Regionalism: Policy Options For India

1
Relative Importance of North-South and
South-South Trade Bipul Chatterjee Deputy
Executive Director, CUTS International
(www.cuts-international.org) Director, CUTS
Centre for International Trade, Economics
Environment (www.cuts-citee.org) Presented at
the OECD Global Forum on Trade A Trade Policy
Dialogue on the Multiple Dimensions of Market
Access and Development Organised by OECD Trade
Directorate, World Bank and the Government of
Mexico Mexico City, 23-24 October 2006

2
Introduction

• Currently there is more trade between North and
  South (N-S), but South-South (S-S) trade is
  rising though it is lopsided
• There is a growing realisation in the South to
  enhance cooperation among themselves (through
  bilateral preferential trade agreements (PTAs)
  and regional integration)
• Political and macroeconomic structure of many
  developing countries do not permit deep
  integration free trade agreements (FTAs) and/or
  comprehensive economic cooperation agreements
  (CECAs) strong political will and institutional
  apparatus for policy-making and implementation
  are required

3
South-South Cooperation

• PTAs are mostly focusing on increasing
  merchandise trade by minimising exclusions,
  adopting less restrictive rules of origin
  provisions and trade facilitation at the border
• However, many of these countries suffer from
  their small market size and similar economic
  conditions rarely provides incentives for more
  trade
• Monitoring mechanism (impact assessment) are
  often inadequate and do not receive sustained,
  high-level political attention
• The effectiveness is severally constrained by
  negative list, complicated rules of origin
  provisions, inverted duty structure, less
  awareness among consumers, etc (other than high
  tariffs)
• Services cross-border projects help deeper
  cooperation (e.g. Highway Project in the GMS
  Region) requires huge political will
• 
  

4
North-South Cooperation

• These agreements are expected to score better on
  implementation
• They can integrate economies with different
  technological capabilities and different factor
  endowments
• However, tighter rules of origin, more
  restrictive exclusion of particular sectors can
  reduce benefits especially for Southern
  producers and Northern consumers
• Many developing countries feel that such
  cooperation will bring increased investment in
  their economies, but empirical evidence is
  unconvincing investment (especially FDI) is a
  different game

5
Domestic Preparedness

• Negotiations and implementation of initiatives
  like India-Sri Lanka, India-Thailand FTAs show
  inadequate preparation on issues like rules of
  origin, negative list of products
• Protection through the so-called negative list
  needs to be reduced significant scope for
  rent-seeking
• Vulnerability of specific sectors are to be
  factored into the process of negotiations through
  sustainability impact assessment (economic,
  social, environmental and political
  sustainability of PTAs, including sectoral
  studies) before an agreement is entered into
  force and also during the process of
  implementation (for taking appropriate measures
  for changes through renegotiations as an
  in-built mechanism) systematic collection,
  storage and analysis of data is required, so that
  there is less scope for rhetoric

6
Options for Developing Counties

• Promote multilateral trade liberalisation
• Promote policy coherence trade ministry should
  have a separate unit on policy coherence
• Promote regional trade integration by harmonising
  rules and procedures with concomitant reduction
  of MFN tariffs regional economic communities
  should be institutionally strengthened and
  involve local communities
• Promote awareness among the actors involved in
  cross-border informal trade formalisation of
  informal trade will be a win-win situation for
  those engaged and the governments
• Relatively more flexible attitude (greater
  political will) at national and regional level is
  required for services liberalisation focus on
  those sectors, which benefit the poor most

7
Conclusions

• Whether PTAs/FTAs between North-South and/or
  South-South contribute or undermine the MTS
  depends on specific content of each agreement
  should be made WTO-compatible before an agreement
  comes into force
• The original motive for economic cooperation
  between countries (whether N-S and/or S-S) was
  political (and will remain so) and these
  agreements have become a tool to pursue some
  significant political strategies by some major
  players, including a developing country like
  India
• Large developing countries should provide
  duty-free, quota-free access to products from
  least developed countries with a minimum number
  of items in the negative list
  operationalising South-South trade cooperation

8

• Trade liberalisation should be benchmarked with
  domestic preparedness (a dynamic process)
  relationship between trade liberalisation and
  domestic regulatory reforms should be looked at
  closely (policy coherence)
• Liberalisation of services should be done first
  at the regional level for instance, there is a
  huge scope for cooperation in transport and
  logistic services, energy services in South Asia
  largely untapped and could be a significant
  source of pro-poor growth in future involve
  civil society with the process of liberalisation
  so as to have a better political buy-in,
  especially at the local level