Having strategy for trade agreements
Wednesday, 4 July 2007
WRESTLING does not automatically enhance body vitality for anyone to aspire to join this tough game for improving frail health. A recent seminar in Dhaka sent out this message in a different way when it concluded that the country should formulate a strategy for being part of any regional trade arrangement (RTA) in the future protecting the domestic economic interests. The conclusion, seemingly based on a critical review of the country's past mistakes or appreciation of others' unpleasant experiences, shows a kind of commendable enlightenment that should make all citizens happy. At least, before signing any free or preferential trade agreement granting total or partial tariff concessions in the future, the domestic industrial strength and the relative trade advantages should duly be considered.
This country is already a party to the South Asian Free Trade Arrangement, which was preceded by a preferential trade arrangement with the same group of countries, the original seven member states of the South Asian Association for Regional Co-operation (SAARC). Besides trade in goods, the latest agreement -- the one providing for free trade -- is projected to consider covering trade in services and investment. The expansion in its coverage is being contemplated when its main trade partner within the SAARC region, India, is annually exporting goods worth more than $1.8 billion to this country while its export to that country stands, more or less consistently, below $145 million. When its experience with one RTA was such, this country was also driven by the same ill-conceived notion of wrestling having the potential to automatically generate body strength to sign another RTA with the BIMSTEC countries -- a group involving Bangladesh, India, Myanmar, Thailand and Sri Lanka and lately also Nepal and Bhutan. It was to simultaneously cover trade in goods and services and investment. Negotiations on its implementation have, however, slowed down following the recent change of government in Thailand.
Free or preferential trade agreements between two or a group of countries are usually vexing for the weaker partner or partners if they do not enjoy enough complementariness for a surging trade with the rest. Mutual complementariness between or among their markets offers scope for demands in other partner countries to pull them up industrially. This could be the reason why Chidambaram, the Indian Finance Minister, told the Strait Times about a year back that his country would not enter into a free or preferential trade arrangement with any country having superior competitive advantages. Necessarily, it should not be a matter of concern for a country whether its prospective free or preferential trade partner or partners are more developed or not. What it must consider seriously prior to entering into any such arrangement is whether the domestic economy or economies of its would-be partner country or countries have vacant spaces to create demand for and accommodate its increased export. This is the most serious matter for consideration that justifies that this nation should have a strategy for signing RTAs, which is what the said seminar has strongly recommended.
The major buyers of its products being the European Union countries, the USA and Canada, to some extent, those are really the genuine trade partners of this country. Their trade interests suffer badly whenever this country imports predominantly from other sources. In this context, how far the mutuality of interests would be beneficial for this country in the long run should clearly be examined, considering the fact that the provision for concessional or no tariff under RTAs prompts importers to alter sources of their procurements. Thus, RTAs between unequal partners may encourage and lead to substantial trade diversion, which affects genuine trading partners and revenue income to widen a weaker partner state's dependence on domestic borrowings and foreign loans, none of which is without adverse economic consequences. Serious moves should, therefore, be underway at the earliest to formulate a strategy for signing future RTAs.
This country is already a party to the South Asian Free Trade Arrangement, which was preceded by a preferential trade arrangement with the same group of countries, the original seven member states of the South Asian Association for Regional Co-operation (SAARC). Besides trade in goods, the latest agreement -- the one providing for free trade -- is projected to consider covering trade in services and investment. The expansion in its coverage is being contemplated when its main trade partner within the SAARC region, India, is annually exporting goods worth more than $1.8 billion to this country while its export to that country stands, more or less consistently, below $145 million. When its experience with one RTA was such, this country was also driven by the same ill-conceived notion of wrestling having the potential to automatically generate body strength to sign another RTA with the BIMSTEC countries -- a group involving Bangladesh, India, Myanmar, Thailand and Sri Lanka and lately also Nepal and Bhutan. It was to simultaneously cover trade in goods and services and investment. Negotiations on its implementation have, however, slowed down following the recent change of government in Thailand.
Free or preferential trade agreements between two or a group of countries are usually vexing for the weaker partner or partners if they do not enjoy enough complementariness for a surging trade with the rest. Mutual complementariness between or among their markets offers scope for demands in other partner countries to pull them up industrially. This could be the reason why Chidambaram, the Indian Finance Minister, told the Strait Times about a year back that his country would not enter into a free or preferential trade arrangement with any country having superior competitive advantages. Necessarily, it should not be a matter of concern for a country whether its prospective free or preferential trade partner or partners are more developed or not. What it must consider seriously prior to entering into any such arrangement is whether the domestic economy or economies of its would-be partner country or countries have vacant spaces to create demand for and accommodate its increased export. This is the most serious matter for consideration that justifies that this nation should have a strategy for signing RTAs, which is what the said seminar has strongly recommended.
The major buyers of its products being the European Union countries, the USA and Canada, to some extent, those are really the genuine trade partners of this country. Their trade interests suffer badly whenever this country imports predominantly from other sources. In this context, how far the mutuality of interests would be beneficial for this country in the long run should clearly be examined, considering the fact that the provision for concessional or no tariff under RTAs prompts importers to alter sources of their procurements. Thus, RTAs between unequal partners may encourage and lead to substantial trade diversion, which affects genuine trading partners and revenue income to widen a weaker partner state's dependence on domestic borrowings and foreign loans, none of which is without adverse economic consequences. Serious moves should, therefore, be underway at the earliest to formulate a strategy for signing future RTAs.