Issues in RTA negotiations 2 August 2010 MIDC Khon Kaen, Thailand Rajan Sudesh Ratna Economic Affairs Officer Trade Policy Section (TID) UNESCAP

Presentation Overview WTO Rules WTO Rules Regional Trade Agreements: concepts Regional Trade Agreements: concepts Negotiating process Negotiating process PTAs PTAs FTAs FTAs CECAs CECAs 2Rajan Ratna

WTO RULES ON RTAs Permitted under Article XXIV of GATT Permitted under Article XXIV of GATT Exception to MFN treatment within the Rules subject to fulfillment of conditions: Exception to MFN treatment within the Rules subject to fulfillment of conditions: items on which there is substantial trade to be covered items on which there is substantial trade to be covered the phase out of duties should be within a reasonable period of time the phase out of duties should be within a reasonable period of time purpose - to facilitate trade among the RTA parties/territories and not to raise barriers to the trade of non-RTA Parties with such territories. purpose - to facilitate trade among the RTA parties/territories and not to raise barriers to the trade of non-RTA Parties with such territories. 3Rajan Ratna

M.F.N. EXCEPTIONS Exception to MFN is also available under the “Enabling Clause Decision” of 1979 wherein the WTO members may accord differential and more favourable treatment to developing countries, without according such treatment to other Contracting Parties. Exception to MFN is also available under the “Enabling Clause Decision” of 1979 wherein the WTO members may accord differential and more favourable treatment to developing countries, without according such treatment to other Contracting Parties. 4Rajan Ratna

Terminology PTA – Grant of partial preference on reciprocal basis ( Preferential Trade Area) or one-way concessions (P.T. Arrangements). No coverage of substantial trade, no time-frame to eliminate tariffs. Concessions enlarged through different Rounds of negotiations. PTA – Grant of partial preference on reciprocal basis ( Preferential Trade Area) or one-way concessions (P.T. Arrangements). No coverage of substantial trade, no time-frame to eliminate tariffs. Concessions enlarged through different Rounds of negotiations. FTA – Eliminate all tariffs, QRs on SAT and within fixed time-frame. Varying levels of tariffs and other barriers are maintained against non-members. FTA – Eliminate all tariffs, QRs on SAT and within fixed time-frame. Varying levels of tariffs and other barriers are maintained against non-members. Customs Union or CER – Setting up a common level of trade barriers vis-à-vis non-members/outsiders. Customs Union or CER – Setting up a common level of trade barriers vis-à-vis non-members/outsiders. Common Market – Deeper integration where free movements of factors of production: labour and capital are allowed, beyond free exchange of goods and services. Common Market – Deeper integration where free movements of factors of production: labour and capital are allowed, beyond free exchange of goods and services. Economic Union – Goes beyond Common Market. Involves harmonizing national economic policies, including typically taxes and a common currency. Economic Union – Goes beyond Common Market. Involves harmonizing national economic policies, including typically taxes and a common currency. 5Rajan Ratna

PTA ECONOMIC ECONOMICCOOPERATION ECONOMICUNION COMMONEXTERNAL TARIFF (CET) FTA STAGES OF ECONOMIC DEVELOPMENT 6Rajan Ratna

Issues for negotiations Proper information about the import export regime/regulations (TPRM). Proper information about the import export regime/regulations (TPRM). Article XXIV or Enabling Clause Article XXIV or Enabling Clause Reciprocity or less than full reciprocity Reciprocity or less than full reciprocity Substantially all trade Substantially all trade  Value and/or tariff lines Time frame of TLP Time frame of TLP  Same or different 7Rajan Ratna

Pre – negotiation step Cost benefit analysis : Study Cost benefit analysis : Study patterns of trade patterns of trade modeling modeling identify gains and losses identify gains and losses vulnerable sectors vulnerable sectors Evaluation of maximum gain: Evaluation of maximum gain: PTA or FTA or CECA? PTA or FTA or CECA? Wide consultations: stakeholders Wide consultations: stakeholders 8Rajan Ratna

Pre – negotiation step (2) Internal assessment: Internal assessment: PTA or FTA PTA or FTA Enabling Clause or Article XXIV of GATT Enabling Clause or Article XXIV of GATT CECA: XXIV of GATT and V of GATS CECA: XXIV of GATT and V of GATS Rules of origin – thresholds Rules of origin – thresholds Commitments for cooperation Commitments for cooperation 9Rajan Ratna

Negotiations Market Access issues– Market Access issues–  Gains or losses  Tariff structure  Other RTAs done by your trading partner  Implications  Identification of products of export interest  Identification of sensitive items 10Rajan Ratna

Negotiations (2) Rules of Origin Rules of Origin  General Rules vrs. Product Specific Rules  Agencies for issue of CoO  Verification procedures  Cost of compliance  Cumulation provisions 11Rajan Ratna

Other Issues Anti dumping measures Anti dumping measures Safeguard measures Safeguard measures  Global ( WTO SGM)  Bilateral SGM Drawback Rules Drawback Rules SPS/TBT issues SPS/TBT issues Dispute Settlement Mechanism Dispute Settlement Mechanism Review Review 12Rajan Ratna

PTA Steps Text and RoO Text and RoO Positive List Positive List Request and offer Request and offer Additions of items Additions of items Reciprocity: MoP & trade coverage Reciprocity: MoP & trade coverage Rounds: deepening and widening of concessions on items Rounds: deepening and widening of concessions on items 13Rajan Ratna

FTA Steps Text and RoO Text and RoO Negative list Negative list Exchange list Exchange list Negotiate reduction of NL Negotiate reduction of NL Fast tracking of TLP on items of export interest Fast tracking of TLP on items of export interest Services: Positive list – Request and offer Services: Positive list – Request and offer 14Rajan Ratna

Stakeholders consultations: the need  India’s first FTA was with Sri Lanka.  A very important aspect which was missed, not by intent but because of the fact that ISFTA was India’s first full fledged FTA and the negotiators could not visualise the future scenario: impact of FTA on Indian industry.  Some misconceptions during consultations:  SL does not produce so no threat for India.  Duty differentials were not accounted for – mostly led to trade diversion and very little trade creation effects have now been observed.  No industry in India – hence item not sensitive.  No proper study was done to examine economically the sensitivity.  Overall, ISFTA was a good learning experience for the Indian negotiators as well as Industry.  Industry became more pro-active to feedback in India’s policy making. 15 Rajan Ratna

What India does presently?  First stage: In-house analysis – trade & tariff  Second stage: Studies on purely economic parameters.  Third stage: Findings – stakeholders consultations.  Fourth stage: Finalise study  Fifth stage: Share study in inter-governmental consultations.  Final stage: Final consultations with all stakeholders and firm up its negotiating position.  Time to time information is also posted on the website of Department of Commerce: Singapore, BIMSTEC, ASEAN etc. 16 Rajan Ratna

India’s negotiations: Some illustrations Country/GroupStartFinishTotal Time No. of consultatio ns held) (Inter Govt. & industry) Sri LankaAugust 1998November months4-5 SAFTA years> 20 Singapore years>40 ASEAN years> 70 South Korea years>30 Thailand2004Not concluded>6 years>50 BIMSTEC2004Not concluded>6 years>50 EC2007Not concluded>3 years>30 Japan > 3 years>30 17 Rajan Ratna

Conclusions  The importance of stakeholder consultations in the design of trade agreements – very important and essential.  There are though several problems associated with:  Conflicting interests  Domestic policies  Inefficiencies  Large industry vrs. SME 18 Rajan Ratna

19 THANK YOU THANK YOU Rajan Ratna