ABSTRACT
Introduction Although the world has witnessed increased economic interdependence and a rapid increase in regionalism which has resulted in proliferation of regional trade agreements (RTAs), literature does not provide conclusive results of the welfare effects of these RTAs (Jayasinghe and Sarker, 2007) both to participating member countries and also to the world at large. One branch of literature considers RTAs, not only as reducing welfare both to participating countries and the to world at large, but also as “stumbling blocks” to multilateral free trade (Bhagwati, 1998; Panagaria, 2000). On the other hand, the other branch of literature supports RTAs as raising welfare both for member countries, and the for world at large, thus acting as “building blocks” to multilateral free trade (Summers, 1991; Ethier, 1998). This controversy on the impacts of RTAs is inherently an empirical issue and mainly a result of the fact that the net welfare effect will normally depend on the relative magnitudes of trade creation and trade diversion effects. Moreover, the net effect of trade creation and diversion may vary across commodities within the same RTA, between RTAs and over time (Jayasinghe and Sarker, 2007). Trade in agrifoods at any level of cooperation, from bilateral, to regional, to inter-region and to multilateral remains more complex than any other sector and varies across agreements (Aksoy, 2004). Thus, comparing trade in agrifoods and other sectors, it can be noted that even though negotiations at RTAs and WTO/GATT (World Trade Organization/General Agreement on Tariffs and Trade) have generally reduced existing tariffs on industrial products, tariffs on agrifoods are still relatively high, thus resulting in subdued trade in such products even within some RTAs. The situation is even made worse by agriculture protection which still exists (at WTO negotiation level), for instance, in the form of export subsides, special safeguards, amber-box and blue-box provisions of the Uruguay Round Agreement on Agriculture (URAA). These provisions complicate liberalization in agricultural trade given that a number of countries rely on them. Thus, even countries that are members of a given RTA, average preferential tariffs for agricultural products are still high in most of these trade blocs.
