Critically examine why underdeveloped countries like Nepal,

Bhutan and other countries in Asia and Africa have literally

failed to reap-benefits from the multilateral trade
agreements and regional economic integration/ regional
trade agreements (RTAs). Highlight the issues relating to
WTO, SAFTA, BIMSTEC, NAFTA, EU and African
regional agreements.
Background and Introduction

International Trade agreements are the concepts of exchange of goods and services between the
countries. The multilateral trade agreement builds commercial relationship, trade facilitation and
financial investments among member countries of such multilateral trade agreement. Compared
to bilateral trade agreement, multilateral trade agreements are difficult in negotiation of
agreement, as more member countries are involved in multilateral trade agreements. Up to the
level of norms in multilateral trade agreement, the member countries are treated equally. There
are many multilateral trade agreements between countries worldwide regionally for the
development of economy of each member countries signed in each multilateral trade agreement.
SAARC (South Asian Association for Regional Cooperation), NAFTA (North American Free
Trade Agreement) etc. are some of the multilateral trade agreements constructed geographically.
The multilateral trade agreements are moved globally for public health, environment etc. also
other than economic development of each member country and in turn over all development of
world nations. Similarly a Regional Trade agreement refers to the treaty signed by two or more
countries to encourage free movements of goods and services across the borders of its members.

Theories on international trade

Classical trade theory developed in the sixteenth century, mercantilism was one of the earliest
efforts to develop an economic theory. This theory stated that a country’s wealth was determined
by the amount of its gold and silver holdings. In its simplest sense, mercantilists believed that a
country should increase its holdings of gold and silver by promoting exports and discouraging
imports. In other words, if people in other countries buy more from you (exports) than they sell
to you (imports), then they have to pay you the difference in gold and silver. The objective of
each country was to have a trade surplus, or a situation where the value of exports is greater than
the value of imports, and to avoid a trade deficit, or a situation where the value of imports is
greater than the value of exports.

In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of
Nations.Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London:
W. Strahan and T. Cadell, 1776). Recent versions have been edited by scholars and
economists. Smith offered a new trade theory called absolute advantage, which focused on the
ability of a country to produce a good more efficiently than another nation. Smith reasoned that
trade between countries shouldn’t be regulated or restricted by government policy or
intervention. He stated that trade should flow naturally according to market forces. In a
hypothetical two-country world, if Country A could produce a good cheaper or faster (or both)
than Country B, then Country A had the advantage and could focus on specializing on producing
that good. Similarly, if Country B was better at producing another good, it could focus on
specialization as well. By specialization, countries would generate efficiencies, because their
labor force would become more skilled by doing the same tasks. Production would also become
more efficient, because there would be an incentive to create faster and better production
methods to increase the specialization.

The challenge to the absolute advantage theory was that some countries may be better at
producing both goods and, therefore, have an advantage in many areas. In contrast, another
country may not have any useful absolute advantages. To answer this challenge, David Ricardo,
an English economist, introduced the theory of comparative advantage in 1817. Ricardo reasoned
that even if Country A had the absolute advantage in the production of both products,
specialization and trade could still occur between two countries.

Comparative advantage occurs when a country cannot produce a product more efficiently than
the other country; however, it can produce that product better and more efficiently than it does
other goods. The difference between these two theories is subtle. Comparative advantage focuses
on the relative productivity differences, whereas absolute advantage looks at the absolute
productivity. Openness to international trade accelerates development of poor countries: this is
one of the most widely held beliefs in the economics profession, one of the few things on which
Nobel Prize winners of both the left and the right agree.” (David Dollar & Aart Kraay,2000, p.
3). Few economic theories have stood the test of time better than David Ricardo’s almost two
hundred year old theory of comparative advantage, or comparative costs. In contrast to the
previous mercantilist views that exports are good, imports are bad Ricardo did not consider
foreign trade to be a zero sum game but rather as something mutually advantageous. If two or
more countries specialize in producing the goods they have comparative advantages in
manufacturing, all parties gain by the exchange of trade. Free trade, and specialization according
to each country’s comparative advantage, benefits all countries.

In the continuing evolution of international trade theories, Michael Porter of Harvard Business
School developed a new model to explain national competitive advantage in 1990. Porter’s
theory stated that a nation’s competitiveness in an industry depends on the capacity of the
industry to innovate and upgrade. His theory focused on explaining why some nations are more
competitive in certain industries. To explain his theory, Porter identified four determinants that
he linked together. The four determinants are (1) local market resources and capabilities, (2)
local market demand conditions, (3) local suppliers and complementary industries, and (4) local
firm characteristics.

Critically Examine

There are more than 50 least developed countries (LDC) in the world. Over 600 million people
live in the LDC. A large part of foreign direct investment goes to LDCs and the debt situation
has worsened. Fallen Economic growth in the LDCs is because of trade barrier on export market.
However, the dominant reasons are of an internal nature and are related to the extreme poverty
and prevailing political climate in these countries: lack of education, inadequate physical
infrastructure, political instability and civil strife, poorly developed democratic traditions and
institutions, in many cases also corruption and abuses of power.

The LDCs play a very marginal role in the new world trade organization, the WTO, and in the
global regulatory framework that is currently developing. Just over one third of all LDCs are not
members of the WTO, and most of those who are members are only very passively involved in
WTO trade policy negotiations. One reason why the LDCs are not more actively involved in
WTO is a lack of resources, mainly in the form of trade policy expertise. The industrialized
countries have an enormous advantage in this respect. Another reason is that most LDCs have
joined various bilateral preferential trade arrangements – for instance with the EU that tend to be
of greater importance for market access than WTO another example of Neapal and india
bilateral trade agreement. the formation of regional free trade areas, customs unions and other
types of regional economic cooperation. We also throw light on the positive trends of South-
South cooperation in the area of trade which are clearly discernible in various parts of the world.
The LDCs’ lack of involvement with the WTO is also related to the fact that their development
problems are due more to their supply constraints, that is to say, difficulties in producing
something that is competitive on the world market, than issues concerning market access. Even
so, the LDCs are also hampered by the trade barriers that still exist on other countries’ markets.
The most serious of these trade barriers are the restrictions that remain in those few areas where
the LDCs could be competitive today, i.e. agriculture and textiles.

The promises made concerning successive deregulation and increased market access made by the
industrialized countries during the Uruguay Round of negotiations, which marked the formation
of WTO, have not been fulfilled to any meaningful degree. The domestic agricultural sectors of
many LDCs are also hard hit by dumping of food surpluses by rich countries, not least the EU,
that are the result of heavy subsidies to agricultural production and exports. Poorer countries are
also hard hit by so-called tariff escalation which still characterizes much import to industrialized
countries. Tariff escalation means that while raw materials are often imported duty-free, import
tariffs rise with higher levels of processing. This tariff structure strikes at the root of any attempts
by poorer countries to build up their own processing/refining industries based on their own raw
materials. The recent EU resolution to grant all LDCs duty-free access to the internal EU market
for virtually all products is therefore satisfactory. The long transition periods for several products
rice, sugar and bananas – are, however, unfortunate. Another element which seriously dilutes the
value of EU’s promises of future freedom from tariffs for LDCs is the complicated requirements
surrounding rules of origin. These make it impossible for LDCs to gain advantage from these
trade concessions if their exports consist of processed goods based on raw materials produced by
developing countries which are not LDCs. One example could be that clothes exported from an
LDC lose their tariff free status if they use cotton cloth from China.. It is claimed that even
though the LDCs have been granted a series of exceptions and special rules – primarily in the
form of extended transition periods for implementing agreements too little attention has been
paid to the special circumstances and development needs in these countries. Another central
point is that many WTO agreements such as trips that regulate issues concerning intellectual
property rights, and trims, that addresses investment issues are ill suited to ldc needs. The trips
Agreement in particular brings few advantages and many disadvantages in the form of e.g. more
expensive pharmaceuticals, for LDCs. We therefore consider that it is vital to allow the poorest
countries, if they wish, to opt out of several new WTO agreements including trips and trims.
Consequently this agreement could have far-reaching consequences for both LDCs and
industrialized countries. Implementation of the various trade policy agreements is a costly
exercise for LDCs who lack much of the necessary expertise and infrastructure. The agreements
are not only about reducing duties and other trade barriers; they also require far-reaching reforms
and sometimes the need to develop from scratch of national legislation and trade-related
institutions. The trips agreement and the agreement on customs valuations are examples of such
demanding and costly agreements. Many LDCs choose therefore often justifiably so to reserve
their scarce resources for other, more pressing areas.
Reference

 World Trade Organization.2011. Trade Policy Review. Geneva

 Gary P. Sampson and Stephen Woolcock, Regionalism, multilateralism and economic
integration: The recent experience.
 Nepal Rastra Bank, economic integration in south Asia
 unctad (1999), Trade, Sustainable Development and Gender, New York and Geneva