Regionalism As Against Globalization Part 2 (By Hemant

K Batra)
REGIONAL TRADING ARRANGEMENTS AND THEIR GROWING POPULARITY: The vast
majority of WTO members are party to one or more regional trade agreements. The rush of
RTAs has continued unabated since the early 1990s. Some 250 RTAs have been notified to the
GATT/WTO up to December 2002, of which 130 were notified after January 1995. Over 170
RTAs are currently in force; an additional 70 are estimated to be operational although not yet
notified. By the end of 2005, if RTAs reportedly planned or already under negotiation are
concluded, the total number of RTAs in force might well approach 300. Pre 1999, the Asian
region had stayed on the edge of the movement towards concluding regional and bilateral
agreements on trade. With a few exceptions including the adoption of the ASEAN Free Trade
Area (AFTA) by the Association of Southeast Asian Nations (ASEAN) in 1992, free trade
agreements (FTAs) in the sense of Article XXIV of the General Agreement on Tariffs and Trade
(GATT) were almost nonexistent in the region. It was only in 1999 and 2000 that government-
level negotiations and studies began to gather momentum. Since then several bilateral
agreements have been concluded among countries in the region as well as with countries from
other regions. Several proposals for a FTA are now under negotiation, involving not only
individual countries, but also regional groupings such as ASEAN. In most FTAs concluded in
Asia, parties go well beyond their WTO commitments in terms of tariff concessions.

However, while negotiators within the WTO have been increasingly shifting their agendas
towards issues other than tariffs, such as environmental protection, intellectual property rights,
labour standards and competition policies, with the exception of the recent bilateral agreements
such as the US ? Singapore agreement, FTAs in Asia have essentially concentrated on issues
related to trade liberalization per se. For example, APEC (Asia-Pacific Economic Cooperation)
leaders have so far wanted APEC to concentrate on matters which will help improve the
economic prosperity of APEC countries. This was the original purpose for which APEC was
established in 1989. APEC is the only inter governmental grouping in the world operating on the
basis of non-binding commitments, open dialogue and equal respect for the views of all
participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations
required of its participants. Similarly, AFTA (ASEAN Free Trade Area) seeks to eliminate tariff
and non-tariff barriers among member countries through progressive reductions of tariffs,
elimination of import duties and trade facilitation measures. It provides for binding commitments
towards trade liberalization but has only one exception covering the environment. Likewise, the
South Asian Association for Regional Cooperation (SAARC) Preferential Trading Arrangement
(SAPTA) aims to promote and sustain mutual trade and the economic cooperation among the
Contracting States but involves no issue related to environment. RTAS/FTAS IN ASIA Here we
may discuss features of some of the more important RTAs/FTAs concluded/existing in Asia and
their effect on the region. Countries may come together to form a free trade area which means
that goods traded between those countries will not attract customs duties. It would also typically
mean that quotas or preferences would not apply to trade between themselves.

However, countries that constitute a free trade area do not have the same policies with respect
to non-members. Some of the better known free trade areas include the North American Free
Trade Agreement (NAFTA), European Free Trade Association and South American Community
of Nations. SAFTA - South Asian Free Trade Area SAARC region with just 3 percent of the
world's area houses 21 percent of the global population and also it is the most densely
populated part of the world with about 263 people for every square kilometre. The region is
characterized by large income disparities, with 43 percent of its population living below the
poverty line. But according to a recent World Bank report, "South Asia's Integration into the
Global Economy," predicts South Asia will have "the world's fastest growth in exports" by 2028.
Two major initiatives aimed at boosting intra-SAARC trade have been South Asian Preferential
Trading Agreement (SAPTA) introduced in 1995, and agreement to establish South Asian Free
Trade Area (SAFTA), over a period of 10 years starting January 1, 2006. SAPTA was envisaged
primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA)
leading subsequently towards a Customs Union, Common Market and Economic Union. SAPTA
? South Asian Preferential Trading Agreement: In December 1991, the Sixth Summit held in
Colombo approved the establishment of an Inter-Governmental Group (IGG) to formulate an
agreement to establish a SAARC Preferential Arrangement (SAPTA) by 1997. Given the
consensus within SAARC, the Agreement on SAPTA was signed on 11 April 1993 and entered
into force on 7 December 1995 well in advance of the date stipulated by the Colombo Summit.

The Agreement reflected the desire of the Member States to promote and sustain mutual trade
and economic cooperation within the SAARC region through the exchange of concessions. The
basic principles underlying SAPTA are: ? overall reciprocity and mutuality of advantages so as
to benefit equitably all Contracting States, taking into account their respective level of economic
and industrial development, the pattern of their external trade, and trade and tariff policies and
systems; ? negotiation of tariff reform step by step, improved and extended in successive
stages through periodic reviews; ? recognition of the special needs of the Least Developed
Contracting States and agreement on concrete preferential measures in their favour; and ?
inclusion of all products, manufactures and commodities in their raw, semi-processed and
processed forms.

So far, four rounds of trade negotiations have been concluded under SAPTA covering over
5000 commodities. Each Round contributed to an incremental trend in the product coverage
and the deepening of tariff concessions over previous Rounds. The Member States are in the
process of completing the necessary procedural formalities to give effect to the concessions
extended in the Fourth Round. SAFTA - South Asian Free Trade Area In 1995, the Sixteenth
session of the Council of Ministers (New Delhi, 18-19 December) agreed on the need to strive
for the realization of SAFTA and to this end an Inter-Governmental Expert Group (IGEG) was
set up in 1996 to identify the necessary steps for progressing to a free trade area. The Tenth
SAARC Summit (Colombo, 29-31 July 1998) decided to set up a Committee of Experts (COE)
to draft a comprehensive treaty framework for creating a free trade area within the region, taking
into consideration the asymmetries in development within the region and bearing in mind the
need to fix realistic and achievable targets. What is SAFTA? The Agreement on South Asian
Free Trade Area (SAFTA), drafted by the COE, was signed on 6 January 2004 during the
Twelfth SAARC Summit in Islamabad, calling for the creation of a free trade zone covering
India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives. The Agreement is to
enter into force on 1 January 2006. The seven foreign ministers of the region signed a
framework agreement on SAFTA with zero customs duty on trade of practically all products in
the region by end 2012. The new agreement is subject to ratification by the seven governments.
SAFTA requires the member countries to bring their duties down to 20% in the first phase of the
two year period ending in 2007. In the final five-year phase ending in 2012, the 20% duty will be
reduced to zero in a series of annual cuts. Currently, the Sensitive Lists of products, Rules of
Origin, Technical Assistance as well as a Mechanism for Compensation of Revenue Loss for
Least Developed Member States are under negotiation. Under the Trade Liberalization
Programme scheduled for completion in ten years by 2016, the customs duties on products
from the region will be progressively reduced. However, under an early harvest programme for
the Least Developed Member States, India, Pakistan and Sri Lanka are to bring down their
customs duties to 0-5 % by 1 January 2009 for the products from such Member States. The
Least Developed Member States are expected to benefit from additional measures under the
special and differential treatment accorded to them under the Agreement. A serious obstacle to
a successful completion of the SAPTA process, and eventually SAFTA, has been lack of
confidence in the benefits that the free trade regime is likely to bring to the region.

Further, the political circumstances within the region are also a barrier to stronger economic
linkages that could have developed within the region.

Written in 2005 by Hemant K Batra for a conference in Thailand

By Hemant Batra, Lead Partner, Kaden Boriss Legal LLP, India; Vice President, SAARCLAW;
Chairperson, IICLAM, Singapore; Advisory Board Member, OIC, USA