India’s Regional Trading Agreements

1. Indian trade policy has made an important shift in the year 1991, when we have gone for globalisation, trade liberalisation and other market reforms. Thus year 1991, stands as a benchmark year for India’s trade policy.
2. The next big event in World trade is setting of WTO in 1995, the successor of erstwhile GATT. WTO’s multilateral approach towards trade and as an institution of trade ombudsman is remarkable. It acts as platform between developed and developing countries to negotiate with each other.
3. The successive rounds of WTO have made rules of trade game much transparent and nearly equal for all. But things have started to change after famous ‘Doha Round’ of 2001 gets staled.
4. In the initial year differentiation between developed and developing countries was taken as basic principle, with larger responsibility lying on developed World. However since Uruguay round focus has shifted towards reciprocity. This has resulted in conflict between developed and developing countries over trade negotiations and subsequent staling of conferences.
5. All these have lead to development of what is known as Regional groupings, RTAs and FTAs.
6. Countries were signing these agreements earlier also, but they were concentrated on some part of world. These agreements give easy market access and tariff benefits to member countries.

There are many form of integration in world. Economist Jacob Viner has given his theory of ‘Custom Union’ followed by work of J.E Meade. To summarise followings are the ways of integration;

Preferential trade union; two or more countries can form a trading union and reduce tariffs on imports of each other. They maintain their individual tariffs against Rest of world.

Free trade area; two or more countries come together and abolish all tariff duties on their trade but retains individual tariffs against ROW.

Custom union; two or more countries abolish all tariff among themselves and adopts a common tariff barrier against imports of ROW.

Common market; common market is formed, when two or more countries form a custom union and in addition allows free movement of factor of production among member countries.

Economic union; it is the highest form of integration where two or more countries forms a common market and in addition proceeds to harmonise and unify their monetary, fiscal and exchange rate policies.

All of the above forms of integration have trade creation as well as trade diversion effects. To check for such diversion effects WTO has come up with most favoured nation clause, which states that,

“Any advantage, favour, privilege or immunity granted by any contacting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for territories of all other parties”.

India’s Regional and Free Trade Agreements

Source: Ministry of Commerce and WTO

By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University