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RTAs:
Gateways to Global
Trade
Export Import
Bank of India
(Exim Bank) has
made an exhaustive
study of various
regional trade
agreements (RTAs)
in the context
of their importance
in nurturing global
trade. The Exim
Bank study also
touches India's
engagement with
RTAs. Following
is the gist of
the study.
There is a growing
realization among
countries that
regional and multilateral
agreements could
he complementary
and mutually reinforcing
approaches to
trade reforms.
Such regional
integration agreements
could lead to
enhanced regional
trade, which in
turn could provide
a boost to multilateral
trade. Moreover,
the Doha Declaration
drawn up by the
WTO ministers
in late 2001 also
recognizes that
Regional Trade
Agreements (RTAs)
can play an important
role in promoting
the liberalization
and expansion
of trade and also
in increasing
investment and
productivity gains
and fostering
development especially
in developing
economies.
RTAs are increasingly
being viewed as
a link between
developing and
developed countries
towards the common
goal of economic
development and
as a gateway to
global trade.
The need for such
agreements has
arisen from a
number of socio-economic,
political and
security considerations.
Countries have
embraced regional
trade agreements
primarily due
to the following
reasons:
• To derive
benefits of increased
preferential access
to highly competitive
larger markets;
• The slow
progress in trade
liberalization
under the WTO
and bottlenecks
in multilateralism
based trade talks;
• A sharp
increase in FTAs
around the world,
which has prompted
other countries
not involved in
regional trade
agreements to
also consider
engagement in
such agreements
and remain competitive
in international
trade;
• To promote
liberalisation
and bring about
policy reforms;
• To attract
more foreign direct
investment into
the country; and
• Political
and security considerations.
Proliferation
of RTAs
There has been
a significant
increase in the
number of regional
trade agreements
in recent years,
with presently
more than one
third of the world's
trade taking place
within the framework
of such agreements.
Of the 205 RTAs
notified to WTO
and which are
in force, as on
July 18, 2007,
124 are FTAs,
accounting for
60% of the total,
46 are Economic
Integration Agreements
(ElA), 12 are
Customs Unions
(CU), 12 are Partial
Scope (PS) Agreements,
while 11 are Accession
Agreements. The
predominance of
FTAs is probably
due to the fact
that they are
faster to conclude
and require a
lower degree of
policy coordination
among the contracting
parties as compared
to plurilateral
or multilateral
negotiations.
The growing interest
in regional trade
agreements among
countries has
been particularly
noticed since
the dawn of the
new millennium;
124 agreements
(constituting
60% of the total)
having entered
into force post
2000. As earlier
observed, FTAs
continue to be
the most preferred
form of agreements
as around 65%
ot the agreements
entered into force
post 2000 comprise
FTAs. An investigation
of the trend reveals
that the maximum
number of agreements
entered into force
during 2004 and
2006. This could
be attributed
to the failure
of the Fifth WTO
Cancun Ministerial
Conference in
2003 and the Sixth
WTO Hong Kong
Ministerial Conference
held in 2005.
Further, between
2004 and 2007,
as many as 40
FTAs and 23 ElAs
have entered into
force. While the
dominance of FTAs
implies a growing
tendency among
member countries
to establish bilateral
preferential agreements,
growing number
of EIAs indicate
the increasing
preference among
countries to deepen
bilateral economic
integration beyond
trade in goods.
Nature of Regional
Trade Agreements
In comparison
to majority of
agreements among
developing countries
in the initial
years of regional
trade agreements,
there has been
an increasing
tendency among
developed countries
as well to enter
into trade accords
between themselves
as also with developing
countries, as
depicted by the
increasing share
of such agreements
during 2000-2007
as compared to
1995-1999. As
a consequence,
the share of south-south
agreements, which
comprised 67%
of the total agreements
during 1995-99,
decreased to 39%
between 2000-2007.
Compared to only
10 agreements
between developing
and developed
countries during
1995-1999, the
number has surged
significantly
to 51 during the
last seven years,
constituting 46%
of the total number
of agreements
during the period.
Developing countries
have evinced keen
interest in engagement
in RTAs with more
developed nations
to gain access
to the larger
and potential
markets and benefit
from the immense
trade opportunities
inherent in these
markets. This
subtle and gradual
shift in the interest
among developing
countries to engage
in agreements
with developed
countries and
vice versa has
been particularly
noticed since
2004. This could
he attributed
to the interest
among developed
countries to engage
in bilateral agreements
with developing
countries subsequent
to erosion of
their confidence
in multilateralism.
It may be cited
that for United
States, all trade
agreements except
those with Israel
and Jordan, have
entered into force
post 2004.
Emergence of Trade
Blocs & RTAs
There has also
been a fast rise
in the number
of regional trade
blocs around the
globe as a result
of the willingness
on part of countries
to enhance and
foster trade relationship
with neighbouring
nations. Countries
are also transcending
physical geographical
borders to rapidly
enter into trade
relations with
distant countries
as well. Southern
Cone Common Market
(MERCOSUR) and
North American
Free Trade Area
(NAFTA) have emerged
as major blocs
in America. With
the emergence
of significant
trade blocs like
Association of
South East Asian
Nations (ASEAN)
and the South
Asian Association
for Regional Cooperation
(SAARC), Asia
too is rapidly
embracing regionalism.
Common Market
for Eastern and
Southern Africa
(COMESA) and Southern
African Development
Community (SADC)
in Africa; Greater
Arab Free Trade
Agreement (GAFTA)
and Gulf Cooperation
Council (GCC)
in West Asia;
European Union
(EU) and European
Free Trade Agreement
(EFTA) in Europe
and the Commonwealth
of Independent
States (CIS) trade
bloc could be
identified as
crucial developments
in regional economic
integration, which
have also significantly
enhanced intra-bloc
trade.
The intra-bloc
merchandise exports
as a percentage
share of bloc's
total exports
for European Union
has been as high
as 66% in 2005;
in case of NAFTA
it has been 56%
and around 50%
for East Asia
Economic Caucus
(EAEC), indicating
the high degree
of integration
among these blocs.
Despite having
a bloc, there
are instances
of trade agreements
between countries
within a bloc.
This distinctive
feature is particularly
noticed in the
CIS trade bloc,
where all CIS
countries, with
the exception
of Moldova, have
entered into agreements
with only other
CIS countries.
Another interesting
feature could
he observed in
Japan's initiative
towards a trade
agreement with
ASEAN, in spite
of it having established
bilateral agreements
with Singapore
and Malaysia,
which are members
of ASEAN. Like
CIS countries,
India and Sri
Lanka have also
established an
FTA, despite being
members ot the
South Asian Free
Trade Agreement
(SAFTA). Similarly,
as in case of
Japan, India has
trade agreements
not only with
ASEAN but also
with some member
countries viz.
Thailand and Singapore.
It may be observed
that countries
are engaging in
agreements with
trading blocs
as a whole to
access the larger
and more potent
markets of the
region. A typical
example in this
regard could be
the advantage
of entering into
an agreement with
blocs such as
EU, which provides
access to all
member countries
of the Union.
Recognizing this,
countries such
as Norway, Croatia,
Albania, Mexico,
Jordan, Algeria,
Tunisia, Chile,
Egypt etc. have
entered into bilateral
trade agreements
with the European
Union. However,
for a member country,
a customs union
or common market
could restrict
the choice and
freedom to enter
into bilateral
agreements with
non-member countries,
as the common
external tariffs
have to be adhered
to. This is particularly
true for larger
and relatively
more advanced
member countries
in the bloc.
It may be also
observed that
countries in almost
all regions of
the world are
showing an increasing
interest in expanding
their trade opportunities
with countries
bilaterally outside
the region or
a bloc. In Asia,
Singapore has
been the most
aggressive in
its pursuits of
regional trade
agreements with
number of countries
like New Zealand,
Australia, United
States, Jordan
and Panama. Singapore
is one of the
leading RTA signatories
with 18 such agreements
in place. Other
countries that
are involved in
the most number
of RTAs are Mexico
with engagements
in 19 agreements,
Chile with 17
agreements, United
States with 15
agreements and
Turkey with 10
agreements. An
investigation
of the trade pattern
of these countries
over the past
decade clearly
attests to the
positive impact
of RTAs on the
trade performance
of a country.
The value of trade
of all these countries
with individual
RTA partner countries
over the past
five years has
also increased
sharply. Moreover,
trade with RTA
partner countries
constitutes a
major portion
of the total trade
of these countries,
which reinstates
the importance
of RTAs in global
economic integration
of these countries.
For example, in
case of Mexico
and Singapore,
trade with RTA
partner countries
constitutes around
85% and 63% of
their global trade
respectively.
Similarly, for
Chile, trade with
RTA partners constitutes
as high as 80%
of its global
trade.
There are some
key factors that
have promoted
regional trade
agreements in
these specific
countries. In
case of Mexico,
the shift from
an inward looking
trade policy to
a more liberal,
and outward oriented
trade policy,
the presence of
Maquiladoras,
offshore assembly
units along the
US-Mexico border
and a number of
export incentives
provided by Mexico
have played an
important role
in fostering its
trade relations
with other countries
both intra regionally
and extra regionally.
With regard to
Singapore, its
pro-exports, liberal
trade policies
and elimination
of most restrictions
on imports boosted
its trade engagements.
Similarly, prioritization
of ensuring access
to larger markets
in its multidimensional
trade policy,
imposition of
low and uniform
applied tariffs
and a stable economy
were instrumental
in the proliferation
of Chile's engagement
in RTAs. United
States' Trade
Capacity Building
(TCB) efforts
have also played
an important £
role in strengthening
its trade relations
with especially
developing countries.
Recognizing the
potential for
greater regional
cooperation for
development, major
Asian economies
too have rapidly
embraced regionalism
in the course
of the past decade,
which has led
to the proliferation
of several regional
trade agreements
involving most
of the Asian economies.
ASEAN has been
the major trade
bloc in Asia,
with intra-ASEAN
exports accounting
for 23% of global
exports of ASEAN
in 2005.
ASEAN is also
expanding with
the 'ASEAN plus
three' initiative,
with free trade
agreements with
Japan, China and
Korea. ASEAN entered
into an agreement
with China in
2003 to form the
ASEAN-China FTA
(ACFTA). Also,
bilateral efforts
are taking place
to establish the
ASEAN-Japan Closer
Economic Partnership
(CEP) Agreement,
ASEAN- Korea FTA
(AKFTA), and ASEAN-India
FTA (AIFTA). The
'ASEAN plus three'
could be identified
as a crucial development
in regional integration,
which has the
potential to significantly
boost trade and
development in
Asia. Value of
total trade of
'ASEAN plus three'
countries reached
US$ 4.3 trillion
in 2005, which
was 20% of global
exports. It is
therefore, important
for India to further
strengthen its
engagement with
ASEAN and thereby,
be an integral
part of a Pan
Asia Free Trade
Area.
India's Engagement
in Regional Trade
Agreements
India's endeavour
to foster its
international
trade has been
well complemented
by its efforts
to promote regional
trade. Target
countries in India's
regional trade
initiatives cover
various regions
of the world.
In Asia, India
made a foray in
RTAs with an FTA
with Sri Lanka
in 1998. This
was followed by
a Comprehensive
Economic Cooperation
Agreement (CECA)
with Singapore,
an FTA with South
Asian Association
for Regional Cooperation
(SAARC) members
(SAFTA) and with
the members of
Bay of Bengal
Initiative for
Multi-Sectoral
Technical and
Economic Cooperation
(BIMSTEC), a framework
agreement for
FTA with Thailand
and a framework
agreement for
CECA with ASEAN.
With the establishment
of Joint Study
Groups (JSGs),
India has also
initiated negotiations
with a number
of countries like
Korea, China,
Japan, Russia,
Malaysia and Indonesia.
These initiatives
form an integral
part of India's
'Look-East Policy',
which has gained
substantial momentum
in recent years
and has started
yielding desirable
results on the
economic, political
and strategic
fronts. India
is also seriously
pursuing negotiations
to establish RTAs
with other developing
countries located
elsewhere.
India has in place
a preferential
trade agreement
(PTA) with MERCOSUR
and with Chile;
a framework agreement
tor FTA with the
Gulf Cooperation
Council (GCC);
and a PTA with
South African
Customs Union
(SACU). India
has also established
JSGs with Mauritius
and Israel to
explore the possibility
of an FTA.
Engagement in
regional trade
agreements has
had a significant
effect over the
past decade on
India's trade
performance with
its partner countries.
India's exports
to and imports
from its RTA partner
countries have
significantly
increased from
2001-02 to 2006-07.
India's trade
with its RTA partner
countries as a
percentage of
its total trade
has shown a notable
rise from 20%
to 30% from 2001-02
to 2006-07.
The Way Forward
For India
It is imperative
for India to assess
the long-term
implications arising
out of any engagement
in RTA and adopt
an integrated
approach consistent
with the long-term
interest and potential
of the economy.
Engagement in
regional trade
agreements should
be one and not
the only avenue
for enhancing
its international
economic collaboration.
India needs to
explore bilateral
and plurilateral
trade initiatives
and effective
regionalism beyond
free trade agreements,
however, in continuance
of its pursuits
towards eventual
multilateralism.
While India needs
to maintain consistency
in its negative
lists with regard
to agreements
with different
countries to effectively
protect the domestic
industries, it
is also crucial
to address the
issue of non-tariff
trade barriers,
especially when
engaging in regional
trade agreements
with developed
countries like
the US or the
European Union.
With the recognition
of the positive
impact of RTAs
on a country's
trade performance,
India could explore
trade accords
with all major
trading blocs
in different regions
of the world viz.
MERCOSUR, NAFTA,
EU, ASEAN, GCC/
GAFTA, SADC/ SACU
and CIS, which
could substantially
enhance India's
market access
and choice of
competitive imports.
Moreover, India
could also consider
engaging in agreements
with at least
one of the major
members of a trade
bloc in case of
its inability
to strike an accord
with a bloc as
a whole, which
could act as a
potential gateway
to other markets
of the bloc.
India could draw
insights from
the global trend
and pattern of
gradual shift
from south-south
trade agreements
to preferential
agreements between
developing and
developed countries,
and explore opportunities
to engage in trade
agreements with
more developed
countries like
US, Japan, EU.
India has initiated
negotiations for
a Comprehensive
Economic Partnership
Agreement with
Japan and a broad-based
trade and investment
agreement with
EU, which needs
to be carried
forward. An RTA
with USA, with
significant market
potential and
evident complementarities
could also prove
to be beneficial
for India. Such
agreements could
also facilitate
and enhance investment
flows into India.
India could also
look beyond FTAs
exclusively in
goods to expand
the scope of agreements
to incorporate
services, investment,
monetary cooperation
and trade logistics.
On the strength
of its services
sector, India
could set up exclusive
free trade agreements
in services, which
could be later
expanded to trade
in goods. India
could widen the
scope of Bilateral
Investment Promotion
Agreements (BIPAs)
to include specific
investment incentives
in growing sectors
such as infrastructure.
With regard to
monetary cooperation,
the model of the
Mercosur Structural
Convergence Fund
(FOCEM), which
facilitates transfer
of funds from
more developed
countries to less
developed countries
in the bloc, could
be a model of
emulation for
the SAARC region,
that could effectively
lead to economic
development and
integration of
the region.
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