fact that the United States has renounced its strong support for multilateralism and has rallied to the trend. Subsequently, the information and communication technology (ICT) revolution has led to increasing fragmentation of trade and the continued globalization of supply chains, which has posed many new problems that trade negotiators are struggling to address.
Jagdish Bhagwati (op. cit.) reported that proponents of multilateralism and non-discrimination were prepared to accept the exception for free trade agreements and customs unions, as they believed that the terms of Article XXIV would make these regimes relatively rare. The aim of these conditions was to direct such agreements towards maximizing trade between the parties and minimizing the diversion of trade at the expense of the outside world. The most important conditions are that “the bulk of trade” should be covered and that liberalization should take place over a relatively short period of time. With regard to unions, the new common external tariffs that apply to third parties should not be “on the whole” more restrictive than those introduced by the parties before the customs union. 7 Art. XXIV also authorizes “intermediate agreements” as long as they result in a customs union or free trade agreement within a “reasonable period of time.” FTA partners also often discriminate against outsiders by manipulating the rules of origin. These agreements need rules of origin to prevent goods manufactured elsewhere from being exported to the lowest tariff part of the free trade agreement and then re-exported duty-free to a party with a higher external tariff for those goods. FTA partners often develop rules of origin to protect sensitive industries. U.S.
agreements, for example, generally stipulate that apparel exporters from partner countries use U.S. yarn and fabric (or other regional products) before the final product is processed duty-free. EU trade agreements often use a slightly less restrictive “double transformation” rule for clothing, which means that fabric (but not yarn) must be used in the EU or regionally.