Regional Trade Agreements

A regional trade agreement (RTA) is a treaty between two or more governments that define the rules of trade for all signatories. Examples of regional trade agreements include the North American Free Trade Agreement (NAFTA), Central American-Dominican Republic Free Trade Agreement (CAFTA-DR), the European Union (EU) and Asia-Pacific Economic Cooperation (APEC).

MULTIMEDIA

Regional trade agreements are increasing in number and changing their nature. Fifty trade agreements were in force in 1990. There were more than 280 in 2017. In many trade agreements today, negotiations go beyond tariffs to cover multiple policy areas that affect trade and investment in goods and services, including behind-the-border regulations such as competition policy, government procurement rules, and intellectual property rights. RTAs that cover tariffs and other border measures are “shallow” agreements; RTAs that cover a larger set of policy areas, at the border and behind the border, are “deep” agreements.

MULTIMEDIA

Deep trade agreements are important institutional infrastructure for regional integration. They reduce trade costs and define many rules in which economies operate. If efficiently designed, they can improve policy cooperation across countries, thereby increasing international trade and investment, economic growth and social welfare. World Bank Group research finds that:

Deep agreements boost trade, foreign investment and global value chain (GVC) participation more than shallow agreements. On average, deeper agreements increase goods trade by more than 35 percent, services trade by more than 15 percent, and GVC integration by more than 10 percent.

Working with partners such as the WTO and OECD, the World Bank Group informs and supports client countries that are seeking to sign or deepen regional trade agreements. Specifically, WBG work includes:

• Data and indicators – on the content and depth of regional trade agreements.
• Analysis – on the impact and efficient design of regional trade agreements.
• Advisory services – inform the design of regional trade agreements, to strengthen capacity.

WBG research on regional trade agreements:

Mattoo, A., A. Mulabdic, and M. Ruta. 2017. “Trade Creation and Trade Diversion in Deep Agreements.” Policy Research Working Paper Series 8206, World Bank, Washington, DC.

Mulabdic, A., A. Osnago, and M. Ruta. 2017. “Deep Integration and UK–EU Trade Relations.” In The Economics of UK-EU Relations, edited by Nauro F. Campos and Fabrizio Coricelli, 253–282. Springer.

Osnago, A., N. Rocha, and M. Ruta. 2017. “Do Deep Trade Agreements Boost Vertical FDI?” World Bank Economic Review 30 (Supplement): 119–125.

Osnago, A., N. Rocha, and M. Ruta. forthcoming. “Deep Trade Agreements and Vertical FDI: The Devil Is in the Details.” Canadian Journal of Economics.