The nature of alliances

If promotion of multilateralism in global trade was the objective of the General Agreement on Trade and Tariffs (Gatt), it has not been wholly achieved. In fact, the penchant for regional trade agreements (RTAs) and preferential trade agreements (PTAs) has grown after the setting up of the World Trade Organisation (WTO) in the mid-1990s. The number of RTAs, a mere 31 in 1990, swelled to 80 by 1995, when the WTO was in the making, and then spurted abnormally to 184 between 1995 and 2003 in the WTO era.

Notably, the US, also the most vociferous exponent of multilateralism, has the world's most PTAs and free trade agreements (FTAs) with other countries. Asian countries, including India, have been no exceptions on this score. This is borne out by the existence of Southeast Asia's Asean and South Asia's own Saarc, both of which are regional associations that have trade and economic co-operation as crucial components. Besides, India has entered into separate FTAs with neighbouring countries like Nepal and Sri Lanka. Some sub-regional trade groupings are also in the offing.

What are the reasons for this unintended fallout of the global trade pact? These have been analysed, albeit with a focus on the Asian region, in this book, Free Trade Area in Asia by Ramesh Chand, an analyst with an established claim to expertise on trade and international marketing.

A plus point of this work is that its conclusions are based on the statistical analysis of actual trade data rather than perceived or assumed notions.

Trade agreements between well-defined groupings help member countries provide preferential market access to each other even while discriminating against non-members. This, in a way, facilitates and promotes trade with select countries through selective liberalisation while simultaneously protecting domestic markets against competition from others. That apart, such trade agreements also deter non-member countries from going in for selective trade liberalisation with member countries of the group on a bilateral basis.

These, the author believes, are the most compelling considerations that have prompted trading countries to become members of trading blocs through PTAs after the institutionalisation of multilateral trade liberalisation through the WTO.

Significantly, this study convincingly demolishes the notion that multilateralism in trade is good for all countries as a rule. In fact, many regional agreements seek to eliminate the formidable new challenges and problems posed by the wider world's post-Cold War push for multilateralism.

As for Asia, the author has built a strong case for a regional trading bloc that is exclusive to this continent, maintaining that sub-regional agreements like Asean and Saarc are not too successful as trade instruments. Asean, for example, was originally meant to be a food security agreement, essentially, providing for the sharing of rice stock during contingencies that involve food shortages. The FTA within Asean was a subsequent development for the promotion of mutual trade, but it has not achieved much in terms of freeing agricultural trade, the author concludes. On the other hand, the South Asian free trade agreement (Safta), which is supposed to operate under the broader co-operation aegis of Saarc, still appears to be struggling to overcome impediments arising from historical conflicts between India and Pakistan on the political plane.

Given those circumstances, the author floats several reasons for the formation of a genuine free trade bloc in Asia. For one, the formation of the trading bloc can be expected to improve general welfare in the region. Besides, this book argues, an Asian trade bloc could also serve to counter the adverse impact of an explosion in the number of RTAs around the world. Moreover, such a grouping will obviate the need for bilateral and sub-regional trade agreements which often create problems of trade deflection and preferential trade deals with countries outside the region.

In any case, since 1990, the trade among Asia's developing countries has been increasing at a much faster pace than that with the outside world. The author gives elaborate inter-country trade data to uphold this phenomenon, and attributes it to factors such as logistics, the stage of economic development, and trade liberalisation within the policy frameworks of different countries in the vast region. Besides, the author discovers a perceptible bias towards neighbourhood trade in another set of data: representing the changes in the index of intensity to trade (IIT) for the group of developing Asian countries. The proposed formation of an Asian trade bloc would firm up this trend, according to the author, to the benefit of all involved.

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FREE TRADE AREA IN ASIA

Ramesh Chand
Academic Foundation
Price: Rs 495; Pages: 130