Regional trade arrangements are not a new phenomenon. The first wave of their formation included the creation of European Community (EC) in 1957, European Free Trade Area (EFTA) in 1960 and Latin American Free Trade Area (LAFTA) in 1960.
Various others followed in 1960s. 1980s saw a new spate of such arrangements followed by a much stronger surge in 1990s and later. Thus, for example, between 1948 and 1994 (46 years), 121 FTAs were formed and registered with GATT under Article XXIV.
In contrast, as many as 129 FTAs were registered with WTO within seven years of its inception (that is, during 1995-2002). And, the trend has not weakened even now. The failure of WTO Ministerial at Seattle in 1999 and in September 2003 at Cancun added further strength to this trend.
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It gave rise to an open talk of a “fractured” world economy, that is, a world economy divided into overlapping trading blocs. The emergence of an integrated and rule-based world trading system has now become a remote possibility.
And, it is not just the poorer countries trying to come together for protecting their interests. Developed countries are pursuing this path even more vigorously.
For example:
Trade Act of 2003 of USA specifically authorises the President of USA to negotiate trade liberalisation agreements with other countries. The Economic Report of the President of USA in February 2003′ said that the US Administration was engaged in negotiating several trade agreements. These included both bilateral free trade agreements and those aiming at regional groupings (such as a Free Trade Area of the Americas).
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Some analysts believe that, compared with the position in institutionalised and rule-based world trading system, the bargaining strength of poor countries is drastically weakened in bilateral negotiations.
For this reason, developed countries are more interested in a “fractured” world economy than in a unified one; and the protectionist sentiment is gaining strength in them.
Most countries, irrespective of their level of development, are trying to tie up with each other into some form of trading arrangements. Several have become members of more than one bloc. Even WTO extends them official approval.
This new surge is so strong that even countries the India have been attracted by it. Till now, India had looked upon such regional arrangements with indifference and, strangely enough, even academic and business circles were not suggesting a change in this policy.
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But now, India has woken up to the reality and is clawing its way back into the newly emerging world economic order. By all reckoning (and more so on realistic grounds) this is a healthy change for our country. India should pursue this path with utmost vigor by using all the resources at its command.
Membership of each FTA will enable it to widen its trade transactions considerably more than those prescribed in the original agreement. The reason for these spill-over gains lies in the fact that most countries are trying to acquire membership of as many trading blocs as possible.
This has led to an overlapping membership of trading blocs. Because of this, member of one FTA gets access, though its co-members, to another FTA also.
Obviously, entering into an FTA arrangement with larger-sized economies is expected to be more beneficial. For example, an Indian FTA with USA, EU, China or Singapore, etc., is expected to be more beneficial to it than an FTA with, say, Afghanistan.
Of course, in absolute terms, every FTA adds to trading potentials, and even a single FTA is far better than no FTA for its individual members.
In what follows, only a brief description is given of some preferential trade arrangements, particularly those which are of immediate interest to India.
The description is only illustrative in nature. This is because a “complete” discussion would make it not only unwieldy but also unnecessary for our purpose.
Moreover, in this field, developments are taking place so fast that most details get outdated at a rapid rate. We should, therefore, limit ourselves to only studying the undercurrents.