Regional Trade Agreements Explained

The fundamental premise of any regional trade agreement (RTA) is to facilitate trade and increase economic integration between states. Representatives of the regions involved negotiate terms with one another over a number of stages until all parties are satisfied. These terms generally involve reducing, or eliminating entirely, barriers that may obstruct trade such as tariffs and quotas. Once a regional trade agreement is ratified, the signatory states pave the way for an increase in the movement of goods, services, people and capital between one other.

When using the term ‘regional’, it should be remembered that trade agreements are international in scope – member states of a trade pact do not have to be neighbouring. As such, regional trade agreements can bridge huge geographical areas.

The Advantages and Disadvantages of Regional Trade Agreements

One of the core benefits of regional trade agreements is their reduction of trade barriers. This is a benefit because it acts as a catalyst for increased trade and subsequent growth, as states have easier access to foreign markets. RTAs are by nature much smaller than mega-regional trade agreements, and the enormous-in-scope global trade agreements. As such, bringing a regional trade agreement to a successful conclusion is much simpler and quicker because there are less parties involved. Another of the benefits of regional trade agreements is international relations and peacekeeping. When countries’ shared interests are protected by a mutually beneficial pact, they are less likely to break the pact and enter into conflict with each other at the risk of harming their respective economies. The EU – a regional trade agreement in a broad sense – is a prime example of how RTAs reduce the likelihood of war. Shared economic security was one of the foundations of the EU, and was purposefully brought about in order to end the possibility of European nations again going to war with one another.

In some cases, regional trade agreements can lead to or crystallize existing inequality between states. This negative aspect of RTAs usually occurs when a wealthy state signs a trade agreement with a much poorer one. While the wealthy state enjoys greater bargaining power, the poorer state concedes rights that leave it at a comparable disadvantage. This is to avert the risk of being excluded from the agreement altogether. Regional trade agreements have also been cited as a limiting factor for economic globalization, as they tend to localize areas of trade, effectively barring states outside of the agreement from entering thanks to higher tariffs and restrictions.

Here at the GED Project, we think it is possible for regional trade agreements to have a positive impact on countries outside of the deal’s remit. Using the Transatlantic Trade and Investment Partnership (TTIP) as a case study, we developed ‘5 Steps to make TTIP Inclusive for All!’, in which we explain how the TTIP can be used as a blueprint for spreading benefits beyond the borders of an agreement’s signatories.

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