Trading more within Asia makes Economic Sense

BILATERAL RELATIONSHIP

04 Feb, 2023

NEWS HIGHLIGHT

Theme : Bilateral, regional and global grouping involving India or affecting India’s interests etc
Paper:GS-2

A warning by the International Monetary Fund (IMF) that global trade would slow down from 4% in 2022 to 2.4% in 2023.

TABLE OF CONTENT

Context : A warning by the International Monetary Fund (IMF) that global trade would slow down from 4% in 2022 to 2.4% in 2023.

FTAs and What does they cover :

FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
Under a free trade policy: Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
Protectionism: The concept of free trade is the opposite of trade protectionism or economic isolationism.
FTAs can be categorized as:
Preferential Trade Agreement (PTA)
Comprehensive Economic Cooperation Agreement (CECA)
Comprehensive Economic Partnership Agreement (CEPA)

What does FTA cover?

Tariff reduction impacting the entire manufacturing and the agricultural sector
Rules on services trade
Digital issues such as data localisation
Intellectual property rights that may have an impact on the accessibility of drugs
Investment promotion, facilitation, and protection.

What needs to be done :

Regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade.
South Asia’s trade opening should be calibrated with tax reforms as trade taxes account for much of government revenue in some economies.
Adjusting financing to losing sectors to reallocate factors of production and re-training of workers to promote gains from trade and mitigate income inequality.
Improve the performance of special economic zones (SEZs) and invest in services SEZs to facilitate industrial clustering and exports.
Pursue comprehensive FTAs that eventually lead to the Regional Comprehensive Economic Partnership (RCEP) to provide for a regional rules-based trade to insure against rising protectionism.
South Asian economies need to improve tariff preference use by better preparing business in navigating the complex rules of origin in FTAs
Including issues relevant to global supply chains in future FTAs.
Reinvented trade-focused Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) can facilitate stronger trade ties and support the interests of smaller members.

Road Ahead :

Regional trade in Asia is recovering after the COVID-19 pandemic and has opened opportunities for South Asia to participate in global value chains and services trade.
Improving SEZ processes and outcomes in South Asia requires:
ensuring macroeconomic and political stability
adopting good practice regulatory policies towards investors
providing reliable electricity
5G broadband cellular technology
upgrading worker skills.
India has also concluded FTAs with the United Arab Emirates and Australia in 2022: The confidence gained from these can help prepare for future RCEP membership by undertaking structural reforms.It will boost business competitiveness in supply chains and foster greater regulatory coherence with East Asia.
If India joins RCEP, the rest of South Asia may be incentivised to join out of a fear of being left out and suffering from trade diversion effects.

FAQs :

ANS.

FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
Under a free trade policy: Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

ANS.

Tariff reduction impacting the entire manufacturing and the agricultural sector
Rules on services trade
Digital issues such as data localisation
Intellectual property rights that may have an impact on the accessibility of drugs
Investment promotion, facilitation, and protection.