The importance of increasing regional trade within Asia cannot be emphasised enough. At a time when regional trading agreements (RTA), such as the EU and NAFTA, have led to higher trade and investment, Asia continues to lag behind. Consequently, trade within Asia accounts for a minuscule proportion of world trade, even though the ASEAN countries, along with China, Japan, Korea and India, are among the fastest growing exporters in the world today. Reports suggest that China is set to enter into an agreement with the ASEAN countries to promote trade by cutting tariffs on a large number of commodities with the region. This will lead to greater economic integration, in a region in which members have, until now, seen themselves largely as competitors, than as potential partners.For India, the issue is more complex. While politically there is much to gain, the question is whether India will be able to reap the significant economic benefits from entering into RTAs. This is a question the UPA government will have to grapple with long after the high-profile prime ministerial visit to Laos is over. The fact is that the benefit to India from entering an RTA is limited when it is dealing with a zone that includes countries that are already free-trading. The benefits would be much higher if we were dealing with countries with high levels of tariffs, because then we would not have to face those tariffs after the agreement. In contrast, it is in their interest that India lowers tariff barriers for them. Since India is a high tariff economy, an RTA gives members a clear benefit, but if the partner already has zero tariffs, Indian exporters do not stand to gain. The RTA does not give Indian exporters additional market access. So, for example, while India has an average custom to total import ratio of around 20 per cent, Singapore is a zero tariff zone, Sri Lanka’s is much lower at 5 per cent and Thailand’s is at 4 per cent. Indian exporters gain little by getting preferential tariffs in these countries. It is the exporters in the other country who stand to gain. So, on the international scale, India’s interest are better served if there are less RTAs and there is greater multilateral tariff reduction. India faces discrimination in the US and Europe because of numerous RTAs that exist.Yet, this is not to say that there are no gains to be made from RTAs. First, there are the political gains of belonging to a powerful grouping. Second, it is a way to reduce barriers to trade and reduce custom duties which may not be as easy to do in a unilateral manner. Yashwant Sinha, when he was finance minister, had announced that Indian tariffs would be brought down to ASEAN levels. If India is part of a deal to cut custom duties, it becomes easier to do so. While domestic producers may protest, consumers stand to gain when duties are cut. In addition, these agreements can lead to an increase in service exports — an area in which there is slower progress in multilateral arrangements like the WTO.
