Major Trading Blocs Free Trade Agreement
While limited in scope, RCEP covers more people than any previous trade agreement, with China alone contributing 1.4 billion to the roughly 2.2 billion people united in the deal.In addition to the European Union there a number of other multi-national free trade blocs. NAFTA (North American Free Trade Agreement), MERCOSUR and AFTA (ASEAN.As the following chart shows, the new trade bloc also carries significant economic weight, accounting for almost a third of global GDP in 2019. But MERCOSUR is still one of the world’s leading economic blocs, and has a major influence on South American trade and the global economy. Common Market of Eastern and Southern Africa (COMESA) Formed in December 1994, the organization aims to develop natural and human resources to benefit the region’s population.Describes trade agreements this country is a party to. Includes resources where U.S. Companies can get information on how to take advantage of these agreements.
In this article, Sharmila Kantha assesses the potential impact of these trading agreements on India, and contends that Indian policymakers and businesses would need to factor them into their future plans.An interesting transformation is taking place in the global trading environment with the emergence of mega-trading blocs – multilateral trading agreements involving significant proportions of global trade - which can change the way trade is conducted in the world. Emerging multilateral trading agreements, resulting in mega-trading blocs, seem to be replacing global negotiations through the WTO. This link will direct you to a non-government website.Following years of negotiations, 15 countries formed the world’s largest trading bloc on Sunday. The Regional Comprehensive Economic Partnership (RCEP) is made up of the ten ASEAN states (i.e.
The negotiations commenced in July 2013 and seven rounds of discussions have been held till September 2014. Emerging mega-trading blocsThe Transatlantic Trade and Investment Partnership (TTIP) brings together two large trading entities of the world, the US and the European Union (EU), to negotiate an agreement on eliminating tariffs and lowering non-tariff barriers to trade and investment. However, given the divergent stance of nations depending on their development levels and domestic compulsions, international negotiations on the WTO platform have been protracted.
Potential implications for IndiaAlthough India is not included in the first two mega-trading blocs above, all of these will significantly impact India. Launched in November 2012, it is proposed to be concluded by 2015, but would probably be delayed. These countries account for around 38% of the world’s GDP and 25% of global trade.The third potential trading bloc is the Regional Comprehensive Economic Partnership (RCEP) comprising the Association of Southeast Asian Nations (ASEAN) plus Australia, China, India, Japan, Korea and New Zealand - involving 45% of the world population and a third of world GDP, and including two of the three largest economies in the world. A fast-track negotiation process aims at completing the treaty this year. On one side of the Pacific are Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, Singapore and Vietnam on the other side are Canada, Chile, Mexico, Peru and the US. The US and the EU view this trade treaty as a way to kick-start their vulnerable economies and add about 2 million jobs.The Trans Pacific Partnership (TPP) negotiations, initiated in 2010, are being conducted among 12 countries on both sides of the Pacific.
So what should India look at vis-à-vis the mega trade blocs?First, the rationale for these new trading blocs appears to be two-fold. Moreover, the secondary reasons for the trade agreements – incentivising domestic economic reforms and furthering globalisation - have not been achieved as expected. In fact, in some cases, imports into India have increased faster than its exports.
India as a member of RCEP has the opportunity to be part of a mega-trading bloc which is more aligned with its development status. Consumer preferences in the US and EU – India’s major markets - could shift towards the new regulations.Three, the investment component in these mega blocs may also divert some funds that may have otherwise come to India.However, the impact of these developments might not be all adverse for India. An elevated level of environmental and labour standards in the mega-trading blocs could pose a challenge for global trade overall.
Similarly, the ASEAN-India FTA is being upgraded to include investments and trade in services. For example, our economic cooperation treaties with Japan, Malaysia and Singapore are showing results and will ensure that these countries would remain high on our trade and investment radar. India would need to ensure that the concerns of developing nations are met in the RCEP negotiations.Secondly, India has a number of Free Trade Agreements (FTA) and economic cooperation agreements in place already and is working on several more. If properly handled, this could prove to be a stabilising bloc for global trade and the Asian region.
India should make an effort to arrive at a resolution to the current impasse.Another way could be to work with other countries on moderating some of the norms pertaining to compliance and standards or, alternatively, seeking expertise and aid to meet such norms. In July 2014, India played a prominent role in raising the issue of permitted levels of public stockholdings of foodgrains due to which an agreement on trade facilitation (arrived at during the Bali Ministerial Meeting in December 2013) could not make progress. One way of doing this is to continue exerting pressure on WTO to complete the Doha Development Round. Opportunities arising from these issues as well as changing standards and regulations need to be properly communicated to manufacturers and exporters so that they can institute response mechanisms well in time.At the strategic level, the Indian government must examine how to reconfigure the mega-trading blocs to its advantage. Bridging the infrastructure gap would be crucial to this effort.Another critical policy would be to ensure that sufficient information is provided to Indian industry on emerging trade matters.
The mega-trading blocs would therefore be expected to keep in mind the concerns of a large emerging economy like India, and the impact of trade reformatting on developing nations as a whole.A version of this article appeared in CII Communique, February 2014. Indian industry would need to understand the potential non-tariff regulations and strategise to meet the requirements as more and more such barriers evolve.India enjoys friendly relations with all countries and has been able to put forward its perspectives on the global platform to great effect. Way forwardIsolating India from the mega-trading blocs is not an option since these are realities that we must deal with or lose out in the process.
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