Regional trading blocs as promoters of global trade:

It  is clear  from  the preceding section that if  the positive effects from  trade creation are larger than the negative effects  from trade diversion, the FTA  will improve  national welfare.

It is for  this  reason that even the multilateral  regime of the erstwhile GATT and the  present WTO  allows  for  derogation  from  the principle  of  non- discrimination enshrined  in Most-favoured Nation (MFN) as per Article XXIV an enabling clause this is also available  under the General  Agreement on Trade and Services (GATS).

Considering  this, the vast majority of WTO members are  party to one or more regional trade agreements. The surge in RTAs has continued unabated  since the early 1990s. Some 250 RTAs have been notified to the GATTIWTO up to December 2002, of which  130 were notified after January  1995. Over 170 RTAs are currently in  force; an additional 70 are estimated tc be operational although not yet notified.

As a  result, it is estimated that almost  three-fourth of global trade is conducted under RTAs  and not  under  the MFN principle. It  is this sense that  regional trading blocs have emerged as promoters of global trade. But if an RTA causes more negative effects of trade diversion than positive effects of trade creation then the RTA may,be welfare reducing  for a country. This is the argument aften taken recourse to  for arguing against the efficacy of regional  trading blocs.

Another problem with RTAs is  that they involve complicated 'rules of origin' to ensure  that imports are really coming from the RTA partners and not from outside countries. For all these reasons, it  is argued that RTAs are stumbling blocks rather than building blocks of the multilateral free trade regime.