Globalisation in trouble: RTA the second best option

Dhaka,  Tue,  26 September 2017
Published : 21 Apr 2017, 21:01:38

Globalisation in trouble: RTA the second best option

Asjadul Kibria
This is a difficult time for multilateralism, more so for multilateral trade. After Mr Donald Trump assumed the presidency of the United States, he is taking moves, one after another, to demean globalisation as well as multilateralism. He is clearly moving towards a conservative trade policy, one that was adopted by many advanced countries in the war-torn '30s. It is known as 'bagger-thy-neighbour' policy which encouraged countries to gain at the cost of their trading partners. Under the policy, advanced countries generally devalue their own currencies excessively to get competitive edge over their trading partners and put series of trade barriers to protect their own industries. 

However, in the inter-connected world of today, it is impossible to stop the course of globalisation, let alone reverse it. Under the framework of the World Trade Organisation (WTO), countries of the world have been trying to create a global rule-based trading regime. Though the progress is not up to the desired level, it generally brings benefit to the developing countries. The 16-year-long deadlock of the Doha Round negotiation of the WTO has caused serious disappointment among member countries. Under the negotiation, developed and developing countries are at loggerheads on farm subsidy and industrial tariff reduction. Some other disputes are also there. 

Now, the US and many other developed countries are no more interested to get on with Doha negotiation. In the era of Trump, the stance becomes tougher which indicates rejecting the WTO and other global initiatives supporting multilateral trade. As the US is the focal point of global economy and its currency is most used in international trade, any major move on its part is potentially capable of affecting the rest of the globe. 

In such a troublesome and uncertain situation, Regional Trade Agreements (RTAs) may be considered the second best option for countries to continue their trade and support their inter-dependence.

RTA is a mechanism to create a trade bloc to open-up regional trade among member countries over a period of time. While the primary objective is free trade, the ultimate goal is to establish an economic union. Thus RTAs start with free movement of goods as well as free movement of people across borders.

True, RTA is an exception to the WTO-based multilateral system. During 1948-1994 period of GATT (General Agreement on Tariffs and Trade), some 124 RTAs were notified by the member countries. But with the formal inception of WTO in January 01, 1995, the wave of RTAs has also started to surge. Until March 31, 2017, a total 433 RTAs are notified to the WTO of which 270 are active.  RTA is believed to be both the building block as well as the stumbling block for multilateral free trade regime. 

Interestingly, three mega-RTAs are there of which two are promoted by the US to undermine the WTO. But the US itself is now pulling itself out of the alliances. In his first week in office, Mr Trump formally withdrew his country from the Trans-Pacific Partnership (TPP) agreement disappointing its 11 partners--Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, South Korea, Singapore and Vietnam. Though these countries are now thinking to continue TPP without the US, it is very unlikely that the deal will proceed any farther. Without USA, the mega-trade bloc will lose its effectiveness. The US is also likely to pull out of the Transatlantic Trade and Investment Partnership (TTIP) which is negotiated with the European Union (EU). 

By cutting ties with these two mega-RTAs, the US is focusing on bilateral trade agreements with its trading partners. The US has bilateral free trade agreements (BFTA) with 20 countries (as on December 31, 2016). These are: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore. The scope of these agreements encompasses beside trade in goods and services issues such as investment, intellectual property right and standards on labour and environment. Thus these are in many respects WTO-plus implying compliance of more stringent conditions than they those envisaged in the WTO framework. A new mega-RTA, mainly stirred by China is the Regional Comprehensive Economic Partnership (RCEP). 10 member countries of the Association of Southeast Asian Nations (ASEAN) and their common three Asian FTA partners are members of the bloc. The ASEAN members are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. ASEAN's FTA partners are:  Australia, China, India, Japan, New Zealand and South Korea. Thus 16 Asia-Oceanian or Asia-Pacific countries are members of the RCEP. Again, it is also not sure when the RECP will take off finally.       

Bangladesh is currently engaged in seven RTAs, although the country is yet to sign any bilateral FTA with any of its trading partners. Of the seven RTAs, five are preferential trade agreements (PTAs) and remaining two FTAs. While PTA emphasises on tariff reduction or preferential treatment by some members to other members, FTA's focus is on tariff elimination by all members. So, PTA is a stepping stone of FTA which may move towards customs union and common market at later stages.

Of the five PTAs, South Asian Preferential Trade Agreement (SAPTA) has phased out and transformed into South Asian Free Trade Area (SAFTA) agreement.  Though it was scheduled to be completed in 2016, many things are still left unfinished to establish an effective free trade area. For Bangladesh, tariff-free market access to India under SAFTA is the most visible outcome so far. Another FTA is the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) FTA which is yet to start the tariff elimination process. 

Among other PTAs, only Asia-Pacific Trade Agreement (APTA) brings some real benefit for Bangladesh in the sense that the country gets good preferential tariff treatment from China and South Korea. Other three PTAs (D-8, TPS-OIC and GSTP) have made no progress worth mentioning.

Thus Bangladesh's RTA experience is not very pleasant. Nevertheless, the country needs to continue its effort to move ahead with RTAs at a time when multilateral trade regime is fraught with difficulties it had not experienced in the past. In this connection, Bangladesh may also think of engaging with the RCEP where all members are of the same region and many are active trade partners of the country.   

Editor : A.H.M Moazzem Hossain
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