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  Félix Peña

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 Second Conference IDB/CEPII | 17 de octubre de 2003

The implementation of regional preferential agreements and their rules: An analysis based on LAIA's and Mercosur experience


Our purpose is to contribute to the analysis of the implementation of different modalities of regional preferential agreements (RPA's) (1). This subject can be approached from at least three relevant perspectives.

The first one is the relation or connection between RPA's rules and collective disciplines resulting from the rules of World Trade Organization (WTO) multilateral global trade system.

The second perspective is the relation or connection between the rules of some RPA's and the collective disciplines resulting from a broader regional preferential agreement to which they could be formally related. This perspective is relevant in certain cases, such as the Latin American Integration Association (LAIA) that formally is the enabling framework for most of the RPA's concluded among Latin American countries. Eventually this could be relevant in the case of the Free Trade Area of the Americas (FTAA), depending upon its final format.

The third one is the relation or connection between the rules of an RPA and the domestic law of each participant country, particularly concerning the normative framework of public policies affecting foreign trade as well as firms' strategies and investment decisions.

We will start by analyzing the phenomenon of RPA's and their rules. Thereafter, we will approach each of the perspectives mentioned above. We will make special reference to LAIA's and Mercosur's cases. Finally, we will deduce some conclusions related to the main topic of the Second Conference IDB-CEPII.

The regional preferential agreements and their rules

The regional preferential agreements have proliferated in last years. In this regard, Professor Jagdish Bhagwati refers to --with some exaggeration perhaps-- an "epidemic" (2). Formally, all of them consider that they are consistent with WTO principles, objectives and rules. That is to say, they want to be perceived as tools functional to the objective of expanding and freeing the global trade of goods and services and to the objective of contributing to a greater welfare of their citizens and even for the whole humanity.

This is not a new phenomenon. On the contrary, in historic terms, the new event is the existence of a global framework of multilateral trade disciplines initiated in 1947 with GATT and accomplished in 1994 with WTO creation. Before the Havana Conference, there had been various precedents of RPA's, usually associated to the beginning of a new sovereign State. The Zollverein is the most known, but not the only one (3).

Through history, we can observe in the genesis and development --including the eventual failure-- of RPA's, the constant interaction among political, economic and legal factors. Capturing the whole essence and dynamics of each RPA --and of RPA's as an historic and contemporaneous international phenomenon-- requires understanding the interaction of the three logics of power, welfare and legality. This can be easily perceived by anyone who is or has been an actor in the processes of negotiation and decision-making on each partner country regarding any RPA. Alternatively, eventually to anyone who is or has been an actor at the multinational level of the institutional mechanism of any RPA.

Therefore, understanding and assuming this interaction is relevant to any academic reflection trying to comprehend the phenomenon of RPA's and, particularly, to any attempt of theoretical elaboration. It is more relevant yet, in the case of any policy-oriented reflection. Having said this, it is still relevant to understand separately the dynamics of each of the three logics, but knowing in advance that this captures only a part of a more complex reality.

RPA's are agreements adopting different modalities. There are not pre-established models with universal validity. They may be classified pursuant to different criteria. The following four seems to be the most relevant:

  • existence or lack of physical contiguity among partners;

  • bilateral or multilateral scope according to the number of participant countries;

  • market integration techniques utilized within those stated by Article XXIV of GATT-1994, that is to say, a free trade area or a customs union, or within those permitted by the extent of the Enabling Clause, negotiated and approved during the Tokyo Round (4), and

  • the distribution of economic and political power among partners and, particularly, the extent of disparity on their respective degrees of economic development.

Each agreement develops its own system of rules. In certain way, they can be visualized as a "private club" within the frame of a "global club" (5). From the global trade system's point of view, RPA's are differentiated subsystems, with a geographic regional character in certain cases.

RPAs' rules can be visualized as a code of signals to markets --and third countries-- as to which will be the future conditions governing trade and investment flows within the economic area integrated by the partner countries.

In the frame of contemporary global economic competition, these signals fundamentally attempt to attract productive investments and to influence the strategic decisions of firms, both of those already operating within an economic area that involves an RPA --big companies and SME's-- and of those competing in the global market.

As a result, the perception of the rule quality of an RPA -- measured in terms of the potential of effectiveness, efficacy, sustainability and legitimacy (6)-- is a key factor for the "decoding" carried out in their respective strategies by firms competing, or attempting to compete, at the global or regional markets of goods and services. That explains also the importance for companies and investors of the fluent dissemination of information about rules, including those at the stage of preparation (7). From this perspective, the transparency in the process of RPA's rule making is something valuable for the competitive intelligence of companies. In certain way, we could affirm that today the quality of an RPA, at least from the point of view of its rules-production and decision-making processes, is reflected in the quality of its web page.

Those who operate in global and regional firms count with a clinical eye prepared to distinguish, in the perspective of their competitive intelligence management, solid and credible signals from those being predominantly exercises of "diplomacia mediática" or "policies of special effects". In particular, the quality and sustainability of the political systems of the partner countries, as well as the quality of their respective macroeconomic, industrial and foreign trade policies, are relevant factors in the judgment carried out on credibility of signals arisen explicitly or implicitly from an RPA's rules.

The origin of an RPA's rules is, in general, an international multilateral legal instrument that establishes a treaty, as defined under the Vienna Convention, whatever its formal denomination may be. From the original constitutive agreement derives a rule's system of the association of States, applicable only between partners, notwithstanding the economic effects that it may produce beyond the limits of the respective economic area.

The constitutive pact is based on a satisfactory balance of national interests between partners. Nobody can force a sovereign State to be part of an RPA. If any country decides to do so is because the RPA is considered convenient to its national interest. The factor explaining the origin of the constitutive pact is the perception of expecting mutual benefits by all the partners. It also explains its maintenance through time. This perception allows an RPA to acquire legitimacy before the respective citizens. The social legitimacy is a key factor for the sustainability of an RPA through time (8).

We can observe three common denominators as to the objectives of RPA's system of rules, whatever their modalities may be. They are:

  • guaranteeing the access to the respective markets, of goods and eventually services and persons originating from each of the partners;

  • establishing some degree of discrimination in favor of the partners on the access to the respective markets -- for example, through a common tariff in case of a customs union, or specific origin rules and investment and public procurement regulations in case of a free trade area -- and, eventually, to the way of operating within each of their markets, and

  • developing explicit or implicit collective disciplines between partners, with the practical effect of conditioning the autonomy on the shaping and implementation of public policies, especially in the fields of macroeconomics, foreign trade and investments.

Generally, a mechanism for producing rules is also included in the original pact, from which may result secondary or complementary rules with respect to those included in the founding agreement. The rational conclusion is to suppose that while producing these rules -- as happened with the original agreement -- the partners wish them to penetrate into reality, being effective and, therefore, producing the expected economic and eventually political results.

There is not a unique model deriving from international rules, which prescribes how RPA's institutions should be organized (9). However, through the analysis of concrete cases we can recognize certain functions that institutions should comply with. The principal ones are:

  • preservation through time of the reciprocity of national interests that explains the original pact;

  • producing complementary and secondary rules derived from the constitutive agreement, which permits its implementation, its adaptation to changing circumstances or -- particularly in the case of a common market or economic union -- the further development of a common project;

  • management of conflicts that may arise between partners as a result of the implementation of the RPA and the trade or investment dispute resolution through common jurisdictional mechanisms, arbitral or judicial, and

  • the dissemination of information on rules and their implementation.

These functions will be broader if RPA's objectives are deeper and more complex. For instance, a monetary union and an economic union between a large number of contiguous sovereign States, having developed or attempting to develop explicit political objectives (including the field of security), may require more complex institutions than a simple free trade area between countries lacking physical proximity.

Finally, two factors have a strong influence on the characteristics and modalities of RPA's institutions:

  • degree of interdependence and connectivity existing among the economies of the partner countries, weighed in particular by the intensity of the trade, investment and financial flows, and

  • the distribution of relative power - economic and political - between partners, in particular with respect to asymmetries in the interdependence and connectivity of their respective economies.

The regional preferential agreements and the WTO

The issue of linking the multilateral global trade system with the regional preferential subsystems -- including the tension between both phenomena - has today and will continue having in the near future a significant place, both in the academic consideration and the practice of the international economic relations.

Multilateralism, understood as the system of principles, rules and institutions aimed to develop at a global scale, collective disciplines affecting the international trade of goods and services, including the investment flows. This multilateral global trade system is developed within the WTO, especially in its main contractual frames, the GATT-1994 and the GATS.

Regionalism, understood as regional subsystems resulting from preferential agreements -- therefore discriminatory -- entered into by a group of two or more countries, whether contiguous or not, whatever their modalities and objectives additional to the economic and trade ones may be. As such, they are exceptions to the principle of non-discrimination and the most-favored-nation treatment, cornerstones of the multilateral global trade system of the WTO. From the latter's perspective, they represent subsystems with their own objectives, rules and institutions.

The relevance of this link has been intensified in the last years, due to the Uruguay Round results and the creation of WTO; the NAFTA; the expanding process at the European Union; the progress of negotiations of North/South free trade agreements (for example, FTAA; APEC; free trade agreements with the EU; free trade agreements concluded by USA, among others, with Mexico and Chile in the Latin-American area, and the beginning of the negotiating process between Mercosur and the EU); and the multiplication of free trade and integration agreements between developing countries, for example within LAIA's, among which one of the most significant is Mercosur due to its economic dimension.

The link between regional preferences, bilateral or multilateral, and the multilateral global trade system is also one of the most relevant issues in the agenda of the negotiating round initiated at Doha within the frame of WTO.

As a consequence of all this, we can observe an important growth of related bibliography, and many of the contributions have the merit of offering multidisciplinary perspectives in which all factors are taken into account, not only the commercial ones. Therefore, they enter within the broader theoretical frame of international relations, not being confined to the more restricted frame of international trade (10).

The experience of recent years allows making some observations about the interaction between the multilateral global trade system and the preferential regionalism, from the standpoint of the international commercial and economic relations:

1. In the international trade, both the multilateral global system and the preferential regionalism, in their accurate expressions of last part of the 20th century, are political, economic and legal-institutional realities with profound roots in their respective environment, and will continue forming part of the world scenario in the near future.

Both systems have their own logic and dynamics. Only in theoretical terms, anyone could imagine the suppression of one of these realities.

The first one reflects a deeper process with a clear political, economic and cultural dimension, which is the growing and apparently irreversible globalization of the world economy and politics.

The second reflects the existence of international subsystems where deep forces sustaining the distinction between "us" and "them", as is the case of the European Union, the Mercosur and the NAFTA, go far beyond the commercial sphere and respond since the foundational moment to powerful political and even strategic reasons. They are nurtured by the fact that their member countries share geographical spaces, but above all, they share historical, strategic and cultural spaces. However, it also reflects international trade negotiating strategies, which impels the growing multiplication of free trade bilateral agreements between nations with economic and even political affinity but without geographical proximity.

Regionalism among neighboring countries in its trade and economic dimension is usually only part of broader processes aimed to generate spaces of peace, political stability and democracy, in which the integration logic -- deep-rooted in the open society values -- is predominant. Progressively, they are processes looking for sustainability in the social cohesion, as a central value and as a privileged competitive tool at a global scale.

2. Multilateralism and regionalism are not necessarily contradictory dimensions to the efforts of building a global system of international trade and economic relations, based on principles of free trade and a reasonable balance between the interests of different nations.

On the contrary, since the creation of the European Economic Community -- going through its enlargement and formation of a single market until the present stage of a monetary union -- we can observe a constant interaction between the achievements of this regional experience with the ones occurred at the multilateral global level and in other regions.

The snowball effect of RPA's is translated into what was named competitive regionalism and into driving forces to the own multilateral global trade negotiations. The concern towards the competitive preferential regionalism is also a factor influencing the achieved consensus at the global multilateral level, as we could observe at the Uruguay Round negotiations and, eventually, will the case of the Doha Round.

However, at the same time, the development of the multilateral global trade disciplines, especially since the Uruguay Round conclusion, conditions the development of the regional preferential schemes, reducing the room for the development of the feared temptation to develop real or mythical commercial fortresses.

The "stumbling blocs" ghost, which was made popular in the academic literature since Bhagwati's stating in 1991 (11), did not get reflected in reality, even when there is room to consider that not all of the regional preferential manifestations could totally fit, or at least in all their aspects, within the figure of the "building blocs".

In this sense, special attention deserves the discriminatory effects that may arise from RPA's -- especially in their access conditions by third countries -- which are not the result of a geographic regional international subsystem, and which involves countries without any direct physical link.

3. Principles and rules, multilateral and regional, interact in various levels.

Increasingly, RPA's whatever their modalities may be, for example, free trade area or customs union, or the multiple hybrids we could observe in practice, are conditioned by WTO rules. Their international legitimacy depends largely upon their conformity with Article XXIV and with other contractual commitments taken on at the WTO, such as the already mentioned Enabling Clause.

At the same time, in some cases the "WTO-plus" character of RPA's establishes precedents affecting future multilateral negotiations --both global and regional--, as has been the particular case of NAFTA -- and would wish to be the case of the free trade agreement entered into USA and Chile --, at least in the USA vision.

The interaction between multilateral global trade rules and regional preferences has also practical relevance when examined through the perspective of the domestic law of the countries that are members, at the same time, of WTO and of one or various RPA's. It is more evident in cases of countries such as Argentina, where their Constitution guarantees the supremacy of treaties over national legislation. We will approach this topic later on.

4. The observed trend, not only towards the pacific coexistence but towards the constructive complementation as well, between multilateralism and preferential regionalism, could be reinforced in at least three spheres of action:

  • In the multilateral level, to the extent that there is a strengthening of WTO mechanisms aimed to guarantee the dynamic compatibility of RPAs and the multilateral global principles and rules.

    Different specialists have proposed practical ideas in this direction (12). This would mainly implicate giving form to collective disciplines referring to rules of access to the different preferential agreements in order to avoiding discrimination against countries with potential conditions to acceding; to strengthen the rules in order to avoiding the discriminatory effect that may result from the specific origin rules of the free trade agreements; to carry out an impartial and effective monitoring of RPAs' evolution in light of the multilateral global commitments; to guarantee a maximum degree of transparency on their rules and their implementation, and to expedite the access of particulars to the utilization of disputes resolution mechanisms, in cases where an RPA clearly collisions with the multilateral global system principles and rules, weakening or nullifying their efficacy.

    The idea at this level would be to believe in the global vocation of RPA's, but just in case, monitoring it closely and strengthening its effectiveness.

  • In the regional and even interregional level, to the extent member countries of an RPA carry out, in the rules applicable to their reciprocal relations and to their foreign trade policies, their expressed political will of being consistent with the commitments taken on at the WTO.

    To that end an essential element is the authentic vocation of stability and permanence of an RPA, that is to say, it cannot be perceived as an easily "disposable" instrument of foreign trade policy. It is that vocation -- together with the opening to the rest of the world - the one that brings legitimacy to the preferential treatment from the perspective of the multilateral global trade system.

    At the same time, the already mentioned consistency contributes to protect the interests of countries of less relative dimension, especially in the cases of RPA's characterized by obvious asymmetries in the size and the degree of development of their partners' respective markets. It also contributes to one of the central purposes of an open preferential regionalism process, which is creating a predictable frame to attract global competitors investments interested in introducing their investments and rendering services via networks beyond the limited dimension of a region, and

  • In the national level, to the extent each country is capable of developing strategies of international economic insertion, which allow them taking maximum advantage of the broader operation margin allowed by the end of the Cold War bipolar world and the economic globalization, capitalizing on their favor the greater degree of permissibility existing today in order to profit from all the opportunities of economic competition at a global scale.

    This leads to looking for foreign commercial alliances neither exclusive nor excluding, in spite of privileging, as the core of this strategy, the strategic alliance with the contiguous region.

    This is more apparent due to the recent trend to assert, from the conceptual and practical point of view, the idea of integration to the world and to a determined region, privileging the national interest of creating at the same time, stable, flexible and dynamic external environments favorable to domestic efforts for consolidation of democracy, economic modernization, social cohesion, and the competitive insertion both in one region and the whole world.

    The network-integration (13) concept with its institutional consequences is increasingly the counterpart of the development by firms of trade and production networks at a global and regional scale. Within this concept, we find one of the keys to understand the dynamic and complementary relation between the global multilateralism and the preferential regionalism, perceived from the unavoidable and privileged view, from both countries and firms.

It is in this context that we should approach and reinforce the arguments aimed to achieve within the WTO framework a development of collective disciplines regarding RPA's, and especially, regarding those that do not reflect the commercial dimension of natural geographic regionalisms.

These collective disciplines may be a key factor to assure the preservation of the "rule-oriented" character, as opposed to the "power-oriented" one, not only of the multilateral global trade system but of each RPA as well (14). Within the predominance of a "rule-oriented" approach, we could finally find the answer to Bhagwati and many others' legitimate concern, towards the negative effects potentially caused by a proliferation -- or epidemic -- of RPA's, conceived mainly as instruments of international power and not necessarily as a way to advance the expansion and freedom of global trade.

The regional preferential agreements implemented within the frame of broader agreements: the LAIA's case

Within LAIA's frame, we find a broad number of RPA's between Latin-American countries. Precisely, the transformation in 1980 of LAFTA into LAIA had as its principal objective facilitating the implementation of RPA's between peers or groups of member countries open to other partners, but with preferences not automatically extendible to all of them.

In fact, LAIA has become a frame that enables the implementation of RPA's between some of its member countries, despite its more general objectives -- including the achievement through time of a common Latin-American market -- and other functions it complies or may comply in relation to the expansion and liberalization of trade and economic cooperation among partners.

Specifically and in theory, at least at this level, LAIA guarantees a regional system of collective disciplines about the circumstances, modalities and procedures that a group of partners -- two or more, but less than the total -- have to use when they want to develop trade preferences among them not applicable to other partners. That is, if they wish to discriminate with respect to other partners. A key rule prescribes that these agreements are submitted for consideration to all other partners and being open to their eventual access through previous negotiation.

In practice, however, LAIA's ruling effect on the issue has been developing a registry of RPA's ("protocolización" in Spanish) setting forth discriminations among partners, covering them legally in GATT through the application of the Enabling Clause. There has been little progress in the extension of these preferences to the rest of the partners or in the development of another instrument foreseen by the Treaty of Montevideo of 1980, which is to build a system of regional preferences --as a step toward a common market-- through agreements of regional scope that involves all member countries.

The fact that the LAIA's legal system has been perceived by businessmen as one of poor quality, where rules could be easily let aside or changed if circumstances so require, could be seen as one of the reasons of its very limited practical effects.

The Treaty of Montevideo of 1980 that created LAIA was notified in GATT within the frame of the Enabling Clause. Since then the Secretary periodically reports to WTO, through its Commerce and Development Committee, on the RPA's implemented within its jurisdiction.

Which is the extent of the "agreements of partial scope" (Articles 4 and 7) foreseen by the Treaty of Montevideo of 1980? (15) The question is pertinent, taking into account the practice that sometimes has been followed when putting into force RPA's among member countries.

For example, at least in the case of Argentina it has been understood that these RPA's -- implemented under the modality of agreements of partial scope according to LAIA's norms -- enter into force and are applicable in the domestic legal system of the country, since their "protocolización" at LAIA's General Secretary, and the notification of this record to Customs pursuant to Decree 415/91.

The foundation of this practice would be that the Treaty of Montevideo, when establishing the figure of agreements of partial scope, would allow the Argentine Executive Power to conclude agreements in simplified form, that is, without submitting them to the Congress for approval. Moreover, the National Supreme Court would have endorsed this procedure in its judgment of May 7 1998, in the case "Dotti, Miguel A. and others on smuggling".

What is in reality established to this respect by the Treaty of Montevideo of 1980? Two provisions are fundamental to the full intelligence of its text. First, article 4 provides that "for fulfillment of the basic functions of the Association foreseen by article 2 of the present Treaty, the member countries establish an area of economic preferences, composed by a regional preference on tariffs, agreements of regional scope and agreements of partial scope". Second, article 44 of the Treaty provides that "the advantages, favors, franchises, immunities and privileges that the member countries apply to products coming from or destined to any other country whether member or non-member, by decisions or agreements not foreseen in the present Treaty or in the Cartagena Agreement, will immediately and unconditionally be extended to the remaining member countries" (16). The Third Section of the Treaty, from article 7 to 14, further develops article 4, as to the agreements of partial scope. Thereafter, Resolution 2 of LAIA's Council of Ministers regulates them. Its article 5 stipulated the procedures for agreement within the frame of LAIA.

In any moment, neither the Treaty of Montevideo of 1980 nor its regulation says anything, directly or indirectly, with respect to the way these agreements will take effect in their respective domestic legal systems. This is an issue defined at the constitutional level of each member country, and upon which the Treaty does not refer. Therefore, the issue of how an agreement of partial scope takes effect in a domestic legal system shall be answer on each specific case, according to the respective constitutional provisions. Then, it does not seem sustainable to argue that the Treaty introduces the figure of agreements in simplified form if it had not been foreseen by the respective Constitution.

This should not get attention since the real significance was to define rules for one of the modalities by which member countries may agree between themselves reciprocal preferences or any commitments linked with the Treaty's objectives -- in this case limited only to a group of member countries --, without application of article 44 provisions, that is, the most-favoured-nation clause. To sum up, the Treaty focuses on regulating the use of article 44 exceptions, which is the true cornerstone of its legal architecture.

In any case, the way LAIA's approaches the issue of the conciliation of RPA's implemented within is framework and its broader regional objectives could be a precedent to have in mind in the negotiations of the FTAA. It seems possible that the system of agreements of partial scope of LAIA, if further developed based on the already acquired experience and if effectively applied in its two central components -- the control by the other partners and the right to access through negotiations by the other interested partners -- could eventually serve as precedent, in the event that FTAA's architecture intends to combine the rules for the whole hemisphere with those of the RPA's developed between some of the member countries.

The regional preferential agreements and their validity in the domestic laws of their member countries: the case of Mercosur and, in particular, the one of Argentina

The domestic legal order of each country determines, normally in its Constitution, the procedure to undertake international commitments by way of Treaties agreed with third countries (17). Frequently, we observe a distribution of competences between the Executive Power, which negotiates and signs a treaty and the Congress, which approves it. After the approval, the Executive Power ratifies the respective treaty, which will take effect pursuant to its corresponding provisions. In some cases, a Constitution explicitly foresee or give some reason to admit the figure of agreements under simplified form or executive agreements, which do not require Congressional approval.

At the same time, the domestic law determines the rank of a treaty within the legal hierarchy of the country. In some cases, such as Argentina's, a highly evolved modality has been used, consisting of giving explicitly to the international treaties a superior hierarchy in respect to laws. In other words, a succeeding law -- and even less a normative act of less hierarchy -- cannot modify the rights acquired by citizens with the provisions of the respective treaty.

For any country -in this case Argentina-, the international collective disciplines accepted at the WTO and at an RPA, for example Mercosur, restrict the margin of governmental movement in the formulation and implementation of foreign trade public policies and in the international trade negotiations. These restrictions operate as counterparts of the advantages they offer: access to other markets and predictable rules affecting the international competitiveness of firms. They are the result of the development of an international system of trade and investments based on legal rules adopted by consensus. They place certain order in the competition for the world and regional markets. It is not however a perfect legal system. However, for any relatively marginal country in terms of its participation in the world trade -- being consequently more a "rule taker" than a "rule maker" is -- this is a more reasonable option than power criteria deciding upon the implementation of rules.

They are collective disciplines undertaken by the sovereign will of a country and, in general, they require Congressional approval. In the particular case of Argentina, as per the Constitution of 1994, treaties expressing them have a superior hierarchy to domestic laws. They generate rights enforceable at the jurisdictional proceedings of the country.

In the case of the WTO, Marrakech Agreements of 1994 define rules for the world trade of good and services. They have implications in what member countries -- including Argentina -- may or may not do with their foreign trade, and among others, with their intellectual property and investment legislation. They create rights and obligations enforceable by WTO member countries and against them. In some cases, they are also directly enforceable at the domestic level too. The mechanisms of dispute resolution guarantee their fulfillment. Disregarding WTO rules has costs for any country, not always apparent in the short term.

At the same time, the Treaty of Asunción creates Mercosur and originates legal commitments and collective disciplines undertaken within its frame. It gives a legal basis to unrestricted free trade among partners. That implicates the rights acquired by citizens and firms of the member countries, to export and import without tariffs of any kind of restrictions, goods going to or coming from other partners.

Among the commitments undertaken in the Treaty of Asunción, we observe the existence of a common external tariff as of the conclusion of the transitional period. The 1994 Decision in that regard can be modified by consensus by another Decision of the Mercosur Council or, in some cases, by the Common Market Group -the executive body--. This means that the partners have entrusted Mercosur, through its competent agencies, any valid modification to its import or export tariff. Yet it is not valid to do so unilaterally. The idea of having a common external tariff was part of the agreed strategy between Argentina and Brazil in June 1990. Hence, Chile did not participate in the creation of Mercosur, in spite of having the invitation.

If any Mercosur partner were to leave apart their undertaken commitments pursuant to the Treaty of Asunción, it would have to propose its modification or complementation -- which would have to result from other treaty, generally named "Protocol", counting with the agreement of all partners and with the approval of each Congress -- or to give notice of termination according to the foreseen procedures. Even so, the commitments undertaken in the Program of Trade Liberalization would remain in force for two more years. This would implicate that imports coming from partners would continue having zero tariff with no possible valid application of restrictions of any kind, except those contained in the Treaty of Montevideo of 1980, article 50, for example, by motives of public security and health.

Any breach by one of the partners may give place, or to a dispute resolution procedure in the frame of Protocol of Brasilia or to an appeal to national jurisdictional proceedings, in order to protect acquired rights. In the Argentine case, in theory at least, we should not overlook the fact that if a foreign investor could prove that the breach of the undertaken commitment in the Treaty of Asunción -- for example on intra-Mercosur's tariffs -- has caused him a significant damage, he may end up appealing to domestic jurisdictional or eventually international arbitral proceedings, in order to secure the corresponding compensatory damages. If that were the case, the foreign investor could resort to some of the agreements on investments signed by Argentina, all of them related between themselves by the most favorable treatment. Naturally, there would be need of proving in addition to the damage that the investment was made taken into account the commitments undertaken under Mercosur.

Unilateral behaviors contrary to the commitments undertaken at the WTO and Mercosur may affect the foreign credibility of the respective country, with significant impact on investment decisions, especially those of multinational corporations. Those requiring greater scale may opt for settling in Brazil, to have the guarantee of accessing the market of greatest dimension of South America. In any event, they would have legally assured the access to the market of the other partners, at least up to two years after a country eventually gives notice of termination of the Treaty of Asunción.

According to the Treaty of Asunción, we can infer that member countries have formally undertaken the obligation of negotiating with their Mercosur partners any international trade commitment affecting the common external tariff, except those cases where, by consensus, the partners would have accepted individual negotiations within the ordinary normative frames, as has been the case, for example, with Mexico.

In the particular case of Argentina, we must highlight one legal problem due to its legal and practical significance (18). That is, after the 1994 constitutional reform, the usual practice, pursuant to Decree 415/91, of incorporating to the domestic legal system of Argentina commitments undertaken in Mercosur by way of "agreements of partial scope" of LAIA. They could not modify the Treaty of Asunción. In fact, if they were to do so, they would be contrary to constitutional provisions and, therefore, judicially challenged since, on one hand, the Constitution reformed in 1994 does not recognize the figure of "executive or simplified form agreements" -- as happens in other legal systems of countries, that explicitly or implicitly recognize this figure --, and on the other hand, they could not have superior hierarchy to laws. They would only have the legal level of an Executive Power act. If they were to breach Legislative powers, they would be invalid.

In this perspective, what does Decree 415/91 stipulate? Article 1° prescribes that agreements subscribed by Argentina within LAIA's legal frame, will take effect under the conditions and since the dates agreed on each one, notwithstanding their publication in the Official Gazette. Article 2° establishes that for the application on Argentine territory of the agreements mentioned in article 1°, the Undersecretary of Industry and Trade of the Ministry of Economy will forward to the Customs National Administration a duly certified copy by LAIA's Secretary General and by the Argentine representation before this Association, without requesting any other formality. This provision, which should be read in light of the provisions contained in article 1°, modified a prior regulation (Decree 101/85), which foresaw the need of joint resolution from the Foreign Council and the Ministry of Economy. This was the reason for the referred decree, with the practical purpose of simplifying the necessary procedure to notify Customs about the preferences negotiated in the framework of agreements of partial scope, or about eventual modifications of the trade preferences to be negotiated later on. From here comes the expression "without requesting any other formality".

Therefore, we could not argue that this decree altered the constitutional powers with respect to negotiation and approval of treaties. That is so the case, that when Mercosur was created it was made by an international treaty, duly approved by the Congress, notwithstanding the requirement of putting its text in an agreement of partial scope, the ACE 18, in order to make its preferences compatible with the provisions of the Treaty of Montevideo of 1980; hence avoiding its automatic extension to the other member countries, by virtue of above mentioned article 44 provisions. Furthermore, the ACE 18 contains the so-called bolt clause in its article 18, which determines that: "every modification to the present Agreement can only be made by agreement of all signatory countries and will be subject to the previous modification of the Treaty of Asunción according to the constitutional procedures of each signatory country".

Additionally, it should be taken into account that Decree 415/91 precedes the constitutional reform of 1994, which by giving the international treaties a superior hierarchy to laws, confers a different perspective to the interpretation about the constitutional provisions respecting to the negotiation and approval of the treaties.

If practice recommends the flexibility of the procedures to enter into and put into force the international agreements within the frame of one of the treaties mentioned before, we should turn to an explicit legislative act in that sense from the Legislative Power or, if necessary, to a modification of the mentioned treaties. Decree 415/91 offers only a flexible regulation for notifying to Customs about concrete trade preferences granted in the setting of agreements duly put into effect, or their eventual modifications. This has been the case of the preferences included in agreements executed within the framework of LAIA, before the constitutional reform of 1994.

The issue is not academic. It involves the legal security for the international economic relations of Argentina. It has to do with the reinforcement of Congress participation in the integration process. It relates to the transparency of governmental acts, in particular of the rules implemented in the domestic legal system, considering that the actual practice allows that important international agreements do not get published in the Official Gazette. This has been the case, among others, of the automobile sector regulations between Argentina and Brazil, and even those of Mercosur. It has also been the case of some of the free trade agreements concluded with other LAIA's countries, as for example, those with Chile and Bolivia.

The issue is even more serious when an agreement of partial scope made in a simplified form may introduce, eventually changes to acquired rights under treaties approved by the Congress, such as the Treaty of Asunción. In fact, this practice may allow the bilateral modification of rules or procedures established in precise form by treaties -- such as Asunción --. Further, this may put these bilateral agreements outside the reach of Protocol of Brasilia, which guarantees an efficient system-- perfectible though -- of dispute resolution.

At least in the case of Mercosur it is recommendable then to articulate more sound and flexible procedures for the incorporation of new regional agreements --derived of the Asunción Treaty or concluded with other LAIA's members-to the domestic law of each member country. These procedures should result from legal instruments agreed by the member countries, through Protocols duly approved by each Congress.

In any case and this is clear at least for Argentina, the above mentioned practice is one of the reasons why Mercosur is perceived by investors as a low quality "rule-oriented" process. The fact that many rules formally approved by Mercosur institutions have not been enforced, further contributes to its poor image and, eventually, help to explain its problems of efficacy and even of social legitimacy (19).

Some conclusions

RPA's, both among neighbors and non-neighbors countries, are today a relevant dimension of the realities of international economic relations. They are part of the international landscape.

Even if eventually from a theoretical point of view it could be wise to recommend the limitation of the trend toward new RPA's, it seems difficult to imagine countries behaving according to such recommendation.

In addition, it seems difficult to avoid all of the existing or proposed RPA's presenting themselves as highly consistent with the principles, objectives and rules of the multilateral global trade system. They all prefer to define themselves as a model of "open regionalism".

On the contrary, what could be necessary and possible is to improve global collective disciplines to assure that a higher number of old and new RPA's could really be consistent with the WTO.

The main challenge ahead is, therefore, to assure that they could be consistent with the principles and collective disciplines of the multilateral global trade system. That means that they could be an effective "building block" toward a more integrated and open global economy. In addition, especially when they include developing countries, this meaning that they could represent a real contribution to the development of relatively smaller and poor economies.

To obtain those objectives RPA's should always imply permanent commitments to open the markets of the member countries. In addition, they should include rules allowing third countries to become members through negotiations. That should always be the case when a RPA involves non-neighboring countries and therefore, is not part of a broader political and economic strategy to build a stable and peaceful geographical based regional subsystem.

To preserve the "rule-oriented" character of a concrete RPA -against the "power-oriented" alternative-- could be crucial for the defense of the national interests of less developed members. Low quality RPA's could be the result of poor rules of the game and of weak enforcement capacity. Then, they could play against the interests of smaller member countries and in favor of those of more developed members. Eventually, Mercosur could be an example.

However, the "rule-oriented" approach could be also crucial to preserve the health of the multilateral global trade system. The proliferation of RPA's without strong collective disciplines to implement them, could be very negative for the objectives of free trade and development at the global level.

From that point of view, strengthening the monitoring capacity of WTO and the implementation of a reviewed article XXIV of GATT-1994 should be one of the concrete results of the Doha Development Agenda negotiations. Strong collective disciplines concerning their rules of origin, among other requirements, should be included in the reviewing process of article XXIV. Strengthening the effective role of the Regional Agreements Committee of WTO should be also a priority.

A reasonable degree of interaction between the rules of both the WTO and RPA's legal systems, could improve predictability and as a result, the conditions to attract investments and global competitors toward developing countries.

This also implies strengthening the "rule-oriented" approach in the implementation of RPA's at the domestic level and within more broader RTA's --those that enable the development of a network of other RTA's-- as is the case of LAIA and could also be the case of the FTAA.

In some way, LAIA's rules and experiences could be a useful precedent for the final architecture of the FTAA. Particularly having in mind the need to conciliate the hemispheric preferential system with subregional agreements such as NAFTA and Mercosur, among others.

(1) We use in this paper the concept of regional preferential agreements (RPA's) to include all kind of trade preferential agreements (TPA's), both among contiguous and non-contiguous countries.

(2) See BHAGWATI Jagdish and Arvind PANAGARIYA, "Bilateral trade treaties are a sham", in the Financial Times, Monday July 14, 2003, page 15. Also see the interview to Professor Bhagwati, in Clarín, Buenos Aires, June 27, 2003. For a reply to Professor Bhagwati arguments, see among others, GRISWOLD Daniel, "Bilateral deals are no threat to global trade", in the Financial Times, Monday July 28, 2003, page 13.

(3) See MACHLUP Fritz, "A History of Thought on Economic Integration", Columbia University Press, New York 1977; see also, NOLDE B. "Droit et Technique des Traités de Commerce", chapitre X, "Les Unions Douaniéres", in Recueil des Cours de l'Académie de Droit International", La Haye, 1924, ps.437-50, and ANDERSON Kym and Hege NORHEIM, "History, geography and regional economic integration", in Regional Integration and the Global Trading System, edited by Kym ANDERSON & Richard BLACKHURST, St.Martin Press, New York, 1993, ps.19-51.

(4) See WINHAM Gilbert, "International Trade and the Tokyo Round Negotiation", Princeton University Press, Princeton, New Jersey, 1986, ps.141-46 and 274-80. See also, SRINIVASAN T.N. "Developing Countries and the Multilateral Trading System", Westview Press, 1998, ps.21, 24 and 99.

(5) See SNAPE Richard H., "History and Economics of GATT's Article XXIV", in Regional Integration and the Global Trading System, edited by Kym ANDERSON & Richard BLACKHURST, St.Martin's Press, New York, 1993, ps.283-87,

(6) See PEÑA Félix, "Concertación de intereses, efectividad de las reglas de juego y calidad institucional en el Mercosur", Informe elaborado para el Programa Estado de Derecho de la Fundación Konrad Adenauer y la Red Mercosur, Mayo 2003.

(7) See PEÑA Félix, "Civil Society, Transparency and Legitimacy in Integration Processes and Trade Negotiations: Mercosur's experience and lessons for the negotiations with the European Union", paper prepared for the Chaire Mercosur -Sciences Po- Working Group on EU-Mercosur Negotiations Annual Seminar, September 2003.

(8) See PEÑA Félix, "Consensual Integration Alliances: The Importance of Predictability and Efficacy in the MercosurInstitutional Experience", Miami European Union Center, University of Miami, Jean Monnet/Robert Schuman Paper Series, Vol. 2 nº 3, March 2003 (

(9) See among others, KAHLER Miles, "El nuevo regionalismo y sus instituciones", in Regionalización e Integración Económica: instituciones y procesos comparados, Roberto BOUZAS (compilador), Nuevohacer, Grupo Editor Latinoamericano, Buenos Aires, 1997.

(10) See for example, THORSTENSEN Vera, "Organizaçâo Mundial do Comércio: As Regras do Comércio Internacional e a Nova Rodada de Negociaçôes Multilaterais", Aduaneiras, Sâo Paulo, 2001, ps.237-54; JACKSON John, "The Jurisprudence of GATT & the WTO", Cambridge University Press, 2000, ps.99-112.; DAM Kenneth W., "The Rules of the Global Game: a new look at US International Economic Policy", The University of Chicago Press, Chicago and London, 2001, ps. 131-47; LAFER Celso, "A OMC e a regulamentaçâo do comercio internacional: uma visâo brasileira", Livraria do Advogado, Porto Alegre 1998, ps.49-53; HOECKMAN Bernard M. and Michel M. KOSTECKI, "The Political Economy of the World Trading System", Oxford University Press, 2001, ps. 346-68; BHAGWATI Jagdish N. "Multilateralism and Regionalism in the Post-Uruguay Round Era: What Role for the US", in Multilateralism and Regionalism in the Post-Uruguay Era: What Role for the EU, edited by Olga MEMEDOVIC, Arie KUYVENHOVEN and WillemT.M.MOLE, NEI, Kluwer Academic Publishers, 1999, ps.31-44; MESSERLIN Patrick A. "MFN-Based Freer Trade and Regional Free Trade: What Role for the EU", in MEMEDOVIC, op.cit., ps. 45-86, and ROESSLER Frieder, "The relationship between regional integration agreements and the multilateral trade order", in ANDERSON op.cit, ps.311-25.

(11) See BHAGWATI Jadgish, "The World Trading System at Risk", Princeton University Press, Princeton, NJ.1991.

(12) See SERRA Jaime and others, "Reflections on Regionalism: report of the study group on international trade", Carnegie Endowment for International Peace, Washington 1997, ps. 41-56; McMILLAN John, "Does regional integration foster open trade? Economic theory and GATT's article XXIV", in ANDERSON op.cit. ps. 292-310.

(13) See CASTELS Manuel, "End of Millennium", Blackwell Publisher, 1998, ps.330-332.

(14) See JACKSON John, op.cit. ps.6-10.

(15) See PEÑA Félix, "Entrada en vigencia de acuerdos de la ALADI y del Mercosur", in Revista La Ley, Buenos Aires, 28 de septiembre de 2000.

(16) Article 44 was then modified because of the participation of Mexico in NAFTA.

(17) See JACKSON John, op.cit, ps.195-398.

(18) See PEÑA Félix, op.cit in note 15.

(19) For a more detailed analysis of this aspect, see the article mentioned above in note 5. The author has been warning since many years about the economic and political implications of Mercosur as a poor quality "rule-oriented" process. See for example, PEÑA Félix, "Reglas de juego e instituciones en el Mercosur", in Revista de Derecho Privado y Comunitario, nº 14, 1996, ps. 395-408. See also PEÑA Félix, "Reflexiones sobre el Mercosur y su futuro", in Grupo de Reflexâo Prospectiva sobre o Mercosul, Clodoaldo HUGUENEY FILHO, Carlos Henrique CARDIM, organizadores, MRE/BID/IPRI/FUNAG, Brasilia, 2002, ps.271-288.

Félix Peña es Director del Instituto de Comercio Internacional de la Fundación ICBC; Director de la Maestría en Relaciones Comerciales Internacionales de la Universidad Nacional de Tres de Febrero (UNTREF); Miembro del Comité Ejecutivo del Consejo Argentino para las Relaciones Internacionales (CARI). Miembro del Brains Trust del Evian Group. Ampliar trayectoria. |

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