CEFTA
CEFTA Parties and the WTO
International trade in goods is regulated by various rules established under the World Trade Organization(WTO) for Members that have acceded to the WTO Agreement. The following CEFTA Parties are WTO Members:
- Albania;
- North Macedonia;
- Moldova; and
- Montenegro.
Bosnia and Herzegovina and Serbia are “observer governments” at the WTO. WTO rules require observer governments to start accession negotiations within five years of becoming observers. More details are available at Members and Observers.
In the preamble to the CEFTA 2006https://cefta.int/wp-content/uploads/2016/05/ANN1CEFTA-2006-Final-Text.pdf, the CEFTA Parties agreed to conduct their trade relations in accordance with the rules and disciplines of the WTO whether or not they are WTO Members.
WTO Members must comply with the fundamental principle of the most favoured nation (MFN) treatment. The MFN obligation requires that any favourable trading terms granted by a WTO Member to trading partner be extended to all other WTO Members. This means that, if one of the CEFTA Parties reduces tariffs or grants other trade advantages to a trading partner, it must do the same for all WTO Members. With respect to trade in goods, the MFN obligation is laid down in Article I:1 of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994.
Importantly, the GATT provides exceptions to the MFN obligation. Notably, Article XXIV of the GATT allows WTO Members to enter into trade arrangements establishing free-trade areas, in which the participating WTO Membersremove barriers, such as customs duties, to trade amongst themselves, but maintain their individual barriers vis-à-vis all other WTO Members. Article XXIV:8(b) of the GATT defines a free-trade area as “a group of two or more customs territories in which the duties and other restrictive regulations of commerce [...] are eliminated on substantially all the trade between the constituent territories in products originating in such territories”.
Free trade areas serve various economic and political objectives, such as:
- To increase freedom of trade among the economies involved by eliminating or reducing trade barriers, thereby:
- Opening new markets for goods and services;
- Increasing investment opportunities and protection of investments;
- Making trade cheaper by eliminating customs duties and cutting red tape;
- Making trade faster by facilitating transit through customs and setting common rules; and
- To promote closer integration between the participating economies.
The objectives and commitments mutually agreed to by the participating parties are set out in a free trade agreement (FTA).