Regional trade liberalization has swept the world trading system like
wildfire while the multilateral GATT talks (“General Agreement to Talk and Talkâ€
as per the regionalists claim) proceeded at a glacial pace. This contrast raises
one of the most pertinent questions “Why are today’s countries eager to open
market regionally, but very much reluctant to do so multilaterally?†The answer
is that regional trade integration or agreements — or more accurately,
preferential trade agreements (PTAs) - has come to the fore as an alternative
to multilateralism since multilateral trade negotiations have become much more
cumbersome to deal essentially with today’s complex trade issues than they
represented earlier in the Vinerian model, while the regional trade agreements (RTAs)
on the other hand can complement existing multilateral efforts to foster
greater economic integration among countries, and should, therefore, be
encouraged. According to Jagdish Bhagwati (1993), the single most important
reason why regionalism is making a comeback is the conversion of the US from
devoted multilateralism to ardent regionalist. Further RTAs offer an opportunity
to reconstitute the bargaining process at an agreeable level.
They involve smaller group of nations; they can (as in case of “EC92â€) involve
what Robert Lawrence has called deep integration, which essentially
removes borders and thus the possibility of creating protectionism. In fact, the
ability to support a cooperative solution at the multilateral level is
declining, while at the regional level it remains fairly strong. In the above
backdrop, the present paper deals essentially for finding an answer to the
question: Should the rise of RTAs be welcomed? Or should regional trading blocks
be condemned as institutions that undermine the multilateral system? Section –
II gives a penpicture of the economic reasons for the rise of regionalism and
multilateralism in international trade respectively. Section III & IV depict the
role of India in the field of regionalism and multilateralism respectively.
Section V is the concluding observations.
Reasons Behind the Origin and Growth of Multilateralism in International
Trade:
The strains of foreign exchange shortages and BoP problems were catalysts in the
formation of GATT. The GATT was established following the Second World War
(WW-II) by a group of industrial countries which agreed that their trade and
economic relations should be conducted with a view to raising standards of
living, ensuring full employment and a large and steadily growing volume of real
income and effective demand, … the full use of resources and expanding the
production and exchange of goods. They also agreed this could best be achieved
by substantially reducing tariff and trade barriers and eliminating
discriminatory treatment in international commerce. These objectives of the
GATT, and its successor institution, the WTO, provided the guidance and
framework for the trade policies of most nations and the many various agreements
and institutions that comprise the multilateral trade system of the 21st
Century.
In the past, the stock market crash and the onset of the Great Depression
stopped the liberal trend in trade in the 1920s. Consequently, economic policy
became inward-oriented following the devastation of war disrupting production
and shipping. For example, India chose an inward looking path of
import-substituting industrialization and adopted protectionist policies.
Article-XVIII of GATT allows developing countries to maintain quantitative
barriers indefinitely on the grounds of a threat to the BoP. Taking advantage of
this provision, India created a regime of strict import licensing across all
products, complementing it by equally strict foreign exchange controls. With
some modifications, this regime remained in place until the systematic
liberalization that began in 1991. India freed capital goods and intermediate
inputs from licensing in1992.
Besides, over time, growing economic inter-dependence pushed economies closer
together. Trade expanded more rapidly than domestic investment and with rising
foreign investment, played an increasing role in economic development. These
factors, combined with periodic economic downturns, trade and payments crisis,
and specific commercial disputes, continued to bring governments back to the
negotiating table. Successive rounds of negotiations, involving increasing
numbers of countries and issues, shaped the development of multilateral trading
system. On 1 January, 1948, the GATT entered into force and became the central
element of the multilateral trade system.
Over nearly 45 years of its independent existence, GATT conducted 8 rounds of
negotiations among its members. The Uruguay round of negotiations establishing
the WTO was the last GATT round of multilateral negotiations. These rounds
resulted in progressive liberalization of word trade. The last three rounds –
Kennedy (1962-7), Tokyo (1973-9), and Uruguay, in particular, went beyond tariff
reductions.
The trade policies and GATT negotiations of the 1950s and 1960s focused on
rebuilding economies and promoting economic growth, stimulated tariff reductions
and more open borders. The agreements were broadened to include more countries.
The economic policies of the 1980s reflected an accelerating trend toward global
integration and policy convergence. Many countries, both Developed Counties and
Developing Countries shifted or even revised their trade policies away from
protectionism and market intervention, to open their economies to international
trade and competition. . By the 1990s new pressures came and the focus of trade
policy tilted toward managing as well as liberalizing trade.
This new phase in trade policy was marked by many regional trade agreements and
the most comprehensive multilateral negotiation in the history of GATT, the
Uruguay Round. Its trial Act launched the WTO on January 1, 1995. It includes
agreement on Tariffs and Trade in goods (GATT), services (GATS) and
trade-related aspect of Intellectual Property Rights (TRIPs). The agreements
cover the traditional trade barriers, reduction in tariffs and removal of
waivers, derogations and most non-tariff barriers to trade.
A beginning is made on liberalization of trade in agriculture and textiles.
Relevant for developing countries, greater access for agricultural goods along
with reduction of subsidies paid to farmers in industrial countries and an end
to the quota system for controlling textile trade were included. The WTO became
imbibed with much stronger dispute resolution mechanisms (to address complaints
by member country government of the violation of their WTO- sanctioned rights by
other members and a permanent trade policy review mechanism).
The trade policies of the modern era continue to evolve within the WTO
framework. The WTO membership is expanding, with many of the new members drawn
from Developing Countries and former state controlled countries which are
becoming market economies. Governments are now working to improve the
multilateral trade system. Virtually all of the trading nations of the world are
engaged in a further-round of multilateral negotiations with a focus on
international development.
The modern history of trade policies is a record of the efforts by nations to
move from policies based on power and unilateral and nationalistic economic
behaviour toward a multilateral system of consultations, rules, and agreed
dispute settlement procedures. The emergence of the multilateral trade system
represents recognition of the growing inter-dependence of nations and the fact
that all countries are affected by events elsewhere, whether open conflicts,
monetary or macroeconomic developments, environmental issues or social or
political unrest.
India’s Achievement in Regional and Preferential Trading Agreements:
India gives primacy to engagements in multilateral negotiations at the World
Trade Organization. However, given the long and protracted nature of
multilateral negotiations at the WTO and recognizing the fact that the regional
cooperation would continue to feature prominently for a long time in the world
trade, India has engaged itself with its trading partners/blocks with the
intention of expanding its export market and began concluding in principle
agreements and moving in some cases even towards Comprehensive Economic
Cooperation Agreements (CECAs) which covers Free Trade Agreement (FTA) in goods,
services, investments and identified areas of economic cooperation, though in
the past, India had adopted a very cautious and guarded approach to regionalism.
Framework agreements have already been entered into with a number of trading
partners with specific road maps to be followed and specific time frames by
which the negotiations are to be completed. Joint Study groups have also been
set up for examining feasibility of CECA between India-Japan, India-Brazil-South
Africa and India –Russia, India- European Commissions. The Reports are at
various stages of completion.
From these developments what we can infer is the fact that Regional Trading
Arrangements, from India’s point of view, should be “building blocks†toward the
overall objective of trade liberalization and should complement the multilateral
trading system.
Some of the recent developments related to bilateral and regional trade and
cooperation are the following:
Framework Agreement on the BISMSTEC FTA (Bay of Bengal initiative for Multi-Sectoral
Technical and Economic Cooperation) signed in February, 2004 at Phuket among
Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand with the
objective of strengthen and enhance economic, trade and investment co-operation
among the member countries and to progressively liberalize and promote trade in
goods, services and investment co-operation.
India-ASEAN CECA signed on October 8, 2003: A Framework Agreement on
Comprehensive Economic Cooperation between the Association of South East Asian
Nations (ASEAN) and India, consistent with India’s ‘Look East Policy’, was
signed by the Prime Minister of India and the Heads of Nations/Governments of
ASEAN members during the Second ASEAN-India Summit on October 8, 2003 in Bali,
Indonesia. The India-ASEAN trade in goods agreement signed on August 13, 2009
has come into effect on January 1, 2010. The agreement provides for elimination
of basic custom duty on 80% on the tariff lines accounting for 75% of the trade
in a gradual manner.
India-South Korea Comprehensive Economic and Cooperation Partnership Agreement (CEPA)
signed on August 7, 2009, covering goods, services and investments for which
negotiations for FTA in Goods, Services and Investment completed. This is
India’s first FTA with an OECD country. Under CEPA, tariff will be reduced or
eliminated on 93% of Korea’s tariff lines and 85% of India’s tariff lines.
India-Japan CEPA Negotiations in goods, services and investment. The 12th
Meeting of the Joint Task Force was held during September 29 – October 1, 2009
in Tokyo.
India-EU Trade and Investment Agreement Negotiations covering trade in goods,
services and investment, trade facilitation, dispute settlements, IPR, etc. The
8th Round was held during January 25 – 29, 2010 in New Delhi.
India-Gulf Cooperation Council (GCC) Framework signed on August 25, 2004,
covering goods, services and investment.
Asia Pacific Trade Agreements including Bangladesh, Republic of Korea, Sri
Lanka, China, Lao PDR and India.
Global System of Trade Preferences (GSTP) signed in April 1998 with 44
developing countries.
India-Chile Framework Agreement on Economic Cooperation signed between India and
Chile on January 20, 2005 and the agreement envisages a PTA between two sides.
The neighbouring negotiations have been concludes and the agreement was signed
on March 8, 2006 and has been implemented in August, 2007.
India-UK Economic and Financial Dialogue held on August 2008 in London. Topics
discussed were i) Global economy and trade, ii) Financial Services, iii)
Public-Private Partnership, iv) Climate change, v) Low carbon low cost car
technology and vi) Development and Poverty Reduction.
India-Australia Economic Policy Dialogue held in April 2008 in New Delhi. Topics
covered were: i) Global and Regional Economic Outlook, ii) Financial Sector
reform, iii) Goods and Services Tax and FDI.
India-European Free Trade Association (EFTA) Negotiations held in October 2008
in New Delhi, to explore wage and means to increase a broad-based bi-lateral
trade and investment agreement. The 4th Round of negotiation took place in New
Delhi in September, 2009.
Also the list includes other agreements like, Framework Agreeement with MERCOSUR,
Framework agreement on Economic Cooperation with Chile, Costa Rica, Brunei,
Ecuador, Thailand, Myanmar, MoU with Bangladesh on Haat establishment across
the border, Five-Year Development Program for Economic and Trade Cooperation
between the People's Republic of China and the Republic of India September 18,
2014.
Such regional arrangements can help developing countries like India into the
World Economy by providing immediate gains in trade and investment, particularly
for geographically contiguous regions. This may also underline the need for
expediting internal reforms if the benefits are to be maximized.
In the case of most of the RTAs/FTAs which have been implemented, value of
exports is seen generally higher than imports. Import and export growth rates
have increased immediately after the RTAs/FTAs were implemented due to
unshackling of restrictions though import growth was generally higher. Studies
also show that import growth of preferential items were higher than export
growth of preferential items. However, there are other benefits like greater
opportunities for investment and services exports.
This is also an indication that India has to move more towards CECAs which are
FTA plus arrangements. For this India should take clear cut policy for
beneficial CECAs even with some developed countries instead of just FTAs/PTAs
which should be well integrated with our economic and trade policy reforms.
These along with policies like marketing of services, including services in
negotiations in different regional and bilateral trading arrangements could help
India to a great extent.
India’s Achievement in Multilateral Trade Negotiations:
Developed countries were successful in introducing four new issues into the WTO
agenda at Singapore: multilateral agreement on investment and competition policy
as well as trade facilitation and transparency in government procurement and
environment. India lobbied particularly hard against this demand and had opposed
the inclusion of these issues which came to be known as Singapore Issues of
1996. In addition, many developed countries sought to add trade rules to support
labour standards and address environmental issues. These became the bone of
contention between the Developed countries and the Developing countries
including India. Developing countries were less than enthusiastic about
expanding the scope of the multilateral trade system. And they mistrusted the
motives of those who argued for the adoption of tougher labour and environmental
standards, which they feared would rob them of their competitiveness.
All these above issues did not disappear from the WTO agenda and subsequently
converged at the 3rd WTO Ministerial Meeting at Seattle, in late 1999, for a new
round of trade talks. But the tensions between the developed and developing
countries slowed progress. The EU and the US at that time were away from the
strategy of coordination, acting as silent spectators. The meeting broke up
without agreement on this new round.
The new multilateral system was in danger. But eventually, all members agreed at
the Doha Ministerial, in November 2001, to launch a new round of talks (The 4th
WTO Ministerial Meeting). The round was labeled the Doha Development Agenda (DDA).
Meanwhile, at Doha, the People’s Republic of China, after taking its membership
in WTO in December, 2001, with her more than 5% share in World exports, entered
as an actor into this drama. At this India’s and other developing country’s
bargaining power and the negotiating skill in the meeting room had no doubt
increased to safeguard the interest in the future rounds of the WTO.
At Cancun in September, 2003, the EU and the US somehow became vibrant and being
the leaders of the developed countries, insisted on bringing the issues on the
Committee Room although opinion was still as deeply divided as ever. A joint EU-US
proposal, may even a revised declaration on liberalization on agricultural trade
was rejected by the G-20, a newly formed group of larger developing countries
including India.
The emergence of this group under the leadership of India, Brazil, China and
South Africa put a landmark in multilateral negotiation, which indicated that
the days of dictating term unilaterally by the rich countries seem to be bleak
or breaking up coalition of the poorer members seem to be over. After a
disappointing review of progress in Cancun Summit in September 2003 (The 5th WTO
Ministerial Meeting), the DDA was back of track by the summer of 2004. But the
three of the Singapore Issues have been dropped. Only trade facilitation issue
remained on the agenda over the negotiating table, on which India did not have
serious reservations.
This represented a major victory for G-20, and consequently, the expansion of
the scope of the WTO appeared to be halted, at least for the moment. And the
elimination of the three Singapore issues following Cancun Ministerial Meeting
left the Doha Round focused principally on trade liberalization in agriculture,
industry and services.
To conclude the Doha negotiations, the 6th 2005 WTO Ministerial began at Hong
Kong in December. At this 6th Conference, the member countries agreed to
eliminate the export subsidies in agriculture by 2013. The member countries also
agreed to provide aid for trade to the least developed countries, including
duty-free access to the developed country markets in 97% of the products. Once
again, in this negotiation, India took a much harder line stand with her saying
that liberalization in agriculture would in no way do good to India and the 650
million people in India living in agriculture would not survive. So agricultural
liberalization on her part would be a major risk. But India was willing to
undertake liberalization in industrial products and services. So the Hong Kong
Round ended with inconclusive results and the future of the multilateral trading
system became dependent now on how the WTO’s tighter rules would be relaxed for
a more structural and inclusive trade system. To have a good result, this
required a broad consensus both within major countries and across the
membership. The consensus was proving difficult to obtain.
The Doha Round of trade negotiations at the WTO has been under way since 2001.
The negotiation still covered several areas such as agriculture, market access
for agricultural products, trade related IPR, rules covering anti-dumping and
subsidies and trade facilitation. A Mini-Ministerial Meeting in the WTO was held
from July 21-29, 2008 to discuss the modalities in agriculture and
Non-Agricultural Market Access (NAMA). In agriculture, the issues discussed
included reductions in over-all trade-distorting domestic support by developed
countries, tariff cuts, designation of sensitive products, special safe-guard
mechanism (SSM) for developing countries, etc. While in the end, discussions
focused almost exclusively on the SSM which could not be resolved. This was not
the only contentious issue. Several issues in agriculture and NAMA were not
discussed at all and remained unresolved. Multilateral discussions on
agriculture resumed at the WTO in October 2008. The Chairs of the WTO
Negotiation Groups of the Agriculture and NAMA brought out fresh drafts of
modalities for Agriculture and NAMA on December 6, 2008. This was the fourth
Revised Draft Modalities Text. The Chair specially identified certain elements
in this text as areas where large negotiating gaps remain to be bridged.
These are Sensitive Products (SEPs), tariff quota creation, non-SEPs with
tariffs higher than 100%, tropical and diversification products, proposals for
reduction in subsidies for cotton and tariff simplification. Even issues like
India’s food security, livelihood security and rural development needs were
taken care of. But there are number of elements yet to be resolved to the full
satisfaction of India and its coalition partners in G-33. Meanwhile, India
hosted a Ministerial Conference in New Delhi from September 3-4, 2009 for the
WTO members and in that Conference, there was an unanimous affirmation of the
need to expediously conclude the Doha Round, particularly for further
development remaining at the heart of the Doha Round. The major issues in the
2009 7th WTO Ministerial Meeting, the first full Ministerial Meeting of the WTO,
in the aftermath of the global economic Tsunami held in Geneva from November 30
– December 3, 2009 were related to Agriculture and NAMA discussions, which
resumed on the basis of the draft modalities of agriculture and NAMA. As per the
Draft Agriculture Modalities, developed countries would have to reduce their
bound tariffs in equal annual installments over 5 years with an overall minimum
average cut of 54%. Developing countries would have to reduce their bound
tariffs with maximum overall average cut of 36% over a large implementation
period of 10 years. Both developed and developing members would have the
flexibility to designate an appropriate number of tariff lines on sensitive
products, on which they would undertake lower tariff cuts.
In the agricultural negotiations that would serve of interest of developing
countries, India has been working close with coalition partners in developing
country groups such as the G-20 and the G-33 in order to achieve an outcome in
the agricultural negotiations. India along with above alliance partners has
emphasized that the Doha agricultural outcome must include at its core for the
removal of distorting subsidies and protection by developed countries to level
the playing field. Thus the formation of grouping had a dramatic effect on the
dynamics of negotiations. Developed countries now noticed that India along with
other larger developing country’s view point would have to be considered for
negotiations.
Apart from this, India has also taken the stand that stable and remunerative
price for domestic products are urgently called for increasing productivity and
to this ends India is bereft of safe-guard mechanism available only to developed
countries. India now needs an operational and effective Special Safeguard
Mechanism (SSM) to check against global price dips and input surges which must
be more flexible. The G-33 and India remained firm that a priori exclusion of
any product, particularly SPs from the ambit of the SSM could not be justified
or accepted.
n the case of NAMA negotiations, India chose tariff reductions through a
non-linear Swiss formula that ensures less than full reciprocity in percentage
reduction commitments from bound rates. Moreover, in the current negotiations on
rules,
(a) India is seeking strong anti-dumping rules so as to prohibit the use of
zeroing in dumping margin calculation including sunset review, etc.;
(b) India is opposed to enlargement of the scope of prohibited subsidies and
countervailing measures for the developing countries and
(c) In the negotiations on new disciplines on fisheries subsidies, India is
seeking effective special and differential treatment for developing countries,
particularly in the light of employment and livelihood concerns of small
artisans and fishing communities and for retaining sufficient policy space so as
to enable it to develop its infrastructure.
Conclusion:
This paper has attempted to shed light on why countries like India frequently
engage in negotiating agreements on a multilateral and regional level. The paper
also goes a step further to acknowledge that, while free trade would allocate
world resources efficiently, at least in a competitive market setting, it is
seldom a reasonable policy objective for a country. Moreover, in a world of
imperfect competition, creating free trade is a virtual impossibility. In the
face of this awkward conjuncture, it would be wise for India to seek her true
interest whether it will gain from multilateral trading system or from regional
negotiations or will accept both of them on her forward march.
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