Geethanjali Nataraj and Kriti Khurana
There has been a rapid increase in the number of Free Trade Agreements (FTAs) since early 1990s leading to a widespread debate on the advantages or disadvantages of regionalism over multilateralism. Every regional agreement differs from one another in some or the other way, but all have one thing in common: the objective of reducing barriers to trade between member countries.
The move towards the formation of mega regionals like TPP, TTIP, TISA and RCEP (Trans Pacific Partnership, Trade and Investment Trans-Atlantic Partnership, Trade In Services Agreements, Regional Comprehensive Economic Partnership Agreement) largely led by the US and other developed economies is also the result of stagnation in WTO negotiations. The RTAs (Regional Trade Agreements) and in recent times the mega FTAs are likely to undermine the multilateral trading system further and change the global trade architecture. As on 7th April, 2015 the GATT/WTO (General Agreements in Trade and Tariffs; World Trade Organisation) had been notified of some 612 RTAs, counting goods and services notifications separately.
The objective of all these mega regional agreements at their simplest is to reduce border barriers, coordinate regional issues that are not part of the multilateral agenda, promote and diversify trade by expanding trade policies and thus extend liberalisation to trade and investment. On the whole, the newer agreements tend to open new markets for goods and services, increase investment opportunities, make trade faster and cheaper and thus in turn leads to deeper coverage.
The objectives of the WTO are not very different from the objectives of these mega regionals but since everything is based on consensus in the WTO and the fact that nothing is agreed till everything is agreed, leads to slow and tedious negotiations forcing country to adopt the second best alterative of freeing trade – regional trading arrangements.
India has still not formulated its global governance strategy with respect to international trade. India is not a part of the mega regional negotiations like TPP, TTIP and TISA that define the conditions for world market and investment opportunities despite New Delhi’s international trade contributing majorly to the country’s growth story as indicated by its trade to GDP ratio which increased from 26 per cent in 2000 to 53 in 2013.
India in recent years has jumped the bandwagon of FTAs and signed several agreements including the most recent one with ASEAN in both goods and services which came into effect on January 1, 2010 and December, 2014 respectively. Other agreements that came into force included, Comprehensive Economic Cooperation Agreement (CECA) with Singapore in 2005, with Korea in 2010 and with Japan in 2011. India also entered into Comprehensive Economics Partnership Agreement (CEPA) with Malaysia that came into force in 2011.
Among the mega regionals, India is a part of only one major mega regional that is RCEP, which is considered to be an ambitious agreement as it would bring Asia’s three biggest economies – China, India and Japan – into a regional trading agreement. A feature that distinguishes RCEP from the other major mega regional agreements is that RCEP will be consistent with the regulations of WTO including GATT. Thus for India, RCEP can provide a way to integrate with the East Asian Economies and obtain access to a vast regional market from Japan to Australia along with the flexibility to reduce barriers at different rates and at its own pace.
The mushrooming of RTAs among different countries is a serious matter of concern for India as getting a fair share of FDI in the services sector is likely to be affected and services at present contributes almost 60 per cent to India’s GDP and one of the key drivers of growth. Moreover, India’s merchandise exports and manufacturing sector would face a catastrophic impact because of the preferential treatment for TPP members.
Corporate tribunals
Further, there is a fear that the TTIP led global model for corporate tribunals with immense power, would have a devastating effect on India’s population in the near future. Even though India is a part of RCEP, even that could prove to be problematic as China is the at the heart of RCEP negotiations and may cause difficulties for India to agree to tariff cuts and at the same time it may be pressured by the other members of RCEP to agree to a higher common base.
The problem is not only for India but over a 100 WTO members are outside the major mega regionals and would in one way or the other be impacted with the negotiations of these agreements. Thus, these members need to be a part of the future system of global governance of trade and this can only happen if WTO negotiations wake up from their dormant state which would bring back the attention of large economies to it.
There is a criticism on the enforcement and expansion of FTAs but at the same time, countries are left with no option due to the efficacy of the WTO being questioned.
Thus the question of whether India being a developing country should follow the regional path or the multilateral route very much depends on its position in the global economy. In order to improve its position, Indian businesses need to raise their productivity and cost efficiency by incorporating policies such as Goods and Services Tax, transparent resource allocation and faster clearances which would enhance India’s competitiveness on the global stage.
Sufficient information should be provided to the Indian industry on the emerging trade matters so that they are able to absorb them and thus make relevant changes in their production techniques well in time. Thus, given the changing international trade environment, India has no choice but to walk the tight rope and maintain the much needed balance between regionalism and multilateralism.