BILATERAL TRADE AGREEMENTS IN

ASIA

Bilateral Trade Agreements are between two countries at a time, providing them favored trading status with one another.

Can vary in nature of the members involved and by nature of the agreement.

Provide for (1) reciprocity, (2) most-favored-nation treatment, and (3) national treatment of nontariff restrictions on trade.

Enhance the commercial relationships between countries and help minimize trade deficits.

They are less demanding to negotiate than multilateral trade agreements.

Eg : Singapore has signed FTAs with New Zealand, Japan, Australia, US, European Free Trade Association and Jordan.

Overview

Free Trade Agreements

Preferential Trade

Agreements

Multilateral Trade

Agreements

Plurilateral Trade

Agreements

Regional Trade Agreements

Bilateral Trade Agreements

Types of Trade Agreements

WTO Guidelines on Trade Agreements

1. Most-favored-nation (MFN) Same trade advantages to each country All member countries to extend MFN status to each other Exceptions to MFN : - Preferential treatment for developing countries by giving access to their markets - The establishment of bilateral and regional trade agreements - Countries can set up a free trade agreement that applies only to goods traded within the group - Barriers can be raised against products that are considered to be traded unfairly from specific countries 2. National treatment Imported and locally-produced goods are to be treated equally after the foreign goods have entered the market. Applies to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

3. Free trade Reducing trade barriers is one of the means of encouraging trade. The barriers concerned include customs duties or tariffs and measures such as import bans or quotas that restrict quantities selectively. Focused on lowering tariffs (customs duties) on imported goods. As a result of the negotiations tariff rates on industrial goods have fallen steadily Progressive liberalization Developing countries are usually given longer to fulfill their obligations.

4. Predictability Assurance not to raise a trade barrier Businesses have a clearer view of their future opportunities. Investment is encouraged, Jobs are created More competition — choice and lower prices. Business environment stable and predictable

WTO Guidelines on Trade Agreements(Contd.)

Development of BTA in the Framework of WTO

Between 1983 and 1999, the interest in forming BTAs was growing at a slow but steady pace

BTAs have increased from , from 57 in 2002 to 176 in October 2006. There are more than 300 worldwide.

As of July 2011, there were 245 BTAs involving at least one country from the Asia Pacific

6

Source: Jayant Menon Research Paper

Source- http://www.adbi.org/files/dp57_bta_wts.pdf

Growth of Concluded FTAs in ASIA

Singapore has been the most active economy.

The Asian giants developing economies, the PRC and India, are forming FTAs to ensure market access and expand regional coverage for outward investment

Middle-income countries such as Malaysia and Thailand have emerged as regional Production hubs for the auto and electronics industries, respectively.

Source- Asian Development Bank’s FTA Database, August 2010

Source- http://conversableeconomist.blogspot.in/2011/12/new-trade-rules-for-evolving-world.html

BTA in Services

Source: Department of Commerce and Industrywww.commerce.nic.in

Share of Services in GDP and World Trade

As per the World Development Indicators of World Bank (2012), services account for 57% of GDP in India.

Whereas the share of international trade in services in GDP for India was 14.9%.

Share of all services in india’s export basket was 31% in 2012 (Source: Research paper on Export of services: Indian Experience in perspective by Barry Eichengreen and Poonam gupta, National Institute of Public finance & policy, March 2012)

India-Malaysia CECA(Services)

Salient Features

Malaysia has agreed for GATS plus disciplines in domestic regulations and commitment.Under mode 1 and 2, Malaysia has offered “none” across the board(except for educational services). This move is of significant importance to Indian IT and ITES industry.Malaysia has also allowed 100% foreign equity in Computer related services under MODE 3.Malaysia has removed all requirements relating to economic needs tests and labor market tests. Therefore, for approved categories no prior examination of domestic labor availability is required.Malaysia has also taken almost full commitments with 100% foreign equity in management consulting services and Technical Testing and Analysis Services.

Japan-India CEPA(Services)

Salient Features

Japan’s offer to India is significantly superior to Japan’s revised offers in the WTO.

It also compares favorably to its BTA with ASEAN countries.

Japan has offered Modes 1 and 2 as ‘None' across the board (except for very few sub sectors such as Architecture Services).

Japan has taken significant commitments in CRS i.e. no limitations in market access for Indian service providers. This has huge advantage for the booming IT sector in India.

Use of Intellectual Property Rights in BTA’s

These deals are driven by export interests and other objectives rather than the common goal to achieve a mutually advantageous, balanced regulation of IP.

Most of these agreements in which IP serves as a trade-off are negotiated on the bilateral or regional level.

Therefore countries use intellectual property rights as a bargaining chip to negotiate about reducing tariffs.

NON-TARIFF MEASURES

Some of the Non Tariff measures that are used by countries are: - Customs Procedures - Import Licensing Procedures - Trade Documentation - Pre Shipment Inspections

One example is state taxes charged by Tamil Nadu, where Sri Lankan exporters are taxed at 21% while local products are taxed at 10.5% on sales.

India-Sri Lanka BTA, 1998

• Challenges:• Market access problem• Lack of supply capacity

• Features:• Negative list approach• Special & Differential treatment

• Experience to the Nation:• Trade in Goods

• The Vanaspati & copper boom• Increased value added exports

• Investment• Services• Problematic Areas

• Tariff rate quotas on major exports

• Non-tariff barriers• Unilateral imposition of quotas

Korea-US BTA, 2011

• “More export, more Jobs” promised• U.S. export to Korea decreased by 11%• Average monthly imports from Korea

increased by 4%• US monthly trade deficit with Korea has

ballooned 47%• Global export rose by 2% in 2012• Korean domestic demand has ebbed• Gross national income & final

consumption expenditure increased• Export have fallen in 11 out of 15 sectors• Surge of Auto imports swamps Auto

exports• Meat export go bad for U.S.

Why BTA?

Trade gains

Factor mobility

Strengthening domestic policy reforms

Guarantees of access

Low potential for disagreement

Restoring the trade links

Customer benefits

Challenges posed by Bilateral Trade Agreements

Under utilisation of BTA preferences at firm level.

Tackling the Asian Noodle Bowl effect.

Promoting Comprehensive coverage of Agricultural Trade.

Forming a Region wide FTA.

How to maximize the benefit of BTA while minimizing their costs ?

Improving the use of FTAs at the firm level through increased awareness and strengthened institutional support systems, particularly for SMEs.

Tackling the Asian noodle bowl problem by encouraging rationalization of ROOs and upgrading ROO administration to best practice levels

Encouraging better coverage of agricultural products in Asian FTAs and a gradual approach to agricultural trade liberalization

Facilitating the creation of a region wide agreement in East Asia—particularly a CEPEA—with appropriate sub sequencing and support for dealing with development gaps among members.

Multilateralisation : Once a country has concluded BTAs with most, if not all, of its major trading partners, it may then make sense to: (a) equalize preferences across these BTAs; and (b) offer them to non-BTA countries on an MFN basis. This would remove the administrative burden

Future Avenues

India-Sri Lanka Free Trade Agreement (ISFTA) - In 2011, India’s Main Exporting items were Oil, Motor vehicles, White Cane Sugar and Importing were Animal Feed, Insulated Wires & Cables, Cloves - But studies show that there is scope for Indian Investment in Sri Lanka in sectors such as Telecommunications, Construction, Hospitals, Software & Cultural Services. [Source: http://www.icrier.org/pdf/wp145.pdf]

Japan - Australian Export Promotion Agreement (JAEPA) - Japan is Australia’s 2nd largest Trading Partner as Japan is Australia’s second largest Export Destination(15.5% of total exports) and third largest source of Import(6.5%). - More than 97% of Australia’s Exports to Japan will receive Preferential access or entry duty-free when JAEPA is implemented. - Through JAEPA Australia becomes the World’s first major Exporter to unlock Japan’s high import barriers. [Source: http://www.dfat.gov.au/fta/jaepa/snapshot/]