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

2 Global Trade : Developed vs Developing Increasing Importance of Developing Countries …but only in Merchandise Trade Source: ITS 2004, WTO

3 Global Trade : Major Countries Top 10 Global Merchandise Exporters and Importers (2003) IMPORTS EXPORTS US$ billion Source: ITS 2004, WTO Total Exports : US$ 7503 bn (incl. re-exports) Total Imports : US$ 7778 bn (incl. Imports for re-export)

4 … superset of all RTAs World Trade Organisation (WTO)  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 Force  As on December 2004, there were 148 WTO members  26 Countries negotiating membership (WTO “observers”) including Russia, Vietnam, Algeria, Saudi Arabia, Bhutan and Sudan

5 Liberalising trade on a reciprocal & preferential basis Regional Trade Agreements  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 EU’s Everything But Arms (EBA) also liberalize trade preferentially, the United States and EU extend these preferences unilaterally rather than reciprocally  Countries often lower trade barriers in a nondiscriminatory fashion for all trade partners either multilaterally through GATT/WTO negotiating rounds or autonomously

6 Classification of liberalisation methods Regional Trade Agreements METHOD OF IMPLEMENTATION Scope of BeneficiariesReciprocalUnilateral Preferential: Select Countries NAFTA, EU, COMESA and other RTAs AGOA, EBA, Cotonou Nondiscriminatory (MFN): All Countries GATT/WTO Multilateral Agreements Autonomous Liberalisation

7 RTAs & Types of Liberalisation  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 RTAs : Four Major Levels of Integration

8 Regional Trading Arrangements  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 RTAs: Increasing Proliferation… Contd…

9 Regional Trading Arrangements … Particularly in the Last Decade Source: Global Economic Prospects 2005, World Bank Cumulative in force (right axis) Annual number Total in force Not Notified to WTO Notified to WTO

10 Most countries belong to more than one RTA Regional Trading Arrangements Note: Bilateral agreements are defined as an RTA with two members. * North is OECD 24 plus Liechtenstein and South is all other countries

11 Percent of World Trade Covered Number of RTAs South- South European Union USA South- South European Union USA South-South RTAs predominate in number… …but not in trade covered Source: Global Economic Prospects 2005, World Bank Regional Trading Arrangements

12 Regional Trading Arrangements Intra-Regional Trade of Major RTAs, 1995, 2000 & 2003 Source: International Trade Statistics, 2004, WTO

13 HIGH-INCOME COUNTRIES SUCH AS US & EU  To support foreign policy goals, including development  Slow progress on multilateral agenda: “competitive liberalization”  Access to services markets, protection of intellectual property, and rules for investment DEVELOPING COUNTRIES  Secure access to markets, especially large markets  More FDI  Among neighbors, lowering trade cost at border  Framework for regional cooperation Why This Proliferation? Regional Trading Arrangements

14 Regional Trading Arrangements  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) Major RTAs in Select Regions

15 Regional Trading Arrangements  Africa  Common Market for Eastern & Southern Africa (COMESA)  Economic Community of West African States (ECOWAS)  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) Major RTAs in Select Regions (contd…)

16 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 agreements. Spaghetti Bowl of RTAs in the Americas and Asia-Pacific

17 Regional Trading Arrangements  RTAs can have positive or negative effects on trade depending on their design and implementation  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 increases  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 Effects on trade

18 Regional Trading Arrangements  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 climate  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 Making Regionalism Complementary to Multilateralism

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

20 Regional Trading Arrangements  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 Agreement Regional Trade Agreements : India’s Initiatives

21 Regional Trading Arrangements  The government has decided to convert all preferential/free trade agreements into Comprehensive Economic Cooperation Agreements (CECA).  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 RTAs : India’s Initiatives (contd…)

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