The Hindu Business Line : New mantras of regional economic co-operation

India has drawn up an ambitious agenda for negotiating trade and economic cooperation agreements from countries in the Far East to those in the European Union and Latin America.

THE PRIME Minister, Dr Manmohan Singh, with his Thai counterpart, Mr Thaksin Shinawatra... .The trade agreements are the new pillars of India's economic diplomacy.

India has, of late, engaged in forming bilateral/regional economic co-operation in a variety of forms.

In the past, India had adopted a very cautious approach to regionalism, and was engaged in only a few bilateral/regional initiatives, mainly through Preferential Trade Agreements (PTAs). Recognising that PTAs would continue to feature in world trade for a long time and with the intention of expanding its export market, India began concluding in principle agreements as a possible step towards Comprehensive Economic Co-operation Agreements (CECAs), which cover FTA in goods (zero Custom duty regime within a fixed time frame on items covering substantial trade, and a relatively small negative list of sensitive items with no or limited duty concessions), services, investments and identified areas of economic co-operation.

The new pillars

The trade agreements are the new pillars of India's economic diplomacy. Having realised that free trade pacts are a sine qua non for economic development, India has drawn an ambitious agenda for negotiating trade and economic cooperation agreements from countries in the Far East to those in Latin America and the European Union. The pacts will not only cover every country in the region spanning the Persian Gulf to the Malacca Straits but also Mauritius, Israel, Russia, Mongolia, Japan, China, South Korea, Afghanistan, Egypt, Chile, the South Asian Custom Union (SACU), the African Union, the Mercosur, the European Union and the Association of South-East Asian Nations (ASEAN).

The India-Thailand Framework Agreement has been signed. Negotiations on all aspects of the South Asia Free Trade Area (SAFTA) agreement concluded recently and the tariff liberalisation programme is scheduled to be implemented from July 1. Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India, Framework Agreement for Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation (BIMSTEC) FTA on goods, services and investment are under negotiation. India-China, India-Japan, and India-South Korea joint study groups have also been set-up.

Both developed and developing countries see regional economic integration as a means of strengthening their international competitiveness and as an engine of economic growth. In a lecture in November, the Prime Minister, Dr Manmohan Singh, said, "The new-found interest in regional arrangements is based not just on trade promotion but on exploiting the potential of efficiency-seeking restructuring of industry on a pan-regional basis."

Preferential trade pacts, preferential trade agreements and regional unions now account for over 50 per cent of the world trade. In the NAFTA, for example, trade among member-countries jumped from $289 billion in 1993 to $689 billion in 2004. Experts also argue that India's share in world trade, although growing, still languishes at 0.8-0.9 per cent, while countries such as South Korea and Singapore that are engaged in some form of regional grouping have a share of over two per cent.

Looking at our own situation one finds that, India's free trade agreement with Sri Lanka saw its exports to the island nation jump from $500 million in 2000-01 to $1.3 billion in 2003-04. Similarly, India has emerged as the third largest source of foreign capital for Sri Lanka against a negligible share a few years ago. A similar agreement with Thailand provides for a free trade area in goods by 2010 and negotiations are on to add more items to the list of 82 that have already been identified for tariff reduction in a phased manner.

"The India-Thailand free trade agreement should lead to a 20 per cent jump in exports to India, which is a big market for us," said Mr Uraiwan Anukul, Director of Thailand's Export Trade Centre. "So far, we have been focusing on countries like Japan and the US and the EU. Now we are encouraging Thai companies to look to new markets in China, India, Africa and the Middle East," said Mr Anukul, reflecting a similar mood among the Indian policy-makers.

The Commerce Minister, Mr Kamal Nath, has been reported as saying that, "economic cooperation agreements will be building blocks and drivers of global trade. The multilateral system cannot drive South-South trade."

The common denominator

Economic commentators, say, a common market in South Asia with complete withdrawal of trade barriers is key to the region's development, since poverty is a common denominator here. Proliferation of PTAs is the clearest evidence of Asian countries' desire to forge closer economic relationships. The growing importance of CECA's indicates that such agreements are becoming deeper, extending to areas beyond just tariff reduction; intra-regional trade and investment require building up of shared infrastructure.

Many Asian countries have joined together to develop cross-border infrastructure to lay the foundations for closer trading relationships and increased connectivity . The Greater Mekong Sub region is quite advanced in the endeavour. Similar initiatives are underway in South Asia and in Central Asia, with exciting prospects for future development. The spirit of enhanced monetary cooperation in Asia is evidence from initiatives such as the Chiang Mai Initiative and the Asian Bond Fund having major potential for financing regional investments.

(The author is Fellow, CUTS International, a research, advocacy and networking group and can be reached at ncp@cuts.org)