Reconciling RTAs with the WTO Multilateral Trading System: Case for a New Sunset Requirement on RTAs and Development Facilitation

Abstract

The proliferation of regional trade agreements (RTAs) in the recent decades threatens the future of the multilateral trading system (MTS) because the exclusive trade preferences of RTAs, although approved under the provisions of Article XXIV General Agreement on Tariffs and Trade (GATT), are fundamentally inconsistent with a core principle of the MTS, the most favoured nation (MFN) principle, and causes discriminatory trade practices and fragmentations of trade disciplines. This paper argues that an ultimate solution will be reconciling the terms of RTAs with the core principle of the MTS by requiring extension of exclusive RTA preferences to the entire World Trade Organization (WTO) membership on an MFN basis after a certain period of time. The article also attempts to demonstrate the feasibility of the proposed solution with an application of the game theory. The article also analyses the impact of the proposed extension on the WTO system and discusses special and differential treatment (SDT) in favour of developing countries, particularly least developed countries (LDCs), in the context of the proposed solution.