Trade blocs in vogue: IEG

An Institute of Economic Growth (IEG) study of regional and preferential trade agreements has said regionalism in trade has grown faster in the post-Uruguay round multilateral trade accord era than prior to it.

This, the study says, is due to the greater advantage in opening up trade with a few select members than with a very large number of countries.

The study has observed that all the developing countries of Asia, barring Pakistan, have clocked higher rates of trade growth within the region and raised their overall share in the world trade in the 1990s.

Titled "Preferential trading agreements and regional trade: implications for Asia," the IEG working paper has attributed this performance to the dismantling of trade barriers and reduction in the import tariff rates by almost all the Asian countries.

India's merchandise trade with other developing Asian countries rose from 11.8 per cent in 1990 to 24 per cent in 2000.

Also, trade among the Asian developing countries almost doubled between 1990 and 2000. Their trade with other regions, however, remained static after an initial spurt in the nineties.

Significantly, the developing Asian countries also showed a higher growth rate than the world trade for both agricultural and non-agricultural products.

In fact, the trade in non-agricultural products grew at almost double the growth rate than that for agricultural products.

An obvious implication of this is that the demand for Asian products has been expanding much faster in Asia than in the rest of the world.

The study points out that almost all Asian countries are making attempts to forge bilateral free trade agreements (FTA).

While Japan has concluded an FTA with Singapore and is negotiating with South Korea and Mexico, the ASEAN is trying to expand its free trade area to cover more countries, especially China, Japan and Korea. Some of the ASEAN members are also trying to negotiate bilaterals with other Asian countries.

In South Asia, India has already signed an FTA with Sri Lanka, and is in advanced stages of negotiations with Thailand and Singapore.

"All these moves are indicators of the mood in Asia to go for regional cooperation in trade," the paper points out.

The paper, however, admits that such bilateral agreements create problems like trade deflection and trade conflicts, and make the situation in the region complex.

The study suggests that the region-wide framework of free trade area will remove the need for bilaterals and will also offer more opportunities for trade creation.

It also recommends that Japan -- though not a developing country -- should also be made part of this agreement, as Japan is the biggest importer of agricultural products.

In fact, its imports are more than the total agricultural exports from the developing Asia to the rest of the world.

However, the study says that in the long run, free trade area in Asia might lead to the end of regionalism in favour of multilateralism.