Academic journal article
By Faye, Andrew A.
Law and Policy in International Business , Vol. 28, No. 1
The World Trade Organization (WTO) assesses regional trading institutions primarily through Article XXIV of the original 1947 General Agreement on Tariffs and Trade (GATT 1947). Though its particulars are the subject of much debate, Article XXIV generally provides that (1) if either a customs union or free trade area achieves free trade in substantially all areas(1) and (2) if duties and other barriers to trade applied by members to non-members are no worse than they were prior to implementation of the bloc,(2) then the customs union (CU) or free trade area (FTA) need not provide resulting benefits to non-members in the traditional most-favored-nation (MFN) format.(3) Working under the parameters of Article XXIV and the conceptions of regional institutions that Article XXIV represents, regional groupings through the 1980s have been centered around the primary goal of tariff reduction.(4)
Regional institutions, such as the European Union (EU) and the North American Free Trade Agreement (NAFTA), however, have begun to expand their trade facilitation efforts beyond the scope of traditional tariff reduction. This Note places these non-tariff trade policies in two broad categories: trade facilitation (formal or informal agreements between states to reconstitute domestic regulations through legislative or executive action so as to decrease the transaction costs of international trade) and business promotion (informal actions of governments, at the ministerial level or below -- and often involving private business -- to increase the incidence of trade in certain countries or regions). Institutions such as the EU and NAFTA are free to pursue these progressive intraregional policies and need not share the benefits with non-regional members if the regional institution first complies with the requirements of Article XXIV as described above. These blocs, for example, provide for common investment policy and address labor and environmental concerns.(5) This Note takes the progressive policies of blocs like the EU and NAFTA one step further and asks what happens when, in contrast to the EU and NAFTA, regional blocs leave intraregional non-MFN tariff reduction completely off the agenda and instead pursue only measures that fall under the broad umbrella of trade facilitation and business promotion.
The Asia-pacific Economic Cooperation (APEC) has brought this theoretical question into the light, providing both an excellent case study of a new type of international institution and a window to the problems of multilateral integration that come with it. Over its seven year history, as Parts II and III of this Note discuss, APEC began as a vehicle for Australia to enter Asia, progressed into a potentially inward-looking free trade area, and has recently blossomed into a new kind of trading bloc, which this Note refers to as a Trade Facilitation and Business Promotion Association (TFBPA). APEC, as it currently stands, will not seek to lessen tariffs internally -- instead it will focus on facilitation and business promotion.
Part IV of this Note addresses APEC vis-a-vis the WTO, asserting that as APEC moved away from trade liberalization, Article XXIV of the GATT became less relevant, and, accordingly, that APEC's member economies remained bound by other provisions of the GATT, most particularly the most-favored-nation clause of Article I.(6) Part IV then sets forth three central arguments as to how and why TFBPAs will further the ends of the multilateral trading system by (1) decreasing the number of negotiating parties at any given table, (2) providing a means for the unilateral application of progressive and harmonized domestic policies, and (3) "ratcheting up" the activities of the world trade community generally. This Note concludes by offering suggestions to the WTO and APEC as to how to ensure GATT compliance, maximize the utility of the enterprise, and minimize the potential for even short-term trade diversion. …