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Shri T.C. VENKAT SUBRAMANIANChairman & Managing Director

Exim Bank of IndiaChennai, February 19, 2005

Regional Trade AgreementsA Global Perspective

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Global Trade : Developed vs DevelopingGlobal Trade : Developed vs Developing

Increasing Importance of Developing Countries…but only in Merchandise Trade

Source: ITS 2004, WTOSource: ITS 2004, WTO

1993 2003 1993 2003Global Merchandise Exports 3777.1 7502.9 100.0 100.0 Advanced Countries ( 29 ) 2876.8 5375.8 76.2 71.6 Developing Countries ( 174 ) 900.3 2127.1 23.8 28.4

VALUE (US$ bn) SHARE (%)

1993 2003 1993 2003Global Services Exports 940.6 1796.4 100.0 100.0 Advanced Countries ( 29 ) 749.7 1451.7 79.7 80.8 Developing Countries ( 174 ) 190.9 344.7 20.3 19.2

VALUE (US$ bn) SHARE (%)

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Global Trade : Major Global Trade : Major CountriesCountries

Top 10 Global Merchandise Exporters and Importers (2003)

724

1303

748

602

472

383

438

413

387

391

305

391

292

291

294

263

273

245

255

235

0

500

1000

1500

2000

2500

USA Germany Japan China France UK Italy N'lands Canada Belgium

IMPORTSIMPORTS

EXPORTSEXPORTS

US$ billionUS$ billion

Source: ITS 2004, WTOSource: ITS 2004, WTO

Total Exports : US$ 7503 bn (incl. re-exports)Total Exports : US$ 7503 bn (incl. re-exports)Total Imports : US$ 7778 bn (incl. Imports for re-export)Total Imports : US$ 7778 bn (incl. Imports for re-export)

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… superset of all RTAs

World Trade Organisation World Trade Organisation (WTO)(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

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Liberalising trade on a reciprocal & preferential basis

Regional Trade AgreementsRegional 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

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Classification of liberalisation methods

Regional Trade AgreementsRegional Trade Agreements

METHOD OF IMPLEMENTATION

Scope of Beneficiaries Reciprocal Unilateral

Preferential: Select Countries

NAFTA, EU, COMESA and other RTAs

AGOA, EBA, Cotonou

Nondiscriminatory (MFN): All Countries

GATT/WTO Multilateral Agreements

Autonomous Liberalisation

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RTAs & Types of LiberalisationRTAs & 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

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Regional Trading ArrangementsRegional 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…Contd…

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… Particularly in the Last Decade

229

0

5

10

15

20

25

30

1958 1969 1976 1984 1989 1994 1999 20040

50

100

150

200

250

300

Source: Global Economic Prospects 2005, World BankSource: Global Economic Prospects 2005, World Bank

Cumulative in force (right axis)

Annual number Total in force

Not Notified to WTO

Notified to WTO

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Most countries belong to more than one RTA


East Asia & Pacific

Europe & Central

Asia

LAC MENA South Asia

Sub Sharan Africa

North* TOTAL

Number of countries 32 36 39 21 8 48 25 209

Countries belonging to at least one RTA 4 12 6 10 0 2 10 44Average number of RTAs per country 2 1 2 1 1 4 2Maximum number of RTAs per country 4 4 4 3 0 1 24 24

Countries belonging to at least one RTA 24 22 33 20 8 47 10 164Average number of RTAs per country 2 6 8 5 4 4 8 5Maximum number of RTAs per country 3 12 17 12 9 9 15 17

Countries belonging to at least one RTA 26 26 35 20 8 48 11 174Average number of RTAs per country 2 6 8 5 4 4 11 5Maximum number of RTAs per country 7 12 19 13 9 9 29 29

North-South Bilateral*

All Others

Total

Note: Bilateral agreements are defined as an RTA with two members. Note: Bilateral agreements are defined as an RTA with two members. * North is OECD 24 plus Liechtenstein and South is all other countries* North is OECD 24 plus Liechtenstein and South is all other countries

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Percent of World Trade CoveredPercent of World Trade CoveredNumber of RTAsNumber of RTAs

7 9130.3

10

13

3

5

5

0

5

10

15

20

25

30

35

1990 1996 20026 18 32

436

108

193

13

0

50

100

150

200

250

1990 1996 2002

South-South-SouthSouth

European European UnionUnion

USAUSA

South-South

European European UnionUnion

USAUSA

South-South RTAs predominate in number… …but not in trade covered

Source: Global Economic Prospects 2005, World BankSource: Global Economic Prospects 2005, World Bank


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Intra-Regional Trade of Major RTAs, 1995, 2000 & 2003

Value (US$ bn)

RTA 2003 1995 2000 2003 1995 2000 2003 1995 2000 2003

EU (15) 1795 26.6 23.1 24.6 64.0 62.4 61.9 65.2 60.3 61.7NAFTA (3) 651 7.9 10.9 8.9 46.0 55.7 56.1 37.7 39.6 36.8ASEAN (10) 105 1.6 1.6 1.4 25.5 24.0 23.3 18.8 23.5 23.3CEFTA (8) 29 0.3 0.3 0.4 16.2 13.0 13.6 12.3 10.2 11.3MERCOSUR (4) 13 0.3 0.3 0.2 20.5 21.0 11.9 18.1 19.8 19.0ANDEAN (5) 5 0.1 0.1 0.1 12.2 8.9 9.4 12.9 13.8 14.7

Total 2598 36.7 36.2 35.6 - - - - - -

Share in world exports(%)

SHARE OF INTRA-TRADE INExports

(%)Imports

(%)

INTRA-TRADE

Source: International Trade Statistics, 2004, WTOSource: International Trade Statistics, 2004, WTO

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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?


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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

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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…)

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Regional Trading Regional Trading ArrangementsArrangements

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

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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

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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

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Most development friendly outcome is associated with global reform

Bilateral Agreements vs. Global Trade Reform (change in real income in 2015 compared to 2001)

Regions Global Bilateral with Quad

Global Bilateral with Quad

High-income countries 154.4 133.6 0.6 0.5Low-income countries 16.6 -19.0 0.9 -1.0Middle-income countries 92.2 -2.6 1.2 0.0All developing countries 108.8 -21.5 1.2 -0.2World Total 263.2 112.0 0.8 0.3

US$ billion Percent

Source: World Bank SimulationsSource: World Bank Simulations

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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

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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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