Regional Economic Engagements and the Free Trade Agreements: Analytical Insights and Policy Options

241 Pages·2010·1.44 MB·English

by  Ram Upendra Das

REGIONAL ECONOMIC
ENGAGEMENTS AND
THE FREE TRADE
AGREEMENTS
Analytical Insights and
Policy Options
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REGIONAL ECONOMIC
ENGAGEMENTS AND
THE FREE TRADE
AGREEMENTS
Analytical Insights and
Policy Options
Ram Upendra Das
RIS, India
Piyadasa Edirisuriya
Monash University, Australia
Anoop Swarup
United Nations
World Scientific
NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI
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Published by
World Scientific Publishing Co. Pte. Ltd.
5 Toh Tuck Link, Singapore 596224
USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601
UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
REGIONAL ECONOMIC ENGAGEMENTS AND THE FREE TRADE AGREEMENTS
Analytical Insights and Policy Options
Copyright © 2010 by World Scientific Publishing Co. Pte. Ltd.
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
electronic or mechanical, including photocopying, recording or any information storage and retrieval
system now known or to be invented, without written permission from the Publisher.
For photocopying of material in this volume, please pay a copying fee through the Copyright
Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to
photocopy is not required from the publisher.
ISBN-13 978-981-283-915-2
ISBN-10 981-283-915-1
Typeset by Stallion Press
Email: [email protected]
Printed in Singapore.
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v
Contents
Preface xi
Chapter 1: Introduction 1
1.1 India’s Trade Policy Reforms 2
1.2 Rationale 5
1.3 Scope 5
Chapter 2: Regional Economic Agreements of India: 7
Status, Potential and Some Experience
2.1 Experience Gained from Implementation 7
2.1.1 India–Bhutan Free Trade Agreement (FTA) 7
2.1.2 India–Nepal Trade Treaty 8
2.1.3 India–Sri Lanka FTA 8
2.1.4 South Asian Free Trade Area (SAFTA) Agreement 9
2.1.5 India–Thailand Early Harvest Scheme (EHS) 11
and FTA
2.1.6 India–Singapore Comprehensive Economic 14
Cooperation Agreement (CECA)
2.1.7 India–ASEAN FTA 16
2.1.8 India–Malaysia CECA 19
2.1.9 India–New Zealand CECA 21
2.1.10 India–Indonesia CECA 22
2.1.11 Asia Pacific Trade Agreement (APTA) — The 24
Erstwhile Bangkok Agreement
2.1.12 GSTP 26
2.1.13 East Asia Summit (EAS) 27
2.1.14 India–Afghanistan Preferential Trade 28
Agreement (PTA)
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vi Regional Economic Engagements in India
Annex 2.1 30
Annex 2.2 31
Chapter 3: The Economics of Regional Integration and 35
Analytical Insights from Negotiations
3.1 Economic Rationale of Regional Integration 35
3.1.1 Adjustment Cost vs. Efficiency Concerns 35
3.1.2 Linkages between Trade in Goods and Trade 38
in Services
3.1.3 Trade–Investment Linkages 38
3.1.4 Importance of Regional Economic Integration 39
for Scale Expansion
3.1.5 Trade Creation and Diversion 40
3.1.6 Trade Diversion not Necessarily Bad 41
3.1.7 ROO: Developmental Outcomes 41
3.1.8 Some Empirical Estimates 42
3.1.9 Tests of Stationarity 46
3.1.10 Levin–Lin–Chu Test 46
3.1.11 Im–Pesaran–Shin Test 48
3.1.12 Hadri Test 48
3.2 Analytical Insights from Negotiations 52
3.2.1 “Substantially All Trade” 52
3.2.2 Sensitive List 52
3.2.2.1 Safeguarding the sensitivities of the 52
agriculture sector: Lessons from RTAs
of the ASEAN countries and
some developed countries
3.2.2.2 Treatment of agriculture sector in 63
agreements of the developed countries
3.2.2.3 Summary 65
3.2.3 Rules of Origin (ROO) 66
3.2.3.1 The rationale 66
3.2.3.2 Modalities 67
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3.2.3.3 CTH vs. CTSH 69
3.2.3.4 ROO as a development policy tool 70
3.2.3.5 Enhancing the feasibility of 71
welfare-inducing FTA
3.2.4 Trade in Services 72
3.2.4.1 Uniqueness of services 72
3.2.4.2 Major characteristics of services 72
3.2.4.3 Theories of trade in services 73
3.2.4.4 Relevance of services trade integration 76
in SAARC
3.2.5 Investment Cooperation 77
Annex 3.1 78
Annex 3.2 84
Chapter 4: Empirical Estimation of Economic 135
and Welfare Gains
4.1 Computable General Equilibrium Modeling Estimates 135
(GTAP Simulations)
4.2 Effects of Tariff Reduction and Trade Facilitation 136
4.2.1 Simulation Results 136
4.2.1.1 GDP and welfare gains 136
4.2.1.2 Trade gains 137
4.2.1.3 Saving, investment, and net foreign 137
capital inflows
4.2.1.4 Intra-FTA imports and prospects for exports 139
to the world
4.3 Bilateral: India–Thailand FTA 142
4.3.1 The Model and Assumptions 142
4.3.2 Impact not Captured by the Model 144
4.3.2.1 Macroeconomic impact under FTA: 145
CGE modeling results
4.3.2.2 Model and data 145
4.3.2.3 The macroeconomic impact of 145
FTA on India
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viii Regional Economic Engagements in India
4.3.2.4 The macroeconomic impact of 146
FTA on Thailand
4.3.3 Potential Areas of Trade Expansion 147
4.3.3.1 Trade complementarity and production 148
similarity
4.3.3.2 Potential intra-industry trade 150
4.3.3.3 Costs of noncooperation 151
4.3.4 India–Malaysia FTA 152
4.3.4.1 Bilateral exports projection 152
4.3.4.2 Computable general equilibrium simulations 154
4.3.4.3 Gains from the EAS process 155
Annex 4.1 158
Chapter 5: Policy Implementation Issues in RTAs 161
5.1 Circumvention 161
5.1.1 Objective to Check Unfair Trade Practices 161
5.1.1.1 Measures: Anti-dumping duty (AD): 161
Price-discrimination
5.1.2 Circumvention of Rules: Case Studies 163
5.1.2.1 Tariff-rate quota 163
5.1.3 Are Rules Necessarily Bad? 167
5.2 Improving Implementation 168
5.2.1 Harmonization of Codes, Valuation, and Procedures 168
5.2.2 E-Implementation 174
Chapter 6: Issues for Further Negotiations 175
6.1 Nontariff Barriers 175
6.1.1 Effects on General Equilibrium/International Trade 179
6.1.2 Static and Partial Equilibrium Analysis 180
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Contents ix
6.2 Major Categories of Nontariff Measures 183
and Related Policies
6.2.1 Quantitative Restrictions and Similar Specific 183
Limitations
6.2.2 Nontariff Charges and Related Policies Affecting 184
Imports
6.2.3 Government Participation in Trade, Restrictive 184
Practices, and More General Government
Policies
6.2.4 Custom Procedures and Administrative Practices 185
6.2.5 Technical Barriers to Trade 186
6.3 Classification of Nontariff Barriers Provided by Different 186
International Bodies
6.3.1 Trains 186
6.3.2 Non-Agriculture Market Access (NAMA) 186
6.3.3 National Trade Estimates Reports of Foreign 187
Trade Barriers of the United States
6.4 Trade in Services 187
6.4.1 GATS Framework 188
6.4.2 Uniqueness of Services 189
6.4.2.1 Major characteristics of services 189
6.4.2.2 Theories of trade in services 189
6.4.2.3 Trade in services 190
6.4.3 Approaches to Trade in Services Liberalization 192
6.4.3.1 Economic needs tests 192
6.4.3.2 Negotiating modalities 192
6.4.3.3 Approaches to interrelated services 193
sectors
6.4.3.4 Transparency in domestic regulation 193
6.4.4 Rules of Origin (ROO) for Services 193