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Regional Trade Agreements A Global Perspective


Regional Trade Agreements A Global Perspective Shri T.C. VENKAT SUBRAMANIAN Chairman & Managing Director Exim Bank of India Chennai, February 19, 2005 – PowerPoint PPT presentation

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Title: Regional Trade Agreements A Global Perspective

Regional Trade AgreementsA Global Perspective
Shri T.C. VENKAT SUBRAMANIAN Chairman Managing
Director Exim Bank of India Chennai, February 19,
Global Trade Developed vs Developing
Increasing Importance of Developing
Countries but only in Merchandise Trade
Source ITS 2004, WTO
Global Trade Major Countries
Top 10 Global Merchandise Exporters and Importers
US billion
Total Exports US 7503 bn (incl.
re-exports) Total Imports US 7778 bn (incl.
Imports for re-export)
Source ITS 2004, WTO
World Trade Organisation (WTO)
superset of all RTAs
  • The WTO is member-driven, with decisions taken
    by consensus among all member governments
  • Any state or customs territory having full
    autonomy in the conduct of its trade policies may
    join (accede to) the WTO. The following process
    is involved
  • Commencement of the accessions process
  • Working party and the fact-finding process
  • Bilateral negotiations
  • Report, Protocol of Accession and Entry into
  • As on December 2004, there were 148 WTO members
  • 26 Countries negotiating membership (WTO
    observers) including Russia, Vietnam, Algeria,
    Saudi Arabia, Bhutan and Sudan

Regional Trade Agreements
Liberalising trade on a reciprocal preferential
  • RTA encompasses both reciprocal bilateral free
    trade or customs areas and multi-country
    (plurilateral) agreements
  • Regional and bilateral trade agreements provide
    for one type of trade liberalization
  • While programs such as the U.S. African Growth
    and Opportunity Act (AGOA) and the EUs
    Everything But Arms (EBA) also liberalize trade
    preferentially, the United States and EU extend
    these preferences unilaterally rather than
  • Countries often lower trade barriers in a
    nondiscriminatory fashion for all trade partners
    either multilaterally through GATT/WTO
    negotiating rounds or autonomously

Regional Trade Agreements
Classification of liberalisation methods
RTAs Types of Liberalisation
RTAs Four Major Levels of Integration
  • RTAs divided into several basic categories
    according to the degree of economic integration
    they provide
  • Free Trade Area members eliminate barriers to
    trade in goods (and increasingly services) among
    members, but each member is free to maintain
    different MFN barriers on nonmembers
  • Customs Union moves beyond a free trade area by
    establishing a common external tariff on all
    trade between members and nonmembers
  • Common Market deepens a customs union by
    providing for the free flow of factors of
    production (labor and capital) in addition to the
    free flow of outputs
  • Economic Monetary Union members share a common
    currency and macroeconomic policies

Regional Trading Arrangements
RTAs Increasing Proliferation
  • Sharp proliferation in Regional Trading
    Agreements (RTAs) in recent years
  • The number of these agreements has more than
    quadrupled since 1990, rising to around 230 by
    late 2004
  • Nearly all countries belong to at least one RTA
  • As of July 2003, only 3 WTO members, viz. Macau
    China, Mongolia and Chinese Taipei were not party
    to any RTA
  • Trade between RTA partners now makes up nearly
    40 of total global trade
  • Members of RTAs liberalize trade on a reciprocal
    and preferential basis
  • RTAs can create trade and bring other benefits
    for members but results are not automatic and
    depend critically on design

Regional Trading Arrangements
Particularly in the Last Decade
Annual number
Total in force
Cumulative in force (right axis)
Not Notified to WTO
Notified to WTO
Source Global Economic Prospects 2005, World Bank
Regional Trading Arrangements
Most countries belong to more than one RTA
Note Bilateral agreements are defined as an RTA
with two members. North is OECD 24 plus
Liechtenstein and South is all other countries
Regional Trading Arrangements
South-South RTAs predominate in number but not
in trade covered
Number of RTAs
Percent of World Trade Covered
Source Global Economic Prospects 2005, World Bank
Regional Trading Arrangements
Intra-Regional Trade of Major RTAs, 1995, 2000
Source International Trade Statistics, 2004, WTO
Regional Trading Arrangements
Why This Proliferation?
  • To support foreign policy goals, including
  • Slow progress on multilateral agenda
    competitive liberalization
  • Access to services markets, protection of
    intellectual property, and rules for investment
  • Secure access to markets, especially large
  • More FDI
  • Among neighbors, lowering trade cost at border
  • Framework for regional cooperation

Regional Trading Arrangements
Major RTAs in Select Regions
  • High Income Countries
  • Asia Pacific Economic Cooperation (APEC)
  • European Union (EU)
  • North American Free Trade Agreement (NAFTA)
  • LAC Region
  • Andean Group
  • Central American Common Market (CACM)
  • Caribbean Community and Common Market (CARICOM)
  • Latin American Integration Association (LAIA)
  • Southern Cone Common Market (MERCOSUR)

Regional Trading Arrangements
Major RTAs in Select Regions (contd)
  • Africa
  • Common Market for Eastern Southern Africa
  • Economic Community of West African States
  • Southern African Development Community (SADC)
  • West African Economic and Monetary Union (WAEMU)
  • Asia
  • Association of South-East Asian Nations Free
    Trade Area (AFTA)
  • Gulf Cooperation Council (GCC)
  • South Asian Free Trade Area (SAFTA)

Regional Trading Arrangements
Many RTAs can complicate administrative procedures
  • Growing number of overlapping agree-ments
  • Emergence of spaghetti bowl due to
    proliferation of bilateral agreements
  • The associated myriad of rules strains
    institutions charged with administering trade

Spaghetti Bowl of RTAs in the Americas and
Regional Trading Arrangements
Effects on trade
  • RTAs can have positive or negative effects on
    trade depending on their design and
  • Gains from a preferential trade agreement cannot
    be taken for granted
  • Even in agreements with positive impacts on
    average incomes, not all members are assured of
  • The policy question then is not whether RTAs are
    categorically good or bad, but what determines
    their success
  • Agreements that have been designed to complement
    a general program of economic reform have been
    most effective in raising trade
  • When RTAs have tended to be fruitless, it is
    often because of the lack of a coherent program
    of reform

Regional Trading Arrangements
Making Regionalism Complementary to
  • RTAs can be a complement to multilateral reform,
    but they are not a substitute
  • From a development perspective, the WTO remains
    the best-available forum to discipline the use of
    trade-distorting policies
  • RTAs can complement the WTO efforts by
    cooperating on behind-the-border policies,
    especially on regulation-intensive issues such as
    services, trade facilitation, and the investment
  • Large developed countries may gain more from
    signing individual bilateral agreements than they
    would from a multilateral accord
  • They can use preferential access to extract
    concessions in non-trade areas from developing
    country partners that would be resisted in the
    WTO negotiating framework

Regional Trading Arrangements
Bilateral Agreements vs. Global Trade Reform
(change in real income in 2015 compared to 2001)
Source World Bank Simulations
  • Most development friendly outcome is associated
    with global reform

Regional Trading Arrangements
Regional Trade Agreements Indias Initiatives
  • Framework Agreement on Comprehensive Economic
    Cooperation with ASEAN
  • Bay of Bengal Initiative for Multi-Sectoral
    Technical and Economic Cooperation (BIMSTEC) FTA
  • India Singapore Comprehensive Economic
    Cooperation Agreement
  • Framework Agreement for establishing Free Trade
    between India and Thailand
  • India Sri Lanka Bilateral Free Trade Area
  • Agreement on South Asian Free Trade Area (SAFTA)
  • India Mercosur PTA
  • India Southern African Customs Union (SACU)
    Framework Agreement
  • India Gulf Cooperation Council (GCC) Framework

Regional Trading Arrangements
RTAs Indias Initiatives (contd)
  • The government has decided to convert all
    preferential/free trade agreements into
    Comprehensive Economic Cooperation Agreements
  • PTAs/FTAs usually involve structured reduction in
    tariffs between two countries.
  • CECAs would cover preferential relaxation of FDI
    rules vis-à-vis the partner country, tax holidays
    on investment and income, easing of visa
    restrictions, trade in services.
  • The proposed FTAs/PTAs with Thailand, Mercosur
    ASEAN to be made CECAs
  • This has already been done with Sri Lanka.
  • PTA with the SACU would be merged with a new CECA
    with South Africa
  • The agreements with Singapore and GCC is also
    envisaged to be a CECA
  • Other proposed alliances with Russia, China and
    Israel would also be CECAs, rather than mere FTAs