Presentation on theme: "Professor and Chairperson (MDPs)"— Presentation transcript:
1 Professor and Chairperson (MDPs) RTAs and WTODr. (Mrs.) Vijaya KattiProfessor and Chairperson (MDPs)IIFT, New Delhi
2 Regional Trade Agreements (RTAs) Conceptual Economic IssuesRecent Trends in RTAsImplications for IndiaRelationship with Multilateral Trading System
3 Share of intra-regional exports in total exports: 2002 (%) Recent Trends in RTAsGrowth in Number of RTAsIntra-Regional Trade of Major RTAsTypes of RTAsRTAShare of intra-regional exports in total exports: 2002 (%)EU (15)61.6NAFTA (3)56.5AFTA (10)24.0CEFTA (7)12.2MERCOSUR (4)11.5ANDEAN (5)10.2
4 Implications for India India’s Recent Regional Trading EngagementsBilateral: India-Nepal, India-Bhutan, India-Sri Lanka, India-Thailand, India- ASEAN, India-MERCOSUR, India-Singapore, India-ChinaSub Regional: BIMSTEC, BBIN, Bangkok AgreementRegional: SAPTA, SAFTAEconomic Implications: Trade, Investment, Static & Dynamic GainsTrade Gains: Goods and Services (Banking, Tourism, Infrastructure, Professional etc.)Potentials for Investment flows : Industrial RestructuringTechnology ExchangeHuman Resource Development
5 Relationship with Multilateral Trading System Stepping Stone towards MultilateralismGATT Article XXIV, Enabling Clause, GATS Article VThree CriteriaTransparencyDeep Intra-regional Trade LiberalizationNeutrality vis-à-vis non-parties’ Trade
6 Cont… Other Issues: Problems ServicesInvestmentIPRsCompetition PolicyTechnical StandardsGovernment ProcurementProblemsInconsistencyInterpretationalInstitutionalHarmonious Relationship between RTAs and WTO Desired
7 BASIC GATT PRINCIPLES MFN (Most Favoured Nation Treatment) TRADE TO BE REGULATED BY CUSTOMS DUTY ONLYDUTIES TO BE BOUNDNATIONAL TREATMENT
8 WTO RULES Permitted under Article XXIV of GATT 1994. Exception to MFN treatment within the Rules subject to fulfillment of conditions:items on which there is substantial trade to be coveredthe phase out of duties should be within a reasonable period of timeit should not have trade distorting effect
9 M.F.N. EXCEPTIONSException to MFN is also available under the “Enabling Clause Decision” of wherein the WTO members may accord differential and more favourable treatment to developing countries, without according such treatment to other Contracting Parties.
10 The Global Context Regional Trading Arrangements RTAs are viewed by most countries as building blocks towards eventual global free trade.More than 200 RTAs have been notified to GATT/WTO.150 of these are still in force.250 RTAs are expected by 2005.
11 STAGES OF ECONOMIC DEVELOPMENT MONETARYUNIONCOMMONEXTERNALTARIFF (CET)FTAPTAECONOMICCOOPERATION
12 Regional Trading Arrangements RTAs can be used as a tool for –Material managementCheaper imports – domestic prices in controlBetter quality products at competitive priceBetter market accessInvestments flow - JVsCoverage of ServicesMutual recognition of standards & laboratoriesTrade facilitation, Harmonisation of Customs procedures etc.
13 Objectives: Components: Rules of Origin local content / value addition to prevent trade diversionenhance intra-regional tradeComponents:local content / value additionmanufacturing processtransformation
14 Free Trade AreasTo eliminate completely quantitative trade restrictions and customs tariffs against each other’s goodsMember countries retain the sovereign power to decide the trade policies to be imposed on non-members
15 Similar to free trade area Customs UnionSimilar to free trade areaAdopt uniform import tariffs and common quota restrictions to non-membersWeakened the ability of member countries to determine national trade policies independently
16 Common Markets Similar to customs union Plus free movement of factors of productionA significant reduction of national sovereigntyAn example of a common market is the EEC which is composed of Belgium, Denmark, France, Germany, Ireland , Italy, Luxemburg, Neitherlands and the UK.
17 Economic Unions Similar to common markets Harmonization of monetary, fiscal and social policiesA single common policy as an essential prerequisite for the effective functioning of the unionAn example of an economic union is the Benelux which is the economic union formed by Belgium, the Netherlands and Luxembourg.Infact Belgium, Netherlands and Luxemburg formed a customs union in as early as 1948 and they became an economic union in 1960.
18 The different forms of RTAs Represent different degrees of Economic integration. They start from the lowest degree Of economic integration (i.e. a Preferential trading club ) and go Through progressively higher degrees until the most complete Form of economic integration (i.e.economic union).
19 The theory of Customs Union Basically deals with two conceptsTrade CreationTrade DiversionThese two concepts were first put forth byJacob Viner in early 1950’s .
20 Trade Creation The formation of a customs Union Causes some products which were formally produced domesticallyto be imported from other partner countries-the tariffson such imports are eliminated. Since there is pro-duction shift from a high cost domestic producerto a lower cost producer in a partner country-it is trade Creation.
21 Trade DiversionCustoms Union also causes some Products which were formerly imported from the rest of the world toImported from the partner country-Thanks to the newly formed geographical tariff discrimination. Here theShift in production is from a lowerCost producer in the rest of the worldTo a higher cost producer in a partnerCountry-trade diversion.
22 The fundamental notion behind these Concepts is that trade transfers goodsFrom a high cost region to a lowCost region. Thus trade increasesWelfare by reducing costs or alternatively by increasing world income.It is in this sense trade creation isConceived to be beneficial and tradeCreation detrimental.
23 Motivations for RTAs Market factors: 1. To maintain market access 2. To open new markets3. To attract foreign direct investments (FDI)4. To benefit from economies of scale
24 1. To act as a counterbalance to other RTAs Cont…Political factors:1. To act as a counterbalance to other RTAs2. To act as a commitment to internal reform3. Inspired by previous successful examples4. To increase bargaining power5. To maintain intraregional security
25 Costs of RTAs For member countries: 1. Increase in competition 2. Loss of national sovereignty3. Increase in unemployment in some sectors4. Loss of tax revenues due to the relocation of companies to low-cost areas
26 Cont… For non-member countries: 1. Trade diversion 2. Deterioration in the terms-of-trade dueto a fall in export demand3. The risk of being isolated if trade war occurs
27 The View of WTOIn the conclusion of a 1995 study by the WTO Secretariat“... To a much greater extent than is often acknowledged, regional and multilateral integration initiatives are complements rather than alternatives in the pursuit of more open trade.”
28 GATT Article XXIVThe agreement must eliminate substantially all barriers and discrimination to trade between the partiesThe agreement must cover substantially all trade between the parties .The terms of access for non-members must not be worse than before the agreement went into effect
29 Committee on Regional Trade Agreements (CRTA) Established in 1996To centralize the effort of working parties in one bodyTo examine in detail future regional trade agreements notified to the WTOTo provide a common platform to discuss ways of dealing with the issue of regionalism in the WTO
30 Open Regionalism The criteria 1. Trade barriers against nonmembers should not be raised2. Nonmember countries are eligible tojoin the group on the basis of clear andreasonable criteria for accession
31 Regionalism that is consistent with globalism Cont…Regionalism that is consistent with globalismThe way for regionalism to conform to the multilateral trading systemStill difficult to achieve1. Discriminatory benefit offered is thesource of incentive to join the RTA2. Open accession is not welcomed by allmembers due to different reasons
32 Conclusion Too early to draw a conclusion? A clear trend towards regionalismInherent difficulties in building the multilateral trading systemDepends on the future development of major RTAsFew major regional trading blocs may replace the multilateral trading systemWait and see
33 The Regional ContextSouth Asian countries are exchanging tariff preferences under SAPTA.India, Sri Lanka and Bangladesh are members of the Bangkok Agreement.South Asian countries are also exchanging preferences under GSTP (Global System of Trade Preferences).India, Sri Lanka and Bangladesh are also members of other economic groupings like BIMST-EC, IOR-ARC.
34 South Asian Regional Co operation SAARC was set up as a forum for regional cooperation by adoption of its Charter in its first Summit in Dhaka in December 1985.SAPTA was signed in 1993 and entered into force in December 1995.SAPTA covers areas of tariff, para tariff, non tariff and direct trade measures.
35 SAPTA It provides special and favourable treatment to the LDCs. The First Round was largely symbolic.In the Second Round a combination of Sectoral and product by product approach was adopted.In all India gave tariff concessions on 997 tariff lines during the two Rounds.
36 The SAPTA negotiations Three Rounds of trade negotiations under SAPTA have been completed. However, the results are fairly modest.Upto the Third Round, which concluded in November 1998, India has granted concessions on 2565 tariff lines (6 digit HS) to the other countries. However, most of these concessions are to the LDCs.Exchange of concessions with Sri Lanka and Pakistan was limited to a few items.Fourth Round of negotiations has started.
37 Free Trade in South Asia The Male Summit in May 1997 called for achievement of the South Asian Free Trade Area (SAFTA) by 2001 AD.This was modified to signing of the SAFTA Agreement by 2001 AD in the Colombo Summit in July 1998.At the 11th SAARC Summit, the Heads of Nations agreed to revise the date for putting the SAFTA Treaty in place by end of 2002.
38 Cont…The first meeting of Committee of Experts was held in Kathmandu in July, 1999 wherein the Terms of Reference for the drafting of the SAFTA treaty were finalised.While the SAFTA Treaty is to be put in place by 2001, no time frame has yet been established for achieving SAFTA.Thus achievement of a Free Trade Area remains an open ended objective.
39 BANGKOK AGREEMENT (BA) The Bangkok Agreement was signed in July 1975 for contributing to expansion in trade through exchange of tariff concessions among developing country members of the ESCAP region.The Agreement is currently operational between Bangladesh, India, Republic of Korea and Sri Lanka.China’s accession to the Bangkok Agreement was finalised in the meeting of the Standing Committee of the Bangkok Agreement in April 2000.The Third Round of BA has begun.With the entry of China the B.A. will gain momentum as now two major countries with huge population are the members, with a market size of more than 2.2 billion .
40 Generalised System Of Preferences Unilateral and generalised tariff concessions given by the developed countries to the developing countries under the GSP Scheme.Important to India are GSP given by USA, EU, Japan etc.Rules of Origin to be fulfilled.Graduation process defined for no concessions.
41 India and Nepal Treaty on Transit and Trade India Bhutan Trade treaty The Bilateral ContextIndia and Nepal Treaty on Transit and TradeIndia Bhutan Trade treatyIndia Sri Lanka Free Trade Agreement
42 INDO-NEPAL TREATYOn 2nd March, 2002, the validity of India-Nepal Treaty of Trade and Protocol was extended for a period of 5 years w.e.fRules of Origin along with local content and substantial manufacturing clause introduced.TRQ for Vanaspati, acrylic yarn, copper products and zinc oxide introduced.
43 INDO-BHUTAN TREATYAgreement on Trade and Commerce between India and Bhutan signed on 28th February, 1995Preferential market access allowed for products originating from respective countriesAll exports and imports of Bhutan to and from countries other than India will be free from and not subject to customs duties and trade restrictions of the Government of India.
44 INDIA-SRI LANKA FTAPM Vajpayee offered to consider bilateral FTAs with our South-Asian neighbours in his address in the Colombo SAARC Summit.The FTA was signed by PM of India and President of Sri Lanka on 28th December 1998.The Agreement envisages phasing out of tariff on all products except for a limited number of items in the Negative List, over a period of time. While India would complete the process of tariff elimination over a period of 3 years, Sri Lanka would achieve this over 8 years.
45 CONT…The FTA has been implemented with the issuance of Customs Notification by Sri Lanka on 15th February 2000 and by India on 1st March 2000.Procedural modalities on import of Quota of tea and textile items have been finalised.The first meeting of the Working Group on Customs was held on September 2000 in Colombo.The first meeting of the JMC was held on 6 – 7 June 2002 in New Delhi.
46 BIMST- ECThe Initiative was taken by Thailand in 1994 and with the admission of Myanmar in December 1997 it was named as “Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation” (BIMST-EC) to serve as a bridge linking ASEAN and SAARC.6 areas of Trade and Investment, Technology, Transportation and Communication, Energy, Tourism and Fisheries were identified for cooperationThe Second Economic/ Trade Ministers meeting in April 2000 decided to constitute an Inter Governmental Group (IGG) to prepare a Concept Paper on possible approaches towards a PTA leading to an FTA.
47 Cont…IGG’s recommendation was considered by the Ministers in their third meeting held in Yangon in 2001 and a Group of Experts was constituted to examine in detail the two approaches.The GOE consists of the representatives of Government, Business and the Academia.GOE has recommended to go for a ‘negative list approach’ for FTA in BIMST-EC.A final decision will be taken in the next Trade and Economic Ministers Meeting, scheduled to be held in Sri Lanka.
48 INDIAN OCEAN RIM - ASSOCIATION FOR REGIONAL COOPERATION (IOR - ARC) IOR - ARC was founded in 1995 with the first meeting on Working Group held in Mauritius.The focus for economic cooperation is in the areas of Trade Facilitation, Promotion and Liberalization, Promotion of Foreign Investment, Promotion of Scientific and Technological exchanges, Promotion of Tourism, Promotion of Movement of Natural persons and Service providers, Development of Infrastructure and Human Resources
49 Consider enlargement of products Deepening of concessions STEPS AHEAD ……Consider enlargement of productsDeepening of concessionsRemove non tariff barriersInclude coverage of “Services, Investments etc.” under the AgreementsRegular interaction among the business and academiaGovernment to play more pro-active role
50 Future plans Concentrate on ‘Trade facilitation measures’. Harmonisation of customs documents, procedures and regulationsHarmonisation of standards.Promotion of Joint ventures, technology transfersConsider devising means for having industrial linkages (backward-forward linkages) to promote intra-regional investments.
51 Study the areas of complementarities, looking for global market Cont…Study the areas of complementarities, looking for global marketOrganise workshops, seminars etc at regular intervalsStudy and recommend the areas of JV, and enhancing intra regional investments.Dissemination of information
52 Bangladesh Egypt South Africa Oman Chile Singapore NEW FTA PROPOSALSWe are also studying the feasibility of having PTAs/FTAs with the following countries:Bangladesh Egypt South AfricaOman Chile SingaporeMauritius Venezuela BrazilThailandArgentina Colombia USAEU Morocco Syria
53 THANK YOU Dr. (Mrs.) Vijaya Katti Professor and Chairperson (MDPs) Contact :Dr. (Mrs.) Vijaya KattiProfessor and Chairperson (MDPs)IIFT, New Delhi