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Regional Trade Agreements and Improved Market Access in Developed Countries: The Evidence

The United States and the European Union have in recent years initiated negotiations on a large number of bilateral and regional trade agreements. These agreements tend to push trade liberalisation much further than is possible under the multilateral trade regime. These rtas also include rules which are likely to reduce the policy space for developing countries. This paper investigates whether signing of an rta with a developed country necessarily leads to increased market access in that country. The findings suggest that this is not always so. But, on the other hand, developing countries face stricter intellectual property regimes, aggressive environment and labour clauses and extremely restrictive bilateral investment treaties, which impose some obvious and serious costs on the industrialisation process of developing countries. It concludes that the gains from north-south rtas are doubtful while there will be some obvious costs.

SPECIAL ARTICLE

Regional Trade Agreements and Improved Market Access in Developed Countries: The Evidence

Parthapratim Pal

The United States and the European Union have in recent years initiated negotiations on a large number of bilateral and regional trade agreements. These agreements tend to push trade liberalisation much further than is possible under the multilateral trade regime. These RTAs also include rules which are likely to reduce the policy space for developing countries. This paper investigates whether signing of an RTA with a developed country necessarily leads to increased market access in that country. The findings suggest that this is not always so. But, on the other hand, developing countries face stricter intellectual property regimes, aggressive environment and labour clauses and extremely restrictive bilateral investment treaties, which impose some obvious and serious costs on the industrialisation process of developing countries. It concludes that the gains from north-south RTAs are doubtful while there will be some obvious costs.

Parthapratim Pal (parthapal@iimcal.ac.in) is with the Indian Institute of Management, Kolkata.

O
ne of the most striking development in the world trading system since the mid-1990s is a surge in the regional trade agreements (RTAs).1 From about 50 till 1990, the number of RTAs notified to the World Trade Organisation (WTO) has crossed 250 in 2003, and according to the latest data (till March 15, 2008) of the WTO, more than 300 RTAs have been notified to WTO. Among these RTAs, more than 200 are currently active. The World Bank (2005) estimates that about 40 per cent of total global trade is done among the regional trading partners.

Initially the WTO encouraged the growth of RTAs because it believed that regional integration initiatives can complement the multilateral trade regime. The idea was that RTAs can promote further trade liberalisation and act as “building blocks” to the multilateral trade system. However, as the number and spread of RTAs surged, the WTO increasingly became more concerned about the possible negative effects of the RTAs on the multilateral trade regime. There are two possible reasons why the proliferation of RTAs can create problems for the WTO. First, RTAs represent an important exception to the WTO’s principle of non-discrimination (the most favoured nation (MFN) clause). According to the WTO rules, countries within an RTA (or, in other words, members of an RTA) can trade among themselves using preferential tariffs and easier market access conditions than what is applicable to other WTO member countries. As a result, the WTO member countries that are not a part of the RTA lose out in these markets. Also trading within the regional trade blocks does not come under the purview of the WTO. As increasing amount of global trade is being diverted through this route, there is a growing apprehension that RTAs might undermine the role of the WTO in the global trading system. In a recent speech, the director general of the WTO has mentioned that the continued proliferation of regional trade agreements is indeed a “breeding concern” for WTO.2

It is notable that this surge in RTAs is largely driven by developed countries. Since the failure of the Seattle ministerial of WTO in 1999, countries like the US and the European Union (EU) have initiated negotiations on a large number of bilateral and RTAs. Traditionally developed countries have always been big markets for exports from developing countries and the prospect of preferential access to such markets has induced many developing countries to seek preferential or free trade agreements (PTA/FTA) with developed countries. The motivation to go for a PTA with a deve loped country becomes particularly strong for a developing country, if other countries, with which it is competing to supply goods to the developed market, are preferential trade partners of the deve loped country. In such cases the motivation comes from a defensive

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necessity against a possible exclusion from these m arkets. But the preferential market access comes at a cost. As a quid pro quo, developing countries are expected to accept c ertain commitments to make the trade agreement attractive to the developed country partner. There are apprehensions that these commitments may reduce the policy space available to d eveloping countries.

Figure 1: Hubs and Spokes in International Trade

ROW Country 3 Spoke Country 1 Hub RTA 1 Country 2 Spoke RTA 2

Therefore, form the point of view of a developing country, the trade-off is essentially between possible better market access in developed countries vis-à-vis accepting stricter rules imposed by the deve loped country partner. As there is such a huge increase in the number of north-south RTAs3 it tends to indicate that developing countries feel that overall north-south RTAs will be beneficial as costs arising from new commitments will be more than offset by increased trade and market access in the developed country markets. As market access plays such an important role in the formation of RTAs, it is important to investigate whether the north-south RTAs have indeed given developing countries an increased market share in the developed country markets. Using data from a number of north-south RTAs, this paper seeks to find out whether there is any clear pattern between signing of RTAs and increase in the market share in developed countries. This paper also analyses the possible factors which can prevent a developing country from gaining market access in a developed country even when they are part of a preferential trade agreement. This is also an important discussion from India’s perspective because India is currently negotiating a few important preferential agreements with big developed countries. Negotiations are going on with the EU for a bilateral Trade and Investment Agreement and there are talks about a possible Investment Agreement with US which is likely to pave the path for a US-India FTA in future.4

1 A Sudden Proliferation of RTAs

The traditional theory of gains from trade suggests that removal of trade barriers allows consumers and producers to purchase from the cheapest and most competitive source of supply. This enhances efficiency and increases welfare. Following this logic, it was traditionally believed that regional trade blocks should generate gains from trade as member countries reduce trade barriers among themselves.

84

This view was first challenged by Viner in his 1950 book titled The Customs Union Issue. Viner, in his seminal contribution, introduced the concepts of “trade creation” and “trade diversion” and showed that the net effect of trade liberalisation on a regional basis is not unambiguously positive. Viner pointed out that RTAs can lead to trade creation, if due to the formation of the regional agreement, RTA members switch from inefficient domestic producers and import more from efficient producers from other members of the RTA. In this case, efficiency gains arise from both production efficiency and consumption efficiency. On the other hand, trade diversion takes place if, because of the RTA, members switch imports from low-cost production in the rest of the world and import more from higher-cost producers in the partner countries. Trade diversion lowers welfare of not only the partner countries, but the rest of the world also.5

Viner’s analysis shows that trade creation and trade diversion have opposite welfare implications and the net effect will depend upon which of these two effects dominate. However, he did not unequivocally establish the net welfare effect of RTAs. In the last 50 years, in spite of various enhancements to the basic concepts of trade creation and trade diversion, eco nomists cannot tell, on an a priori basis, which of the two effects will dominate.

Since the late 1960s, recognition of market imperfection in international trade has added a new dimension to this literature. The introduction of imperfect competition in trade models altered the perception of gains from trade and hence about the motivation behind regionalism. The traditional trade theory has always assumed perfect competition and full employment while discussing various aspects of trade theories. However, the traditional theories were finding it difficult to explain the trade patterns of the post-world war period, which were characterised by intra-industry trade and trade among countries with similar factor endowments. To explain this phenomenon, a new class of trade models emerged. These models challenged the concept of perfect competition inherent in the classical trade models and introduced imperfect market structures like monopoly, monopolistic competition or oligopoly in trade models. Pioneering work in this field has been done by Brander, Spencer, Dixit and Krugman.6 Introduction of imperfect competition in trade theory changed the predictions of traditional trade theories completely. Some results which came out of these models have profound implications for the present topic. Using monopolistic competition and oligopoly models, this new generation trade models were able to explain why and how countries with very similar economies can gain from mutual trade of similar products (intra-industry trade). Taking a cue from these models, it is easy to establish that if economies of scale exist in the industries of the preferential trading partners, then these countries can benefit from trading with each other. This happens because the industries of member countries can take advantage of their scale economies by exploiting the larger union-wide markets. However, once imperfect competition and scale economies are simultaneously introduced in these multi-country preferential trade models, they get very complex and the welfare impact of PTAs becomes more ambiguous.

But this strand of theoretical analysis of regional trade agreements does not fully explain why there has been a sudden increase in regionalism during the 1990s. There is an emerging con sensus among economists that frustration with the multilateral trading

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system is one of the prime reasons behind the current growth of regionalism. In 1993, answering a question about “what are the problems of the general agreement on tariffs and trade (GATT) that lead countries to turn to their neighbourhood”, Krugman (1993) suggests that countries find regionalism an easier alternative because large number of participants in multilateral trade negotiations reduce the cost of non-cooperation and create rigidity in the system. Also according to him, modern trade barriers are much more complicated to negotiate in a multilateral forum and most countries find it easier to deal with these issues on b ilateral or regional level.

There is another set of study which sug-Alternatively, a spoke can also be formed when a hub country forms an RTA with another trading block (Figure 1, p 84).

From the figure, it can be seen that the hub enjoys access to all its spokes on a preferential basis. As most hubs are developed countries, most gains of PTAs have gone to them. On the other hand, each spoke enjoys preferential access only to the hub. Therefore, spokes have less market access than the hub. Or, in other words, a hub enjoys preferential access to all its spokes but a spoke has preferential access only to its hub. A spoke country tries to avoid this problem by becoming a hub in its own right by entering into its own set of RTAs. According to many eco nomists, this has led to the

acceleration in bilateral agreements at the

Table 1: Market Share of Some MFN Trading gests that, in a multi lateral framework, coun-Partners of US (in %)present time. Moreover, if some countries

Malaysia Thailand China India Brazil

tries tend to favour preferential agreements cannot form an FTA with a developed coun

1990 1.07 1.07 3.08 0.65 1.60

against multilateral ones because of some try, they attempt to create their own market

1995 2.35 1.53 6.13 0.77 1.19

strategic reasons. For example, Limao (2003) by joining a regional trade agreement among

2000 2.10 1.35 8.21 0.88 1.14

suggests that developing countries may resist excluded members. This creates a band

2001 1.96 1.29 8.96 0.85 1.27

multilateral system in the fear of erosion of wagon effect where no countries want to be

2002 2.07 1.27 10.78 1.02 1.36 their preferential treatments in regional 2003 2.02 1.21 12.13 1.04 1.42 left of some major regional groupings. It is agreements with developed countries. Simi-2004 1.92 1.20 13.38 1.06 1.44 also notable that the rest of the world (ROW) larly, industrial countries can have a strategic 2005 2.01 1.19 14.55 1.12 1.46 is left out of this set of preferential agreeincentive in keeping their multilateral tariff 2006 1.97 1.21 15.52 1.18 1.42 ments and looses out in the markets in hubs

level at a higher level than they otherwise would so that they can have more bargaining power when negotiating market access at the bilateral/regional level. On the other hand, Mansfield and Reinhardt (2003) argue that multilateral trade negotiations, in fact, motivate countries to conclude RTAs. This is so because as the WTO membership expands, individual countries’ ability to influence the content and pace of MFN liberalisation reduces and the large membership makes it difficult for countries to have a coordinated strategy. As the formation of regional blocks lead to increased negotiating power at the multilateral level, countries want to become a part of a regional grouping to increase their leverage in the multilateral negotiations.

However, it appears that the surge in regionalism during the WTO years has been largely driven by a handful of developed countries. Many economists including Bhagwati (1993), Panagariya (1996) and Bergsten (1996) believe that the US’ transformation from a supporter of multilateralism to a follower of regionalism is the major reason behind this growth of regionalism since the 1990s. According to Bhagwati (1993), “the main driving force for regionalism today is the conversion of the United States, hitherto an abstaining party to Article XXIV” (p 29).

To support this hypothesis, it is pointed out that as some big developed countries are getting involved in FTAs with developing countries on a bilateral or regional level, this has prompted many developing countries to seek participation in FTAs with these countries as a defensive necessity against a possible exclusion from these markets. The motivation to go for an FTA with a deve loped country will be particularly strong for a developing country, if other countries with which it is competing to supply goods to the developed market, are part of a preferential trade agreement with the developed country. This leads to a configuration which is known as the “hubs and spokes” configuration of RTAs. A hub is defined as a country which is a member of two or more distinct RTAs. Spokes arise when a hub country forms a bilateral RTA with another country.

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and spokes.7

Along with economic factors, political and strategic factors also motivate countries to join RTAs. Trade linkages between economies can increase the cost of conflict and improve cross border cooperation. Due to this reason, RTAs are used as a strategic move to consolidate peace and increase regional security among member countries. RTAs are often used by developed countries to forge geopolitical alliances and build up diplomatic ties. By providing increased discriminatory access to a larger market, these countries seek to garner increased support on political front. It is apparent that most political RTAs are not driven by economics, however, in the political RTA arrangements, particularly where a large developed is involved, there is always the possibility that the interests of smaller countries would be of secondary concern.

2 Tariff Preference and Better Market Access8

The previous section has indicated that the possibility of increased market access through tariff preferences plays an important role in the motivation to form RTAs. In fact, market access is probably the most important factor which leads to the formation of northsouth RTAs. Given so much emphasis on market access, it will be important to find out how much market access benefits northsouth RTAs are actually generating for developing countries. To answer this question, this paper empirically investigates the change in market share of some of the US’ trading partners (both preferential and non-preferential) over 1990 to 2006.

According to the web site of the office of US trade representative,9 before 2000, the US had RTAs with Canada, Israel and Mexico. Since then the US has negotiated RTAs with Australia, Bahrain, Chile, Jordan, Oman, Morocco, Singapore, Peru, South Korea and Central America Free Trade Agreement (CAFTA). In certain cases like the South Korea – the US and the CAFTA-US FTAs, negotiations have been completed. However, legislative ratifications for these agreements are still pending.

The US is also negotiating FTAs with a number of countries including Malaysia, Panama, Thailand, the UAE, Colombia and Ecuador (part of Andean). There are some regional i nitiatives as well which include the talks on Free Trade Area of Americas (FTAA) and the US-ASEAN proposed FTA.

To investigate whether signing of an FTA with the US necessarily leads to increased market access in the US, we look at the m arket shares of traditional and the new trading partners. For the sake of comparison we compare their performance with c ouple of other countries that are not yet preferential trade p artners of the US.

Figure 2: Market Share of the Three Traditional Preferential Trade Partners of the US

(in %) 20

16 Mexico Canada

12

8

Israel 4

0 1990 1995 2000 2001 2002 2003 2004 2005 2006

To see how these countries have fared in the US market, we divide the countries into three groups. The first group (Group 1) consists of the traditional pre ferential trading partners of the US. They are Mexico, Canada and Israel. In the second group (Group 2) we put a set of countries which are the new preferential trading p artners of the US. They are A ustralia, Singapore, Chile, Peru, Jordan, Oman, Morocco and B ahrain. In Group 3, there are five countries; Brazil, China, India, Malaysia and T hailand. These countries are not yet a member of a PTA with the US though Malaysia and Thailand are negotiating PTA with the US.10

From the market share data of these three groups of countries, the following observations can be made:

Group 1 Countries: For Group 1 countries, it is notable that their market share in the US increased during the first half of the 1990s and has stagnated or declined since 2000. For Mexico, this increase in market share is pronounced during the 1990s. For Canada, it grew till 1995. It is notable that the North American Free Trade Agreement (NAFTA) came into force during this period in which both Canada and Mexico are the preferential trading partners of the US. H owever, since 2000-01 these two countries have not gained market share in the US. In fact, Canada’s share in the US market has declined from around 19 per cent in 2001 to

16.3 per cent in 2006. Mexico also has not managed to increase its market share by much; the market share of Mexico has also declined during the last decade (Figure 2).

The US-Israel FTA was signed in 1985 and following the same trend as above, Israel gained some market share during the early to mid-1990s but the growth in market share has stopped and Israel’s market share in the US has stabilised around the 1 per cent mark since 2000.

In all the three cases, there was an initial increase in market share after the PTA/FTA was signed but the growth in market share was not sustained. In fact, over the years these countries lost some of their share of the US market to others.

86 Group 2 Countries: For the Group 2 countries, i e, the countries which have signed FTA with the US after 2000, the data show a more mixed picture. Two of the most high profile free-trade partners of the US, i e, Singapore and Australia, face declining market share in the US even after their FTAs with the US signed in 2003 and 2004, respectively. However, from the Figure 3, it does not appear that these FTAs have helped these countries to improve their market share in the US.

The situation looks somewhat better for the new preferential trade partners from South America. Both Chile and Peru seem to be gaining share in the US market. To understand whether these gains are due to the preference margins, this paper has looked into the export pattern of these countries to the US. This analysis shows that both Chile and Peru are large exporters of metal pro ducts to the US and they have significantly benefited from increasing metal and commodity prices. For example, copper and copper products made up a very high propor tion of Chile’s exports to the US. And there has been a significant growth in exports of this commodity to US (Figure 4). For example, in 2002, Chile’s exports of these products to the US were about $ 723 million. In 2006, the figure has swollen to more than $ 4,000 million. However, tariff preferences do not seem to play a major role in this massive expansion of Chilean exports of copper to the US. The preference margins (or the gap between MFN rates and preferential tariff rates) are very low for copper products. For HS chapter 74, maximum MFN tariff rate charged by the US is 3 per cent, and the average MFN rate for this chapter is less than 2 per cent. Therefore, the preference margins have been quite low for these products and it is unlikely that preferential trading has played a major role in the surge in Chile’s exports of copper to the US. S imilarly, for Peru, gold and copper are the major export items and the export-growth in these two subsectors has been higher than others. And as the case of Chile, p reference margins of these products are not very high.

Figure 3: The US Market Share of New Preferential Trading Partners of the US (in %)

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Peru Singapore Chile Australia

1990 1995 2000 2001 2002 2003 2004 2005 2006

Figure 4: Exports of Chile to US: High Growth of Exports of Metals and Related Products (Mn $) 6,000 5,000 4,000 3,000 2,000 1,000 0 2002 2003 2004 2005 2006

Copper and non-monetary gold Others

It is also worth pointing out that the four biggest suppliers of copper (SITC-682) to the US are Chile, Canada, Peru and Mexico with 31.5 per cent, 24 per cent, 8.2 per cent and 7.2 per cent market share, respectively in 2006. As all four countries are members

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Table 2: Structure of the Tariff Schedule of the US, 1998-2004
1998 2000 2002 2004
Total number of tariff linesa 9,997 10,001 10,297 10,304
Non-ad valorem tariffs (% of all tariff lines) 14.0 12.4 12.2 10.6
Non-ad valorem with no AVEs (% of all tariff lines) 0.0 0.0 0.0 0.0
Tariff quotas (% of all tariff lines)b 2.0 2.0 1.9 1.9
Duty-free tariff lines (% of all tariff lines) 18.6 31.5 31.2 37.7
Dutiable lines tariff average rate (%) 7.2 8.0 7.4 7.8
Domestic tariff “peaks” (% of all tariff lines)c 4.9 5.3 5.6 7.1
International tariff “peaks” (% of all tariff lines)d 7.7 7.0 6.6 5.5
Bound tariff lines (% of all tariff lines) 100.0e 100.0e 100.0e 100.0e

a

HS Chapters 1-97, at eight-digit level, excluding in-quota tariff lines.

b

Tariff quotas are referred to as “tariff rate quotas” in the US regulations.

c

Domestic tariff peaks are defined as those exceeding three times the overall average applied rate.

d

International tariff peaks are defined as those exceeding 15%.

e

Two lines applying to crude petroleum are not bound. Source: USA TPR 2006.

Figure 5: Market Share of Some New Preferential Trade Partners of US (in %)

0.09

0.07

0.05

0.03

0.01

-0.01 1990 1995 2000 2001 2002 2003 2004 2005 2006

of an FTA with the US, the effective preference margin enjoyed by each of them is almost zero.

In this group, there is another set of countries which are from the Middle East and North Africa (MENA) region. They are Morocco, Bahrain, Jordan and Oman. These countries have very low market share in the US. But data show that over the last few years, there has been some increase in their market share in the US. Even then, the total market share of Morocco, Bahrain, Jordan and Oman is less than 0.2 per cent in the US. Among these countries only Jordan has managed to increase its market share significantly. However, even in Jordan’s case we see that the market share has stagnated after an initial rise (Figure 5).

Group 3 Countries: These are a sample of countries which are not yet a member of any FTA with the US though some of them are c urrently negotiating PTAs/FTAs with

Jordan Oman Bahrain Morocco

To summarise the results:

  • (1) Some FTA members have lost market share in the US, this list includes traditional FTA partners like Mexico and Canada and new partners like Australia and Singapore.
  • (2) A few FTA members have managed to maintain/improve their market share (Peru, Chile).
  • (3) A few non-members have done very well/well and increased their market share (China, India).
  • (4) Most ASEAN countries did not manage to increase their m arket share.
  • The results of this exercise do not give us a clear picture about market access gains by PTA/FTA partners of the US. For most traditional preferential trade partners of US, their market share is stagnating or declining. While the new partners exhibit mixed pattern. Some of them have actually lost market share in the US after signing an FTA while some others have managed to gain some additional share in the US market.

    If one divides the trading partners of the US into two groups, viz, preferential trading partners and others, then overall it can be seen that the FTA/PTA partners have lost some market share to the rest of the world for the period 2000 to 2006 (Figure 6). Here it might be argued that China’s explosive export growth to the US is responsible for this. However, it is interesting to note that C hina’s export boom to the US has indeed played its part in the reduction of market share of the preferential trading partners but even excluding China’s share, the PTA/FTA partners as a whole have lost market share to the rest of the world.11 This is shown in Figure 6.

    It can also be argued that PTAs/FTAs may have allowed the preferential trading partners to perform better than they would have done in the absence of such agreements. It is, of course, not easy to prove or disprove such counterfactual. The task is even more difficult here because the techniques of time-series econometrics could not be used. As most new US FTAs have been signed after 2002,there are not enough time-series data and with such limited number of observations it may not possible to carry out meaningful time-series econometric tests.

    Overall, using US data, this section does not find an unequivocal support for the hypothesis that there is a positive relationship between signing up of FTAs and gaining market share in a d eveloped

    country market. From this set of

    Figure 6: Total Market Share of all Preferential Trade Partners of the US (%)

    the US. We have included five coun 38
    tries in this group. They are Brazil, 37
    China, India, Malaysia and Thailand. 36
    Table 1 (p 85) shows how their market share in the US has changed over 35 34 33
    the years. 32
    From this table, it is quite clear 31
    that China has managed to increase 30 2000 2001 2002 2003
    its market share phenomenally over
    In total US imports In total US imports (imports from China)

    the concerned period. It shows that China’s market share increased by more than fivefold over 1990 and 2006. India has also increased its share in the US market steadily, albeit at a much slower rate. For the other three countries, there is no definite trend observable. It is notable here that Malaysia, Thailand and Brazil are in the process of negotiating FTA with the US while China and India are not yet involved in such negotiations.

    Economic & Political Weekly EPW november 29, 2008

    e vidence, it is not possible to give a verdict whether FTAs are either neces sary or sufficient for guaranteeing increased market access in deve loped countries.

    3 Possible Explanations

    The previous section indicates that

    2004 2005 2006

    signing of RTAs may not guarantee an increased market access in the developed countries. This is an interesting observation because most of the north-south FTA/ PTAs are signed to ensure increased market access for the country from the south. But these results are not surprising. In fact, there are a number of reasons why signing up for a PTA/FTA may not necessarily lead to increased market access in a developed country. They are:

    Table 3: Summary Analysis of US Tariffs under Selected Preferential Agreements, 2004

    Average Tariff Rate for the HS Sub-sector MFN Chile Singapore GSP

    01 Live animals and products 11.4 9.1 8.5 8.6

    02 Vegetable products 4.0 2.1 2.6 0.9

    03 Fats and oils 3.5 1.5 1.8 0.2

    04 Prepared food, etc 13.3 9.9 10.3 8.9

    05 Minerals 0.6 0.1 0.2 0.0

    06 Chemical and products 3.5 0.0 2.4 0.0

    07 Plastics and rubber 3.7 0.0 1.5 0.1

    08 Hides and skins 4.3 0.9 1.4 2.1

    09 Wood and articles 2.2 0.1 1.2 0.2

    10 Pulp, paper, etc 0.0 0.0 0.0 0.0

    11 Textile and articles 9.0 0.1 0.1 8.8

    12 Footwear, headgear 13.3 3.5 11.2 12.3

    13 Articles of stone 5.0 2.0 3.3 0.4

    14 Precious stones, etc 3.0 0.0 1.5 0.0

    15 Base metals and products 1.9 0.2 0.7 0.1

    16 Machinery 1.6 0.0 0.3 0.0

    17 Transport equipment 2.6 0.2 1.4 0.0

    18 Precision equipment 3.0 0.9 1.5 0.7

    19 Arms and ammunition 1.5 0.0 0.8 0.0

    20 Miscellaneous manufacturing 3.2 0.3 1.7 0.1

    21 Works of art, etc 0.0 0.0 0.0 0.0

    By ISIC sector Agriculture and fisheries 5.7 4.2 4.4 3.6

    Mining 0.4 0.0 0.1 0.0

    Manufacturing 4.9 1.2 2.1 2.6

    Source: US Trade Policy Review, WTO.

    The Tariff Preferences Received in North-South RTAs Are G enerally Not Very High: A major advantage of an PTA stems from the difference between the MFN rate and the preferential tariff rate of that agreement. This difference in tariff rates allows certain market access advantages to the preferential trade partner. It should be obvious that higher the difference between the MFN and the preferential rates, more will be the market access advantage accruing from a PTA.

    If one looks at the tariff structure of the US, it shows that the average level of MFN tariff is not very high in that country. According to the latest WTO Trade Policy Review (TPR) of US, in 2004, the average MFN applied tariff was 4.9 per cent. Table 2 (p 87) shows the tariff structure of the US.

    The table shows that close to 19 and 38 per cent of all tariff lines of the US were duty free in 1998 and 2004, respectively. This implies that for 38 per cent of the total tariff lines, there is no possible market access gain from having preferential or zero duty access to the US domestic market. Moreover, the US data indicate that the coverage of duty-free tariff lines is increasing over the years. If this trend continues then gradually the effectiveness of tariff preferences will come down.

    Moreover, if one of the major export items attracts low MFN tariff rate in a developed country market, then the advantage of having a PTA becomes much less for that sector. For example, as it has been seen in the previous section, Chile’s biggest export item to US is copper and articles made of copper. In this sub-sector, the preference margin is almost inconsequential as the average MFN rate itself is less than 1 per cent. Similarly, for the top export pro ducts of Singapore, which comes in the HS sectors 16, 17 and 18, the preference margin given to Singapore is quite modest (Table 3). This pattern of trade preference indicates why RTAs or PTAs have not helped countries to significantly improve its m arket share in merchandise trade of US.

    To further illustrate this point, Table 3 shows the actual tariff preference received by the two recently concluded US FTAs with developing countries, viz, Chile and Singapore. As it can be evident from the table, on average the preference margins are quite low. Apart from the two sectors for Chile (textile and articles; footwear, headgear) and one sector for Singapore (textile and articles), the preference margins on average are less than 4 per cent (Figure 7, p 89). Interestingly, these countries are marginal players in the US markets in sectors where they have received maximum tariff advantage. For example, for the sub-sector SITC-65 (textile yarn, fabrics, made-up articles, nes and related products) in the US, Chile had a market share of 0.016 per cent in 2000 and 0.04 per cent in 2006. Singapore is an even smaller player in that sector with 0.01 per cent market share in 2006 and 0.03 per cent market share in 2000. Incidentally, China and India’s market share in this segment in 2006 was 29.6 per cent and 9.7 per cent, respectively. For the other sector where Chile has got a relatively high preference margin is footwear and headgear. To understand Chile’s position in that sector, exports of Chile to US for the sub-sector SITC-61 is checked. It shows that Chile had a market share of 0.05 per cent in 2000 and 0.036 per cent in 2006. From Chile’s point of view also these two sectors are not important export sectors. SITC-61 and SITC65 together account for less than 0.1 per cent of Chile’s exports to the US.

    On the other hand, the sectors where Chile (and Peru) has strong competitive advantage, viz, items of copper and gold, the preference margins are not very high. This is because the MFN rates are themselves low in such sectors. The maximum and a verage MFN tariff rates for copper and items manufactured by copper are only 3 per cent and 2 per cent, respectively.

    It is also worth mentioning here that apart of PTAs and FTAs, developed countries also have unilateral tariff preferences given to developing and least developed countries. One of them is called the generalised system of preference (GSP). As can be seen from Table 3, the margin between the preferential tariff rates and

    Table 4: Frequency Coverage Ratio of NTBs by Country

    Country/Group Year Simple Average Import-Weighted
    (%) Average (%)
    Australia 1999 20.6 29.1
    Canada 2000 28.4 19.7
    European Union 1999 34.4 24.8
    Japan 2001 36.8 36.2
    Korea Republic 1998 36.9 25.6
    New Zealand 1999 36.5 43.8
    Norway 1996 14.9 12.2
    Switzerland 1996 22.0 27.0
    United States 1999 30.3 47.1
    Memo: average
    Developing countries (65) 1992-2001 15.7 18.9
    Low income countries (20) 1993-2001 6.2 10.0
    Middle income countries (45) 1992-2001 20.0 22.9
    High income non-OECD (7) 1994-2001 17.69 18.24
    High income OECDs (9) 1996-2001 28.98 29.51

    Source: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK: 21051044~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html

    november 29, 2008

    Table 5: NTB Frequency Coverage Ratio by Product in Selected Developed Countries

    Product Category (SITC) Australia Canada European Japan United Union States

    Primary products (0-4,68) 0.54 3.23 1.98 7.49 4.69

    Agriculture (0-2,4) 0.63 3.52 2.30 7.69 4.56

    Mining (3,68) 0.00 1.51 0.47 6.31 5.44

    Manufactures (5-8,less 68) 0.31 20.89 10.77 5.08 5.23

    Iron and steel (67) 0.24 83.33 51.94 0.48 42.44

    Chemicals (5) 0.89 0.16 4.18 1.15 3.35

    Other semi-manufactures (61-64,66,69) 0.49 1.47 0.86 0.64 4.59

    Machinery and transport equipment (7) 0.07 0.11 2.41 0.05 5.18

    Textiles and clothing (65,84) 0.06 81.26 87.21 23.06 1.13

    Other consumer goods (81-83,85,87-89) 0.00 0.35 4.82 0.68 0.92

    Other products (9) 0.00 0.00 0.00 0.00 0.00

    All products (0-9) 0.36 16.88 5.79 5.61 5.08

    Source: Same as Table 4.

    Figure 7: Preference Margin of Singapore and Chile in US (MFN-Preferential Tariff)

    (HS Sectorwise, 2004)

    10 8 6 4 2 0 Singapore Chile

    01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: US Trade Policy Review, WTO.

    the GSP rates are not only very low, but also in some cases, the GSP tariff rates are even lower than preferential tariff rates.

    Secondly, some least developed countries have been given duty-free-quota free access to developed country markets and they tend to enjoy better market access conditions than provided under the PTAs/FTAs.

    Even This Narrow Preference Margin Is Expected to be Eroded Over Time: Another problem with tariff preferences given in the north-south RTAs is that these preferences are likely to erode over time. This will happen because the Doha round of trade talks have very ambitious tariff reduction proposals. For example, for nonagricultural goods, it has been decided that a Swiss Formula will be used for tariff reduction.12 According to the latest official document on the negotiations on Non- Agricultural Market Access (NAMA),13 for developed countries, a Swiss Formula with a coefficient of 8 or 9 will be used. One of the mathematical properties of the Swiss Formula is that the coefficient acts as the post-cut ceiling. This means that, irrespective of what the initial level of tariff is, the post-cut tariff rate will always be less than the coefficient value. Therefore, if the WTO members agree to the coefficient of 8 and assuming that the current round of negotiations conclude in two years time, in another seven years time (by the end of the implementation period of the Doha round) the maximum nonagricultural tariff rate of developed countries will be less than 8 per cent. This will further reduce the tariff margins enjoyed by the developing country partners in a north-south RTA.

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    For agriculture, it has been decided that the tariff cuts will be implemented by a tiered formula which cuts higher initial tariff by a higher margin. The latest draft indicates that the developed c ountries will have to cut their existing tariff rates at least by 48 per cent. For the tariff lines where the initial tariff rate is more than 75 per cent, the tariff rates need to be cut by around 70 per cent. These facts indicate that the Doha round has ambitious plans for tariff reduction and once the new round of WTO commitments are implemented, the preference margins enjoyed by the trading partners of developed countries in RTAs will come down. It is indeed not certain when the Doha round of trade talks is going to be concluded. But it appears that nowadays trade negotiators are much more hopeful that a deal can be signed by the end of 2008.14

    Another source of erosion of preference margins may come from the RTAs themselves. As developed countries are engaging with more and more regional trade agreements, they are increasingly becoming the hubs of a large number of preferential agreements. This reduces the advantage of a preferential partner in that market. For example, if almost all the major suppliers of a certain commodity become preferential trade partners of a developed country then the preference margin for each of the suppliers gets diluted. This may lead to a situation where formation of RTAs will be important just to maintain the status quo rather than to gain additional market access. In fact, in such cases the MFN trading partner becomes the least favoured supplier. However, if the MFN rates come down significantly, this source of discrimination will gradually matter less for developing countries.

    Treatment of Non-Tariff Measures: As it has been discussed above, in developed countries’ tariffs are not generally very high. Though there exist spikes in tariff rates (or tariff peaks), but on the average, tariffs are on the lower side in most developed countries. In such countries, the level of protection is being maintained by various non-tariff measures (NTMs)15 like standards, technical barriers, trade restrictive anti-dumping rules, etc. In fact, a recently released set of data from the World Bank on trade and import barriers’ indicate that use of non-tariff barriers (NTBS) in the highest among the high-income Organisation for Economic Cooperation and Development (OECD) countries (Table 4, p 88). It is not surprising that in the WTO negotiations, negotiators from developing countries complain more about NTMs than about tariff rates in developed countries. According to them, the NTMs tend to be high on products which are of export interest to the developing countries (Table 5) and these measures provide much higher level of protection because they are much more restrictive, opaque and difficult to measure.

    Therefore, to gain any meaningful increase in the market access, along with getting tariff preference, it is important to lower the level of protection through NTMs also. However, in an RTA with a developed country, lowering of NTMs depends highly on the negotiating ability of the partner country. In a multilateral forum, smaller countries can free-ride using the negotiating power of the bigger countries. But the asymmetry of bargaining power is much more pronounced in bilateral negotiations, and therefore, it is unlikely that in a north-south RTA, a developing country will be able to significantly lower the NTMs of a developed country. But on the other hand, because a developed c ountry manages to push in the “WTO Plus” clauses like labour and environment, it can actually happen that in a north-south RTA, the level of NTMs may be higher than in the multilateral route. This can happen because the RTA-specific labour and e nvironmental clauses can be used by the developed country as protectionist devices for sectors which they want to protect.

    The RTAs also contain complicated Rules of Origin (ROO) and value addition norms. This reduces transparency and creates the “spaghetti bowl” problem highlighted by Bhagwati in his works. Given the large number of RTAs with possible overlapping of a greements with different preferential tariff rates and a plethora of ROOs and value addition norms, it can be a logistical nightmare for the customs offices in developing countries. Such complex trade rules have the potential to create major trade facilitation problems for developing countries. It is particularly true for developing countries because, the World Bank (2005) has shown that the ROOs tend to be more restrictive in north-south RTAs than other types of RTAs.

    Exclusions of Certain Sectors: Many north-south RTAs tend to exclude certain sectors from the preferential tariff coverage. Most common example of such exclusion is agriculture. Almost all trade agreements between EU and developing countries have kept agriculture out of any preferential market access. Same is true for RTAs with Japan. Exclusion of this critical sector can limit market access gains for developing countries. It is notable here that, most least developed countries (LDCs) get duty-freequota-free access for their products (including agricultural products) in developed country markets. But most of these concessions are given on a unilateral basis and these are not part of the preferential trade agreements.

    Another notable exception in the north-south RTAs is on free movement of labour. Almost all north-south FTAs have restrictions on free movement of labour. Even when issues regarding temporary movement of workers are included in these RTAs, they are largely confined to professional and skilled workers, mostly dealing with intra-corporate transfers. Generally it is observed that in the north-south RTAs, developed countries are ready to go much beyond the rules of WTO in areas like trade-related aspects of intellectual property rights (TRIPS), investment, services sector liberalisation and labour and environmental conditionalities. However, in the issues like agricultural market access and free movement of labour, they are clearly reluctant to take any step towards greater liberalisation. In fact, some of the north-south RTAs try to impose additional restrictions in these areas. Exclusion of these key sectors is a major reason why formation of RTAs often does not help developing countries expand their market access significantly in developed countries.

    4 Costs of North-South RTA

    The previous section has indicated that there are a number of reasons why developing countries that are joining north-south RTAs may not secure better market access in a developed country. However, there are some potential drawbacks of such RTAs which

    90 can have a significant impact on the growth and development process of a developing country.

    Most new RTAs, especially the north-south RTAs, tend to cover much more than liberalisation of tariffs and quotas. Most of these RTAs have provisions on enforcement of labour laws, environmental laws, services, intellectual property rights issues, competition policy, government procurement and investment. It is notable that many of these provisions, especially the issues like labour and environment, investment and competition policy are no longer on the mandate of the WTO negotiations. These issues have been dropped from the Doha Development Agenda mostly because of strong opposition from developing countries. During the current round of negotiations, it was felt that these issues are “extraneous issues” which should not be discussed as a part of multilateral trade negotiation and in the context of a “singleundertaking” framework. Because of the structure of WTO negotiations (the so-called “consensus” based approach) coupled with

    Table 6: Policies Followed by Now-industrialised Countries during Their Phase of Development and Current WTO Rules Which Prohibit Them

    Country Policy Economic Rationale WTO Restriction
    US High tariff and non-tariff barriers Infant industry protection Tariff liberalisation, removal of non-tariff measures
    UK Japan High tariff and non-tariff barriers, colonial exploitation (1) State-supported investment in R&D, (2) Adaptation of designs of products developed by other countries (3) Learning curve pricing Infant industry protection, extraction of resources 1, 2 Improve competitiveness 3 Taking advantage of economies of scale Tariff liberalisation, removal of non-tariff measures 1 Countervailing duties, 2 Trade-related intellectual property rights 3. Anti-dumping laws
    South Korea (1) State-supported export growth, (2) Directed credit (3) Export subsidies (4) Learning curve pricing (5) Interventionist industrial policy Strategic and innovationist trade policy Economies of scale Countervailing duties Outright ban of export subsidies Anti-dumping duties Privatisation as pushed by the World Bank

    Source: Collated from Chang (2002) and Akyuz (2005).

    increased assertiveness of developing countries in the multilateral negotiations, these issues were dropped from the Doha round. However, most north-south FTAs contain these issues and because the asymmetry in negotiating power in bilateral negotiations, developed countries not only manage to include these new issues, but also impose stricter rules on issues like TRIPS and opening up of services in developing countries. In fact, RTAs are also being used by some developed countries to remove controls on capital flows. Williamson (2006) points out that in the post-Asian crisis period trade agreements are used by the US treasury to impose free movement of capital on developing countries.16

    Inclusion of these clauses in the trade agreement leads to a number of problems for developing countries. First, these rules further reduce the policy space available to developing countries. Some researchers like Akyuz (2005) and Chang (2002) have argued that the WTO commitments restrict policy space available to the developing countries and prevent them from adopting domestic and industrial policies used by currently developed countries during their phase of development. An illustrative example of such policies and the corresponding WTO restrictions are given in Table 6.

    november 29, 2008

    It is important to note that the provisions of most north-south RTAs go well beyond the WTO rules and are likely to impose higher level of restrictions on the developing countries. It will also force countries to adopt more “market-friendly” measures in the areas like investment and IPR issues. As the United Nations Conference on Trade and Development (UNCTAD), Trade and Development Report 2007 points out, these new RTAs have increasingly included provisions for deeper integration among countries and include policies which require much higher degree of harmonising national policies with “a reform agenda that favours greater freedom for market forces”.17 For a developing country, where the level of industrialisation is not high, such measures can have serious negative impact on its industrialisation and growth of the economy. It will also constrain the policy space available to these countries.

    Secondly, as Bhagwati and Panagariya (1996) argue, by pushing aggressive trade treaties on a bilateral basis, developed countries are weakening the power of developing countries in multilateral trade negotiations. As discussed above, in an RTA between a developed and a developing country, the developed country often manages to include aggressive trade liberalisation clauses, investment protection clauses and extraneous issues in the treaty. Having abandoned objections about these issues on a bilateral level, the developing country cannot resist these issues on a multilateral platform. This not only helps developed countries push these issues in the WTO, but it also breaks the alliance of developing countries in the multilateral negotiations. Given the diversity among developing countries and the kind of coalition we are seeing in the WTO negotiations, maintaining a unified stance will be critical for the developing countries. However, there is a possibility that this position may be weakened because of the involvement of many developing countries in north-south RTAs.

    Thirdly, in north-south RTAs, developing countries are accepting long-term commitments in exchange of uncertain and often transient market access promises. As mentioned before, in such RTAs, developed countries manage to push through a number of conditions like stricter TRIPS regulations, highly unfavourable bilateral investment treaties (BITs), wide range of market access openings and extraneous clauses like labour and environmental rules. These can save serious long-term repercussions on a developing country. Whereas, stricter TRIPS laws can lead to serious issues like availability of life saving drugs and medicines at an affordable price, BITs can restrain the options of developing countries, to use foreign direct investment as a policy instrument to improve sectoral/regional balance of their economy. BITs are particularly troublesome because not only the BITs are used to introduce harsh labour and environmental commitments on developing countries, but the clauses of the BITs also try to align a developing country’s financial and legal systems to a market-oriented system which favours such enterprises. This can have serious implications for developing countries.

    5 Importance of South-South Trade

    The results of this paper prompt us to question the prevalent tendency of developing countries to treat north-south RTAs as the best way to expand their market. In north-south RTAs, developing

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    countries get supposedly better market access and the perceived gains for developing countries come from the “preference m argin” derived from the gap between the MFN rate and the preferential tariff of the RTA. But as discussed in this paper, due to a plethora of reasons, this preference margin may not translate into better market access or higher market share. Moreover, this preferential access is temporary and it is not going to provide developing countries’ long-term market access benefits. As the Doha round of trade negotiations aim to reduce the MFN rate significantly, as and when the Doha round of commitments are implemented, the present tariff preference margins will be eroded by a significant extent.

    Also, with more and more RTAs being signed by developed countries, the preference margin enjoyed by an existing developing country partner in north-south RTAs will get diluted. If almost all the major suppliers of a certain commodity become preferential trade partners of a developed country, then the preference margin for each of the suppliers gets further reduced. This, coupled with the fact that MFN rates are themselves low in developed countries, indicate that with the proliferation of RTAs, most developing countries will end up with little or no tariff preferences in a developed country market. Also, in a north-south RTA, the developing country partner loses the privilege of non-reciprocity and special and differential treatment (S&DT) which are available to them under the multilateral system.

    But, on the other hand, in north-south RTAs developing countries are undertaking long-term commitments in areas like labour, environment, investment and competition policy. So, what is essentially happening is that developing countries are binding themselves in long-term commitments on a number of inconvenient issues against temporary and small tariff preferences granted by developed countries. As Ghosh (2004) has pointed out developed countries, particularly the US and EU are pushing regional trade agreements, under the influence of large capital, to force developing countries make deeper trade and investment commitments than is now possible multilaterally given the divisions in the WTO. Developing countries, in their pursuit for export-led growth, are accepting all sorts of d amaging conditions in terms of foreign investment protection, intellectual property rights and the opening up of markets, s imply to avail of what may be transient or minor gains in terms of market access.

    In this context, the south-south trade blocks may emerge as a viable alternative to developing countries for expanding their market. With growing income in many parts of the developing world, this may provide many countries from the south with significant market access. There might be some concerns about lack of trade complementarities among the developing world. But it can be pointed out here that developing countries are currently a diverse lot and have enough variety in their export basket to generate sufficient trade among themselves. Also, with increased industrialisation, it will be possible for some developing countries to engage in intra-industry trade and allow their firms to exploit the economies of scale. As the UNCTAD, Trade and D evelopment Report 2007 points out, all regional blocs involving developing and transition economies, regionally produced m anufactures, including the more skill and technology-intensive that do have a domestic market which is big enough to allow the p roduct categories, find markets more easily in the countries of advantages of economies of scale to their domestic industries.18 the same region than in the international markets further away. These RTAs are likely to be beneficial for developing countries The report then concludes that there is considerable scope for because not only it will allow these countries to expand market developing and transition economies to benefit from advantages access without compromising on national policy autonomy, but of geographical and cultural proximity when seeking to develop also it will also help them forge and foster stronger souththeir industries and upgrade their production. south alliances at the multilateral trade negotiations. However,

    To sum up, theoretically trade liberalisation through regional-there are some obvious pitfalls with regionalism. Apart from the ism may not offer the best solution, but in the current state of p roblems of trade diversion, the complex web of regional distorted multilateralism RTAs are used by many developing a greements can also introduce even more uncertainties and countries to improve market access. But the north-south RTAs opacity in the present global trade system, which already has have their own share of problems. The problems associated with a myriad of market access barriers and other forms of standards unequal power structure and exploitation of smaller members by and regulations. The widespread adoption of RTAs, along a bigger economic power is more acute in such regional trade with the RTA-specific barriers and concessions, may make the blocs. In this context, the south-south RTAs can become a useful system even more complex. It is also possible that if the world is solution for many developing countries for expanding their divided in some mega trade blocs, then the weakest countries m arket. This is particularly true for small developing countries may get marginalised.

    Notes

    1 There are subtle differences among the concepts of regional trade agreements (RTAs), preferential trade agreements (PTAs) and free trade agreements (FTAs). But in this paper, these terms will be used interchangeably.

    2 Proliferation of regional trade agreements “breeding concern” – Pascal Lamy, dated September 10, 2007, http://www.wto.org/english/news_e/sppl _e/sppl67_e.htm.

    3 Here north-south refers economic north and south. That is, north-south RTAs refer to trade agreements between developed and developing countries.

    4 ‘US Wants More from Investment Deal’, The Economic Times, April 28, 2008.

    5 In Viners’s own words: “…where the trade-diverting effect is predominant, one at least of the member countries is bound to be injured, the two combined will suffer a net injury, and there will be injury to the outside world and to the world at large” [Viner 1950: 44].

    6 However, it must be mentioned here that Ohlin (1924) and Graham (1923) have recognised the possibility of increasing returns to scale and its impact on international manufacturing trade long before this modern strand of literature.

    7 Incidentally, almost all WTO members are currently involved in one or more RTAs. 8 Unless otherwise mentioned, data for this section are taken from the web site http://censtats.census.gov 9 http://www.ustr.gov/Trade_Agreements/Section_Index.html

    10 Together, these three groups of countries account for about 60 per cent of the total US market in 2006. Other notable trading partners of US are the EU countries, Japan, Taiwan and the Saudi Arabia.

    11 The formula used here is =100X(Total imports by USA from all its PTA/FTA partners/(Total US Imports- Imports from China).

    12 The functional form of the Swiss Formula is like this: t1=Ct0/(C+t0), where t0=initial tariff rate, t1= final tariff rate and C = agreed coefficient. This formula has some interesting mathematical properties. It cuts higher tariffs by a larger proportion, lower the value of coefficient, higher the cut lower the coefficient lower the post cut dispersion and the coefficient becomes the effective ceiling for the post-cut tariff rates.

    13 Revised draft negotiating text for market access for goods, dated February 8, 2008 (http://www. wto.org/english/tratop_e/markacc_e/namachairtxt_feb08_e.doc )

    14 Draft text on agriculture dated February 8, 2008 (http://www.wto.org/english/tratop_e/agric_e/ agchairtxt_feb08_e.doc)

    15 Non-Tariff Measures and Non-Tariff Barriers are sometimes used synonymously in the literature though, strictly speaking, they are not exactly the same thing. This paper uses these terms interchangeably.

    16 Williamson says “Since then the main pressure for liberalising capital flows has come from the US treasury. When countries wanted to negotiate bilateral free trade agreements with the US, they found the treasury insisted that US negotiators demand that the partner country should commit itself to never reimposing effective capital controls for any length of time. Several of the partner countries that had made effective use of such controls in the past, like Chile and Singapore, found themselves forced to choose between abandoning their aim of securing a free trade agreement with the US and abandoning their ability to control capital movements with the object of avoiding or at least attenuating crises. Given that governments, like markets, typically take a rather shortterm view of costs and benefits, and that the countries could not see the prospect of a crisis on the horizon at the time the negotiations were taking place, the US treasury got its way” (p 1848).

    17 Page 54, UNCTAD, Trade and Development Report 2007.

    18 For bigger developing countries, where domestic markets can potentially support large industries, there is another option. They can strive to develop and expand the size of their domestic market instead of relying completely on external demand. However, this option is not there for smaller countries.

    References

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    Bergsten, C Fred (1996): ‘Competitive Liberalisation and Global Free Trade: A Vision for the Early 21st Century’, Asia Pacific Working Paper Series No 96-15, Institute for International Economics, Washington.

    Bhagwati, J and A Panagariya (1996): The Economics of Preferential Trade Agreements, AEI Press, W ashington DC.

    Bhagwati, J (1993): ‘Regionalism and Multilateralism: An Overview’ in Melo and Panagariya (eds), New Dimensions in Regional Integration, Cambridge University Press, Cambridge.

    Brander, James A and Barbara J Spencer (1984): ‘Tariff Protection and Imperfect Competition’, Henryk Kierzkowski (ed), Monopolistic Competition and Product Differentiation and International Trade, Oxford University Press: 194-207.

    Chang Ha-Joon (2002): Kicking Away the Ladder, Anthem Press, London.

    Dixit, A (1984): ‘International Trade Policy for O ligopolist Industries’, Economic Journal, Supplement 1-6.

    Ghosh, Jayati (2004): ‘Regionalism, Foreign Investment and Control: The New Rules of the Game Outside the WTO’, paper presented at a seminar on ‘The Economics of New Imperialism’, Jawaharlal Nehru University, January.

    Graham, F (1923): ‘Some Aspects of Protection Further Considered’, Quarterly Journal of Economics, 37, pp 188-227.

    Krugman, P (1991): ‘Is Bilateralism Bad?’ in E Helpman and A Razin (eds), International Trade and Trade Policy, MIT Press, Cambridge, Mass.

    – (1993): ‘Regionalism versus Multi lateralism: Analytical Notes’ in J de Melo and A Panagariya (eds), New Dimensions in Regional Integration, Cambridge University Press, Cambridge.

    Limão, Nuno (2003): ‘Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalisation: Evidence for the US’, University of M aryland, College Park.

    Mansfield and Reinhardt (2003): ‘Multilateral Determinants of Regionalism: The Effects of GATT/ WTO on the Formation of Preferential Trading Arrangements’, International Organisation, 57(4): 829-862.

    Ohlin, B (1924): Handelns Teori, Stockholm: A B Nardisker Bokhandeln, English version in H Flam and J Flanders (eds), Heckscher-Ohlin Theory, MIT Press, Cambridge, MA 1991.

    Panagariya, A (1996): ‘The Free Trade Area of the Americas: Good for Latin America?’, World Economy, 19, No 5, September, 485-515.

    – (2000): ‘Preferential Trade Liberalisation: The T raditional Theory and New Developments’, J ournal of Economic Literature, 2, 287-331.

    UNCTAD (2007): Trade and Development Report 2007: Regional Cooperation for Development, United Nations, New York and Geneva.

    Viner, Jacob (1950): The Customs Union Issue, C arnegie Endowment for International Peace, New York.

    Williamson, John (2006): ‘Why Capital Account Convertibility in India Is Premature’, Economic & Political Weekly, Vol 41, No 19, May 13-19.

    World Bank (2004): The Global Economic Prospects 2005: Trade, Regionalism and Development, World Bank.

    november 29, 2008

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