Geneva Sep (Chakravarthi Raghavan) -- Regional integration schemes, and formation of large economic spaces around the United States and the European Community is extending beyond trade to embrace services, investment, labour, environment etc, but there is no internationally agreed criteria for a wider evaluation of these arrangements, according to an UNCTAD Secretariat Report to the Trade and Development Board.

Regional integration, UNCTAD says, could proceed together with further development of the international trading system and, in reality, even large integration groupings and trading nations have an interest in remaining open to cooperation with other regions.

However, the track of regional integration has not been without some important deviations from openness and it has not always considered potential problems for third countries.

There has been increased awareness that integration does not automatically lead to growth and there is a need for conscious action visavis weaker partners.

The General Agreement on Trade and Tariffs, the report notes, provides a framework for evaluation trade aspects of integration, as well as for review and consultations.

GATT evaluations focus on trade in goods and compatibility with existing contractual commitments. Corresponding rules are under negotiations in the Uruguay Round in relation to services.

However, the GATT criteria do not capture sufficiently the economic effects of integration, such as trade diversion or creation, nor the increasingly comprehensive nature of the integration arrangements.

Evaluating the impact of groupings on international trade and economic cooperation under the sole angle of trade barriers is becoming an insufficient focus, UNCTAD comments.

Such an evaluation, it adds, will become more meaningful if provisions of integration arrangements are also compared with similar emerging disciplines in new areas under negotiations in the Uruguay Round.

There are no internationally agreed criteria for such wider evaluation, though some general principles have been affirmed by the UN General Assembly and at UNCTAD-VIII.

A major yardstick in evaluation, the report suggests, should be whether groupings, in devising their internal schemes, have given due regard to existing and emerging international disciplines, have observed existing international standards or are open to adjust their instruments to the newly emerging rules, including those emanating from the Uruguay Round.

A preliminary analysis prepared by the secretariat of the provisions of the NAFTA, European Economic Area (EEA) and the Draft Final Act in the Uruguay Round shows that wherever they are consistent, they can be subsumed in the multilateral trading system and viewed as building blocks of the system.

However, if regional groupings introduced conflicting approaches and mechanisms, they could hamper progress in strengthening the international trading system.

There is little in these agreements that would directly impede action at the multilateral level on services, intellectual property rights or subsidies. The acceptance of the DFA would effectively multilateralize a number of elements of the regional agreements and even go beyond them in areas such as agriculture.

A second yardstick for evaluation, the report suggests, should relate to the actual implementation of the integration agreements. In particular the evaluation could relate to the extent to which groupings and member states have extended new schemes and liberalization measures to third countries or opened possibilities for participation or whether they have attached conditions to the extension to third countries or applied new rules in a preferential manner.

There are several groupings, UNCTAD says, who have taken substantial unilateral trade liberalization visavis third countries, while progressing with subregional integration. Mercosur, the Andean group and other Latin American Integration Association countries, the Central American Common Market, Caricom, West African Economic Community, the Preferential Trading Area of eastern and southern African countries and the central and east European Economies in Transition (CEETA) have proved that regional integration could be fully compatible with multilateral liberalization.

The report does not mention in this context the EEA or NAFTA, and makes the general comment about instances (of region arrangements) where internal liberalization has been accompanied by new price preferences or origin requirements or subject to reciprocity, raising concerns among third countries.

It is significant, it adds, that most conflicts linked with integration schemes arose in areas where international disciplines were non-existent, of insufficient coverage or introduced new concepts.

This, the report adds, further reinforce the need for an early conclusion of the Uruguay Round.

Stressing the need to continue ongoing reviews of agreements with regard to their compatibility with GATT, the report notes that regional agreements can undermine the basic aim of the multilateral trade order not only by adding preferential market access rights but also by eliminating GATT rights in mutual relations.

Some groupings, it adds, have replaced GATT rules by subregional rules with fewer constraints on members and reducing the scope of applicability of general GATT standards, thus increasing the danger of discriminatory and more frequent application of safeguards and similar measures visavis third countries.

While the report does not mention it, some of the EEA agreements eliminate the GATT rights of members.

The report commends the suggestion for incorporating in all regional integration agreements a "GATT acquis clause" to expressly preserve all substantial and procedural rights under GATT.

Ex-post evaluation of actual performance of integration groupings should include levels of external protection, growth of intra-trade as compared to third country trade, development of market shares of third-country suppliers for protected products on the integrated markets in comparison to other markets.

On the discussions within GATT on the appropriate way of dealing with large integration groups of developing countries -- whether in terms of the GATT provisions for customs and free trade areas, under the 'Enabling Clause' -- the report points out that the original problems of integration among developing countries underlying part IV of the General Agreement has not changed.

Their mutual trade remains small, preferential trade even smaller and their shares in world trade and, hence, their potential external impact are very small. Within UNCTAD, the international trading community has reconfirmed that subregional and regional integration among developing countries deserves to be promoted and needs further international support.

The report calls for periodic review of evolution of integration groups within an international framework (such as UNCTAD), and this should focus on their implications for international trade, economic cooperation and development among all countries concerned as well as the trading system as a whole.

Such assessments, it adds, would become useful once various agreements, now at different stages of negotiation or ratification, become fully operational. They have potential risks and problems for weaker trading partners and new issues arise in new areas meriting continued study.

Furthermore, the rapid rise in proportion of world trade covered by them is likely to make their impact on remaining outsiders more critical and the relationship between groupings a more prominent issue.

A timely recognition of potential problem areas and debate in a non-contractual framework at an early stage may contribute to preventing and reducing possible tensions and help to explore solutions, the report adds.