Fostering Trade through Public-Private Dialogue

Regional Integration in Asia

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TABLE OF CONTENTS PAGE N.

Preface........................................................................................................................................1
Session I: Inaugural Session.....................................................................................................3
Session II: Asian Regionalism................................................................................................14
Session III: Supply Chain Linkages Across Borders in Asia..............................................26
Session IV: Transaction Costs in Regional Trade and Trade Facilitation ........................32
Session V: Intra-Regional Services Trade in Asia ...............................................................40
Session VI: Intra-Regional Investment Opportunities and Challenges.............................46
Session VII: Future Prospects of Asian Integration ............................................................52
List of Participants..................................................................................................................63

__________________________________________________________________
For any comments, questions and/or suggestions please contact:
World Trade Net Team - International Trade Centre (ITC)
E-mail: worldtradenet@intracen.org

The colors, boundaries, denominations and classification on the maps of this publication do not imply, on the
part of ITC, any judgment on the legal or other status of any territory, or any endorsement or acceptance of any
boundary.

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 PREFACE

The International Trade Centre (ITC) under its services titled “Business and Trade Policy”
has organised public-private dialogues on evolving international trading environment. ITC’s
main focus is on fostering communications between business and government, and joint
analysis of the business opportunities and challenges encountered as a result of trade
negotiations at the multilateral and regional / bilateral fora.

ITC in collaboration with the Indian Council for Research on International Economic
Relations (ICRIER), New Delhi, India organised a regional experts meeting for Asian
countries in New Delhi on 28-29 March 2007. The meeting focussed on business implications
of Asian regional integration. It took stock of the experience of fostering integration in the
region, lessons learnt, future prospects of still deeper economic integration and its interface
with multilateral liberalisation.

The meeting covered diverse areas, which have relevance from the perspective of regional
integration, such as, supply chain linkages across borders, transaction costs in regional
integration and trade facilitation, trade in services and intra-regional investment opportunities
and challenges.

The findings described in the report reflect the discussion amongst policy analysts and
business practitioners from the region. The report is intended to guide the business leaders in
developing and least developed countries to equip themselves with technical capacity to be
able to collaborate with their governments in formulating their negotiating positions and
design trade polices by appreciating new opportunities and challenges encountered in rapidly
evolving international trading environment.

The representatives from the private and public sectors of Afghanistan, Bangladesh, Bhutan,
Cambodia, People’s Republic of China, India, Indonesia, Malaysia, Nepal, Pakistan, the
Philippines, Sri Lanka, Thailand and Viet Nam attended this meeting.

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 SESSION I: INAUGURAL SESSION

Mr. Stephen Browne, Deputy Executive Director, International Trade Centre, Geneva

On behalf of the International Trade Centre (ITC) I am very delighted to be in New Delhi to
welcome you to this important meeting on regional integration in Asia, in collaboration with
the Indian Council of Research on International Economic Relations (ICRIER) and with the
additional support of the Confederation of Indian Industry (CII). Of course it’s an opportune
time because next week the South Asian Association for Regional Cooperation (SAARC)1 is
meting at the heads of State level here in New Delhi at which the eighth member,
Afghanistan, will be admitted which is an important step forward. Then it is opportune in
another sense in that the Doha Development Round we hope is being resuscitated and will be
making some contribution to more multilateral trade. It also gives me particular personal
pleasure to be back in India. I have been visiting this country since 1968. In that year I was a
very junior teaching assistant at the Doon School in Dehra Dun and I was being gleefully and
mercilessly bowled out in the cricket nets by some of the future elite of South Asia. That was
the year when Indira Gandhi was in her first stint as Prime Minister and I suppose you could
say that time that India cut a slightly ambiguous image on the world stage. On one hand, it
was a slow moving domestic economy somewhat in contrast to today’s 8% growth and yet it
was the source of many brilliant and dynamic entrepreneurs in other parts of the world. India
you might say is one of the world’s first entrepreneurs who have thrived always in the
business environment that was not the most propitious and I think this is one of the points,
which I really want to be underlined this morning.

As my modest contribution to this debate I want to make three propositions. The first is that
trade is still fixated on the north-south economic axis to an unhealthy extent. Secondly, and
as a corollary there are clearly, and I think this meeting is about that many opportunities, for
much greater regional cooperation, particularly in this region or regional trade. And thirdly,
export success in this region and elsewhere depends on strong and productive relationships
between the government and the private sector. This is a theme I want to repeat later.

North - South Trade Fixation

So, let me come to my first proposition: the world being still fixated on north-south
relationships. India, China and many other Asian countries as we know are now expanding at
sustained rates and you can attribute to Asia about 50% of world growth over the last five
years. Within a generation India and China will be restored as the two largest economies in
the world. Trade of course is the key driver of this growth. But while the rich countries are
praising relentlessly the virtues of openness and freer trade, there are new impediments that
they are putting in the way of developing country exports. The US and Europe are finding
new means to manage quota free trade in textiles after the demise or the welcome expiry of
the Multi Fibre Agreement (MFA). And all developed countries including Japan are
becoming alarmed at the prospects of jobs going abroad and the downward pressure on their
wages, which is of course something that is perhaps debatable in itself. And while these
protectionist tendencies have been maintained, the richer countries area also demanding
deeper concessions from the so-called emerging economies in the WTO negotiations. In
parallel with this multilateralism there are numerous new bilateral and regional trade

1
Members of SAARC are: Afghanistan (joined on 4 April 2007), Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan and Sri-Lanka.

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agreements. But the least satisfactory of these in my mind are those, which link a strong
northern partner with a weaker southern partner. And having lived a lot of my professional
life in Asia and quite recently in South-East Asia, I was able to witness this from that
viewpoint. And what I was saying was an Asian country, which was being asked to abrogate
some of its hard fought World Trade Organisation (WTO) and other accords in favour of the
rich partner. I am happy to say that is a trade agreement that has not yet been finalized. So to
conclude on my first point north-south alignment in trade is important but it’s not fair.

Regional Trading Arrangements in Asia

Fortunately, it’s no longer inevitable, which brings me to my second point about regional
trading arrangements, which can and should have growing importance. In this region, of
course, there have been many attempts to create regional groupings as much motivated by
political as by economic considerations. The closest to success I would say has been the
Association of South East Asian Nations (ASEAN)2 although it’s been slow in coming. But
nonetheless if you take the before and after scenario you find that before ASEAN there was
only 7% of trade among the original six countries. Today it’s nearly about 50%. Now of
course a lot of this is accounted for by oil particularly between Indonesia and Singapore and
you could say that without the existence of ASEAN inter-regional trade in South-East Asia
would have happened anyway. But still I think it’s true to say that ASEAN is being
something of a modest catalyst. If you look at before and after scenarios for North-American
Free Trade Area (NAFTA)3 trade has soared from 12% before to 44% afterwards, that’s
internal trade among those countries. For the European Union (EU) over a much longer
period of 50 years it grew from 23% to 67%. Now contrast that with South Asia where its
inter-regional trade is stuck at only 4%. These figures illustrate the undoubted opportunities
for more trade dynamism and trade creation within South-Asia and particularly in Asia in
general.

I would say that there are three factors that are holding back more trade integration. The first
is politics and I am not going to say too much about that except to hope that better relations
among the South Asian countries can do a lot in other forums apart from SAARC which is of
course an important political forum. The second factor, which seems to be holding back
regional integration are the trading conditions. As a meeting illustrated last year that we held
in Singapore the trade barriers among Asian countries and between Asian countries are still
very high and I think this is also an impediment to more trade growth. And the third factor is
about public-private partnerships. The State and the public sector continue to loom very large
in the trading relations of many Asian countries. But it is important that they leave space for
and facilitate private enterprise. One of the major factors in the relative success in ASEAN
has been the ability of the private sector to reach across borders freely with rather limited
restrictions.

Public-Private Relationships

This brings to me my third and my main proposition and that’s the successful exporting
invariably depends on a constructive and mutually supportive relationship between
governments and private sector. Perhaps there are no exceptions. The success of the
exporting countries of East Asia can be attributed in no small part to the role of the State as a
2
Members of ASEAN are: Brunei Dar es Salaam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand and Vietnam.
3
United States of America, Canada and Mexico.

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supporter and a facilitator of the trading environment. Trading after all is the responsibility of
the private sector and assuming that the goods and services being traded are not actually
illicit enterprises deserve all the support they can get from public authorities and parastatal
trade facilitating organizations. It’s not always the case. The private sector sometimes sees
domestic governments as hindering and not helping hence the title of my talk this morning,
which is that, less antipathy is needed and more empathy. And this brings me finally to the
role of the ITC itself. We basically do three things. At the micro level we help small
enterprises to become more competitive for international trading. Secondly, at the meso level
trade promotion organizations and other trade facilitating institutions to support business
more effectively. And at the macro level and this is one we are particularly concerned about
this morning, we support policy makers in helping to integrate the business sector into the
global economy.

ITC has been promoting business advocacy as part of a legitimate democratic process of
policy making in the developing world. We believe business advocacy enables governments
to incorporate the views of the business sector into their negotiation positions. As a result,
negotiators are better informed about the commercial and economic interests of their
countries. Also by bringing together public and private sectors at the negotiating stage the
outcome of the negotiations is better accepted and more consensual. And it is seen a result of
a more legitimate process and finally the private sector being involved from the beginning is
in a better position to identify trade opportunities and can prepare itself in time for coping
with the imperatives of the new international trading environment. I think such expert
meetings at the regional and global levels are aimed at giving business orientation to the
empirical research done by other organizations. So on that note ladies and gentlemen, I
welcome you again to this meeting and let’s hope for useful and very fruitful next two days.
Thank you.

Mr. G. K. Pillai, Commerce Secretary, Government of India

Since Prof. Srinivasan would talk on the WTO I will restrict myself purely to the issues of
regional integration in Asia from an Indian perspective. India, although a late starter to the
bilateral and regional trade agreements, is rushed into a whole series of regional trade
agreement negotiations. We have a Free Trade Agreement (FTA) with Sri Lanka since 1998,
which is now being converted into a comprehensive economic partnership agreement, which
will also cover investment and services. We have a comprehensive economic partnership
cooperation agreement with Singapore (India-Singapore-CECA), which covers trade in
goods, services, investment etc. We also have the South Asian Free Trade Agreement
(SAFTA), which is essentially a preferential trade agreement except for the least developed
countries, which enjoy free access. And then we have the Bay of Bengal Initiative for Multi
Sectoral Technical and Economic Cooperation (BIMSTEC)4 Agreement. India - ASEAN
FTA is in its final stages. India is considering India - Korea FTA, India - Japan FTA. And of
course an early harvest has been reaped on India - Thailand FTA. Possibly by the end of May
we would have started negotiations on the India - EU FTA.

Regional / Bilateral Agreements: Complex Rules of Origin

We have to understand, what these regional trade agreements really bring about. You must
see to what levels can your tariffs come down. What are the non-tariff barriers, which are

4
Members of BIMSTEC are Bangladesh, Bhutan, India, Myanmar, Sri-Lanka

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there, and what you would need to put into place if the tariffs come down. You are looking at
a variety of rules of origin, what Prof. Jagdish Bhagwati called spaghetti bowl of I have got
with Thailand, rules of origin area Change in Tariff Heading (CTH) plus 40%, It is CTH plus
35% with ASEAN and so on. So the issue of transaction cost for an exporter becomes
important when he finds that to export to the country he needs to fill up different forms to
claim the benefits under preferential or free trade agreements. It becomes highly complicated
for the customs functionaries at any port because if something is being shipped from
Singapore it is coming under CECA or when it is coming from another ASEAN country, it
will be shipped under ASEAN agreement and so on. These problems will come up because at
each stage as countries negotiated, they compromised at different levels to strike a balance in
different agreements.

South - South Agreements: Indian Perspective

When we look at South- South trade, on the industrial goods India does not have many
problems in dealing with the trade and tariff negotiations. The major problem is with
agriculture goods – a sector in which the bulk of our population is engaged in. People talk of
India as the emerging economy, and that by 2032 India will become the third largest
economy in the world and so on. The reality is that India has more farmers who earn less than
$1 a day compared to the number of farmers in all Least Developed Countries (LDCs) put
together in the world. Therefore, agriculture becomes a contentious issue in the regional
integration amongst developing countries, partly because you are really looking at
accommodating interests of vulnerable farmers in one poor country with interests of
vulnerable farmers in another poor country. As trade opens there is a certain element of pain,
but all countries want to avoid that pain as far as possible. Therefore, negotiations are much
more difficult especially in the agriculture sector because of the issues of vulnerable farmers
in both countries.

Let me first focus on SAFTA. Even though the agreement has a particular structure, we have
got a small aberration with Pakistan, which is still keeping a positive list rather than going by
the list as agreed to in the SAFTA agreement. Irrespective of that, trade is increasing between
India and Pakistan - both ways. India and Bangladesh trade went up substantially last year
and this pattern will continue. From India’s perspective, as one of the larger countries in this
SAFTA, a political decision has almost been taken that India will make more unilateral
concessions so that countries in south Asia can trade more with India.

Regarding the India-ASEAN FTA, although the FTA has not come into place, trade between
India and the ASEAN countries has been increasing. It is a substantial increase. Trade
between India and China is also going up. India has complementarities in trade with countries
like Korea and Japan as India is not really worried about any agricultural goods being
exported from Japan into India threatening India’s subsisting farmers. So India is in more
comfortable position to negotiate a trade agreement with Japan or with Korea and or with the
European Union. We have an issue with the United States, where we would have a problem
because of the big commodity groups which makes the United States really interested in
exporting wheat, corn, soy, sugar, cotton etc. but which will directly affect millions of
farmers in India.

Regional trading arrangements are preferred as they cause least amount of pain in the short
term. And at the same time as economies integrate, this is a challenge for administrators to be
able to decide in which sectors they have some sort of a competitive advantage and decide

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about those sectors which are going to fade away and therefore try and find what I would call
the safety net. This is the real challenge before all of us as we jump into the economic
integration in South Asia, East Asia and so on. To identify which are these sectors and be
able to take your stakeholders with you is not an easy task. To give you an example, If I were
to say that pepper would not survive in India even though India is the home of pepper, then
you have to look at 15 years from now, what would the pepper farmers do. And you have to
slowly start weaning them away from pepper to some other crop. And then may be Vietnam
would be the most competitive nation. I, therefore, think that research studies need to be
undertaken in looking at their relative competitive strengths. We have set this exercise in
motion in India. But it will take time and unlike industry in which it is much easier to shift
workers, farmers cannot be shifted away from their cropping patterns so easily. There are
legal issues involved, such as, the land use patterns, legislations which do not allow
consolidation of land etc. These are the type of problems all of us are grappling with in our
countries. I think I will stop with this and would look forward to a very meaningful
discussion as it comes.

Prof. T.N. Srinivasan, Professor of Economics, Yale University

History of engagement of developing countries in GATT / WTO

If you go back to 1947, it’s worth remembering the General Agreement on Tariffs and Trade
(GATT), the Agreement that came about was at the initiative of the United States. It invited
originally 15 countries to negotiate with it to reduce tariff barriers to trade. Then eventually
that 15 became 23 and the General Agreement on Tariffs and Trade was signed in October
1947. Of the 23 contracting parties - 11 were developing countries, depending upon how you
count them, which included 3 South Asian countries, Pakistan, India and Sri Lanka. So, let’s
note that right from the very day of GATT developing countries were there. The GATT was
supposed to have been subsumed in the international trade organization. That again is the
initiative of the United States, resolution was brought before the United Nations’ Social and
Economic Council for a Conference of Trade and Employment and that was approved. That
Conference was held in Havana. The ITO draft Charter was also discussed at Havana and it
was approved. But eventually that did not come into being, because United States in
particular didn’t ratify after taking all the steps towards developing it.

What about developing countries? Some chose to stay out of GATT altogether. Mexico didn’t
become a member of the contracting party of GATT until as late as 1986. And those who
were in GATT, including India essentially didn’t participate effectively in the bargaining
over the reduction in trade barriers that took place in successive rounds of trade negotiations.
Until the Tokyo Round of 1979, the developing countries didn’t effectively participate. So,
what did this mean? This meant a number of things.

1. The high tariffs against the exports of developing countries in rich countries
continued. Even though every Round reduced the average tariff levels, the variance in tariffs
across those that applied to inter-developed country trade and developing countries continued
to increase. This is partly because of, in my view, absence of effective participation by
developing countries. The GATT was a mercantilist bargain forum. What you get depends
upon what your bargaining power is and with very little to offer, the developing countries got
what they paid for, they paid nothing and they got nothing, except high barriers.

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2. The Multi-fibre Arrangement (MFA) was agreed to and blessed by GATT eventually.
It had bilateral quotas negotiated between the exporting and importing country and so on.
Why did the developing countries buy on to this? They were bought off, because the
exporting countries administered the quotas so that the exporting developing countries
happened to retain the quota rents. So rich countries were able to buy-off the developing
countries by giving them the quota rents and retained the quotas.

3. Agriculture, right from the very beginning was kept out of GATT disciplines. This
again was a common interest.

4. In the Tokyo Round where developing countries participated much more cohesively
and effectively, they were essentially asking to opt out formally. It later got enshrined as the
special and differential treatment of developing countries. GSP, Generalised System of
Preferences which is again a non-reciprocal, discriminatory preference given to developing
countries by the rich countries was also achieved by the enabling clause. So, they formalized
the developing country exclusion from the rule making and the negotiations of GATT.
Richard Baldwin describes this enabling clause as making developing countries “don’t obey,
don’t object” members of GATT.

5. What happened during the Uruguay Round? Again the developing countries were not
so keen on a new round of negotiations being inaugurated. Brazil and India in Punta del Este
led a group of developing countries, which resisted until the last minute the launch of the
round.

6. Doha Development Agenda which was launched in December 2001 prescribed

several deadlines and these were to be reviewed in the mid term stock-taking in Cancun and
deadlines were not met the Cancun Ministerial failed and that is where the new Group of 20
again with Brazil and India came into being. They are now important players in the
negotiations and in Geneva in July 2004, a package was put together and new deadlines were
set. These were again not met when the next Ministerial in Hong Kong took place. Between
July 2004 and Hong Kong some progress was made. Hong Kong ratified it and set a few
more new deadlines to be met by April 2006.

Reflections on Doha Development Agenda

The main sticking point is agriculture. And now the US has announced its new Farm Bill of
2007. If you look at the 2007 Farm Bill it doesn’t even meet the Uruguay Round
requirements on domestic support. EU has already reacted to it. I don’t see anyway that
Members can come to an agreement by June on agriculture. Now I want to say a word about
the development dimension of the Doha round. Mr. Lamy mentioned that the decision by the
WTO members in 2001 to designate the Doha Round a Development Round was a
recognition that there remains in today’s multilateral trading system rules and disciplines;
imbalances that penalize developing countries and these must be corrected. Correcting the
rules and making it “more conducive to development” is the development dimensions of
Doha. Now, one could question as I did in my presentation that whatever are the penalizing
rules, the developing countries themselves contributed to those rules by not participating.

Many of us, including myself, view the constraints on development as largely domestic. Mr.
Pillai’s remarks on agriculture exemplify that. Many of the things he mentioned about land
reforms, land ceiling, land consolidation, all of those are domestic issues. What India does or

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doesn’t do in WTO has little to do with that. So if you go down the road, if you think in terms
of what are the major constraints on development in poor countries, very few have anything
to do with what goes on outside the borders of the developing countries. This is not true of
course for very small countries. Very small countries have no option but to be integrated with
the world markets in a significant way and so what happens in the rest of the world would
affect them much more. But for many of the developing countries, medium size, large size
developing countries, the problems are domestic and not outside the country. What does that
mean? The success in Doha would help no doubt. Trade is important, trade liberalization is
important, liberal access to world markets is important. But this is not the complete solution
to the multi-dimensional and complex problem of development. So we have to be very clear.
Let’s not think that if we have a Doha Agreement which in the unlikely event includes all the
development dimensions of Doha, still I would argue that will be a step towards
development. Important step no doubt but that’s not the end of the development story and
much of the action lies in the private and public sectors of the developing countries
themselves.

What is aid for trade? Now, this is a Lamy’s list of domestic requirements. Many of them I
agree with. Many of them are in fact in the much-maligned Washington Consensus. Sound
macro-economic policy, sound fiscal policy, good investment environment at home. This
doesn’t take very much. It’s not a rocket science to list these as requirements for development
and to be able to participate effectively in the world trading system. So, aid for trade, the new
idea is that we will give aid to developing countries to enable them to be able to participate in
the trade much more effectively. It sounds very good. Now, go back to the history of aid.
Pearson Commission said .7% GDP should be the target of aid. Monterrey Conference
reiterated it. Where are we? Nowhere near that. I don’t know whether the aid for trade will go
anywhere in a major way. But if you ask yourself what is the rationale for aid for trade. Some
are going to gain some are going to lose. The gains may come later, the losses may come
earlier, but the rationale for trade liberalization is that the gains far outweigh the losses. If a
country has appropriate fiscal policy and access to capital market, it does not need aid for
trade. It can do by itself, but through the tax and borrowing/lending to compensate the losers
and to go ahead with trade liberalization. Only for countries whose fiscal system is
inadequate and whose access to capital markets is poor, we might consider any aid in trade in
particular. So it has to be specific, it has to be country specific and context specific.

Doha agenda is at a critical stage. Possibility of narrowing the widely divergent positions is
very remote. Agreement with completion of development agenda is extremely unlikely but
the ‘Doha light’ is possible and it will not be a disaster. I quote Mr. Zedillo Ernesto “the
relevant question confronting WTO members may no longer be, how can the WTO save the
Doha Round instead it will be how can the WTO be saved from the Doha Round.” It will at
least save WTO for another day in which a better agreement could be negotiated but a liberal
global trading system is in the best interest of developing countries. It is, however, not a
solution to the multi-dimensional social, economic and political problems of development.

There is talk about “democracy deficit in the WTO”. Again you have to think through. It is an
inter-state organization. A large number of members of the WTO have no representative
democracy at home. To talk about democracy in the WTO and democracy deficit is not a
tenable argument. Let’s keep it straight. It is about mercantilist exchange of trade
concessions. So this unfairness notion should be dismissed out of hand. It’s a bargaining
process and you get what you put in and you have to be forthcoming if you want to get

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something from the negotiations. So all these words - unfairness, democracy deficit, etc., will
not go very far.

Reflection on Regional / Bilateral Agreements

About the regional integration, my own view is this has been put into GATT as an exception
to the most favoured principle. All the evidence thus far, EU notwithstanding, the regional
contribution to trade expansion has been very modest. ASEAN was mentioned by Mr.
Browne and also referred to by Mr. Pillai. If you look at the intra-regional trade in ASEAN, it
is true it has increased, a part of the increase will come naturally when the economies are
growing rapidly. In other words, the contribution of the agreement to the expansion of intra-
regional trade in ASEAN is much more modest than the total expansion that took place. I am
not persuaded that the regional approach would substitute for the multilateral approach. At
best it can complement the multilateral approach if it is right. That is what Lamy is
mentioning. The other unfortunate thing is that right from the very beginning, the GATT has
not succeeded in pronouncing the consistency of regional or preferential trade agreements
with GATT. EU, the original European Community as yet has not been pronounced as being
consistent with rules of GATT. The working party set up to establish EU gave up long ago,
and the issue has not been revisited. The Committee on Regional Trade Agreements has not
succeeded even though so many agreements have been notified. Very few have been
pronounced as consistent with the rules of GATT and WTO.

The north-south bilateral agreements have an unfortunate feature. Now, look at EU. EU
Commission’s new trade policy is focusing on a few, India, Korea and others potential
trading partners and they want particular things from India and Korea. The US is pushing
WTO plus with respect to labour standards, intellectual property, etc. Why on earth would a
developing country, which is reluctant to move on these issues in the multilateral forum to be
interested in giving in to the United States and EU in a regional agreement. It doesn’t make
any sense whatsoever. Now, about the South - South regional agreements - my argument is
that southern countries can unilaterally reduce the trade barriers against all, including other
developing countries. That will go much further than attempting to reduce trade barriers
among themselves through regional agreements. So I don’t want to be extremely enthusiastic
about the prospect that the regional trade agreements would substitute for a genuine
multilateral agreement.

Issue: Whether the preferential agreements used extensively by traders?

1. Mr. Raja Musa, Representative of Private Sector from Malaysia: Many exporters are using
the MFN tariff route rather than preferential tariff route to export to other countries because
of the complexities of rules of origin.

2. Prof. Athukorala, Australian National University: Recently, a student of mine has

undertaken a study about the way exporters from AFTA use the tariff preferences. The
interesting point is that among manufacturing exporters only 10 to 15% make use of these
privileges. The rules of origins of are very binding, very costly and because of that they
ignore the tariff concessions.

Issue: The newfound enthusiasm for creating more and more FTAs makes it necessary
that WTO should focus on defining FTAs. What are the options available to WTO in
doing that?

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Ms. Mukherjee, ICRIER: All countries realize that tariffs are coming down anyway and
there would not be much to be had by regional arrangements. The importance lies in the non-
tariff elements of regional agreements. I think they would continue to be important and would
still encourage regionalism. For instance, the Indo - Sri Lanka Free Trade Agreement. I think
it has something to do with the tariff reductions. But there are other considerations which are
non-tariff related, for example, trade facilitation. Regional agreements also give rise to the
first mover advantage. They will continue to be important. Ultimately, the costs of
regionalism would perhaps become higher than the multilateral arrangement. That stage has
not yet come.

Prof T.N. Srinivasan, Yale University: The idea is that with the production and
fragmentation and the outsourcing becoming more and more important the incentive
previously for a manufacturer to take advantage of preferential arrangement is weakening
because he is interested not only in selling his products but also getting his inputs cheaper.
And if it is outsourcing then his inputs are being produced elsewhere. This trend is nudging
the actors towards harmonizing rules of origin so that the input suppliers no longer face the
problems. And the best has happened in EU by way of two things. Harmonizing the rules of
origin and the accumulation system, how much of the value added has to be within the count
for regional preferences. Richard Baldwin suggests that WTO can set forces to make similar
things right in the beginning when the FTAs are being negotiated. By setting up an advisory -
WTO set up an advisory committee, on FTAs with particular focus on both north-south FTAs
and south-south FTAs and try to help countries in the designing the FTA in such a way, first
of all harmonize the rules of origin, and also ensure that the barriers in using the provisions of
the FTA don’t come in the way of expansion and so on. I can make another suggestion, that is
to say, leave WTO members to come to any agreement/RTA that they want, but within 5
years of coming to the agreement all the discriminatory preferences have to be extended to all
other members of the WTO on MFN basis. Such an agreement, if possible, could limit the
damage that RTA can cause and not allow it to fester forever.

Issue: Prospects for Aid for Trade

Dr. Bhattacharya, Bangladesh: On the aid for trade issue Prof. Srinivisan has raised the
issue of lack or inadequacy of resources. And thereon you say that those really do have some
kind of fiscal deficit problem and do not have access to private sector funding from the
capital market, would benefit from that. The fundamental progress which we have made in
the concept of aid for trade, particularly through the task force report of the WTO and its
follow-up report is the broadening the concept of aid by bringing in the supply side
constraints and bringing in the infrastructure issues and precisely addressing those market
failures which do not allow the developing countries and particularly the least developed
countries to take advantage of the market access possibilities. I think that is where the fault
lies. And I wish that you really underscored the need for having more resources. I am equally
skeptic about the aid for trade. But still think that it is a step forward in the WTO to balance
the systemic inadequacies.

Mr. Stephen Browne, ITC: Let me make a comment about aid for Trade because I rather
agree with Dr. Bhattacharya. I am not quite as pessimistic, I think the fact that is aid for trade
is being talked of, the fact that it’s been recognized by one definition more than one quota of
total official development assistance can be called aid for trade, particularly if you expand the
definition of infrastructure. It’s by no means small and we have been engaged in Geneva in

11
negotiating with the donors on a new enhanced integrated framework and the donors have put
on the table 400 million dollars, which we think, is going to materialize. Half of it is to the
multilateral system and half is the bilateral system. I don’t know if all of these will actually
be committed. It may not actually find its ways into the bank. But I think the fact that aid for
trade is being talked of is a welcome sign.

Prof. T.N. Srinivasan, Yale University: On the aid for trade my argument is that all the
supply constraint issues that you mention are largely an issue of domestic regulations,
domestic difficulties, etc. in attracting enough resources to infrastructure. Why is
infrastructure investment not taking place when everybody knows the social returns to
infrastructure investment is very high. Now there are a number of problems. The lack of
resources is one of the problems but not necessarily the major problem in alleviating supply
constraints in developing countries. And so let’s not kid ourselves that now you call a
different component call it aid for trade, trade for aid. This is going to turn the beast of aid
around to make aid much more effective than it has been in the past. If you want to believe
you are free to do so. I am not.

Doha Round: Will the outcome be ambitious enough?

Dr. Bhattacharya, Bangladesh: How the Doha Round would be concluded. You have given
us two propositions. One is that the maximum, which is not happening, and then the ‘Doha
light’ which is possible and we should possibly abandon our aspirations for development
“and really do something which takes the common lowest denominator over there”. My little
knowledge and my participation in the negotiation itself on behalf of Bangladesh and on
behalf of other LDCs tell me that in lowest common denominator will not fly. It will not fly,
because in order to have the minimum interests adequately addressed within the lowest
common denominator is not possible. Take for example, where does the real welfare gain
comes from. It comes from the agriculture sector. So if you cannot do anything in the
agriculture sector, we are not going to have anything. That is the point. There is no Doha light
in the making. And you want to tell us that there would be no development. The least which
has to happen as an early harvest is the ‘duty free quota free (DFQF) market access for LDCs,
the unfinished agenda of the Hong Kong. The point you have been making that the LDC and
the developing countries have never engaged themselves, the paradox of it is that when they
get engaged they don’t get a result. Because what the developed countries want, they have
extracted from it. They have the intellectual property rights; they do have the industrial tariff
concessions in there. And now it is time to give on agriculture and if possible on services and
that’s not what is happening. I wish that you mentioned something about the LDCs and I am
sure given your theoretical proposition you will be totally against DFQF as well.

Mr. K.G. Pillai, Government of India: The Hong Kong Ministerial Declaration already
contains provisions on duty free quota free access for LDCs to the extent of 97% of tariff
lines. The key question is how ambitious are we in agriculture? For agriculture, it is just the
second round in WTO unlike the Non Agriculture Market Access (NAMA) which has
benefited from tariff reduction spread over eight rounds. Some proposals on the table want
revolutionary changes in agriculture. US wants 90% cuts in tariffs. We are looking at the
trade distorting subsidies to be eliminated. But if you look at what is already there, I think it’s
not ‘Doha light’ at all: Elimination of export subsidies, 75% to 65% cut in the trade distorting
subsidies, even if some of it is water, it doesn’t matter. If the water goes I would still feel it’s
a great achievement because the flexibility to play around with subsidies goes down. And if
you can put some price disciplines on the Blue Box with in an overall limit of 2.5% of the

12
total value of production, I think it is quite positive. It was uncapped earlier, so they could
even put $100 billion if they wanted. It would not be ‘Doha light’. It is mentioned in some
quarters that United Sates at this moment is not ready to have any deal on Agriculture. It
needs a push and all the developing countries should stay together and keep the pressure on.

Prof. T.N. Srinivasan, Yale University: I agree with Mr. Pillai, even if there is a ‘Doha light’
agreement it will have substantial agricultural component. Even between the EU and the US
if you take the minimum of the two proposals that’s some significant change from where we
are in agriculture. So I don’t agree at all that ‘Doha light’ will exclude completely the
Agriculture. Now the question is whether it will fly or not among developing countries. I
don’t discount the possibility that the ‘Doha light’ will not come about. Please be clear, I am
not recommending Doha light as an ideal outcome. So among the three possible outcomes, of
course, the ideal would to everybody’s satisfaction, the Doha Development Dimension is
approved and a good agreement is culled out. That’s extremely unlikely. The other is to
declare the round dead and start all over again.

13
 SESSION II: ASIAN REGIONALISM

Dr. Jiangyu Wang, Associate Professor, Faculty of Law, Chinese University of Hong
Kong:

The major theme of this presentation is to develop a blueprint for Asian economic integration
with the focus on the cooperation between China and India and see what roles can China and
India play in promoting Asian economic integration, what are the pros and cons of an Asian
integration vis-à-vis other types of regionalism and whether Asian economic integration is in
the interest of China and India.

Whether regionalism is trade creating or trade diverting, whether regionalism is a building

block or a stumbling block?

Trade creation and trade diversion are very important questions. So far the debate is so
divided that you have very distinguished, very eminent economists, policy makers, scholars
arguing from both sides. And no party, no group has been able to convince the other. But the
recent working paper of the International Monetary Fund suggests that Asian FTAs have not
contributed much to trade diversion because they are based on the concept of open
regionalism and in conducting internal integration Asian countries also substantially reduced
their external trade barriers. Apart from the economic debate, I propose RTAs have always
benefited its members. As WTO negotiations are already deadlocked, it is the second best
choice for trading nations. Also it can make the member states of the RTAs more attractive to
foreign direct investment and there also very obvious political and geo-political benefits.

What is the WTO consistency of regional agreements?

My view is that discussion on WTO consistency of RTAs is irrelevant at this stage. Trading
nations while negotiating regional trade agreements do not even have to consider Article 24
GATT because of the inadequacy of the law itself. For example, no one knows what does
‘substantially all trade between the constituent territories’ means, and the WTO does not have
any authentic and authoritative interpretation regarding the effect. And there is no single case,
apart from the Turkey textile case, which explains the true meaning of GATT Article 24. So
my observation is these WTO provisions can be ignored. It is the business of the WTO to
develop better rules, but at this stage trading nations to not have to consider Article 24 at all.

China and India in Intra Regional Trade in Asia

The intra-regional trade in Asia is developing very fast and India and China are playing the
leading role. Although intra-regional trade in Asia is around 40% to 50%, this is not the
limit. Trade within Asia is far from having reached its potential. And if certain things can be
done, for example if trade facilitation can be improved, and if bilateral and regional
cooperation can be realized then the intra regional trade can be enhanced much more.

China plays the leading role: first, China is becoming the leading market for Asian countries.
China is already the largest export market for a number of Asian countries in the region:
South Korea, Taiwan, Hong Kong and a few South Asian countries. China has displaced the
US and EU as the largest export market for those countries and regions. Secondly, China is a
major factor in shaping the so-called Asian production network.

14
India as a trader in merchandise of goods is much less significant and the foreign trade of
India is probably less than one-sixth of China’s. But India deserves special attention for two
reasons; first India has demonstrated unlimited potential by growing at a rapid rate more so in
the services trade. Within five years, for example, in the services trade India moved from
their position in twenties to their position in tens. It will soon overtake China and a few other
countries in the area of services trade.

China and India: Economic and Trade Indicators Compared

China India
2001 2005 2001 2005
GDP (US$ bn) 1324.8 2224.9 478.3 803.3
GDP growth rate (%) 8.3 9.9 5.8 8.1
GN per capita (US$) 1000 1700 460 700
Value of Trade in Goods Exports 266.2 762 43.6 89.8
(US$ bn) Imports 243.6 660.1 49.6 131.6
Share in world trade in Exports 4.3 7.3 0.7 0.9
goods (%) Imports 3.8 6.1 0.8 1.2
Annual percentage change Exports 7 28 3 19
goods (%) Imports 8 18 -3 35
Value of trade in Exports 32.9 81.2 20.4 68
commercial service (US$ Imports 39.0 85.3 23.4 67
bn)
Share in world trade in Exports 2.3 3.4 1.4 2.8
services (%) Imports 2.7 3.6 1.6 2.9
Annual percentage change Exports 9 31 15 76
services (%) Imports 9 19 19 73
Rank in world trade goods Exports 6 3 30 29
Imports 6 3 27 17
Rank in world trade Exports 12 8 19 10
services Imports 10 7 18 10
Foreign direct investment (US$ bn) 46.8 60.3 4.7 -
Foreign exchange reserves (US$ bn) 212.2 820 51 137.4
Tariff binding coverage (%) 100 73.8
Bound tariff (%) 10.0 49.8
Applied tariff (%) 10.4 29.1
Share of MFN sectors with commitments 34.0 2.1
GATS services sectors with commitments 93 37
Note: EU is not counted as a single trader and hence intro-EU trade is not excluded.
Source: The Economist Intelligence Unit, World Bank, Asian Development Bank, World Trade Organization,
International Monetary Fund.

China and India: Their Role in Asian Economic Integration

Both China and India are becoming fanatics of regional trade agreements. China and India,
with sustained rapid growth and rising living standards will certainly play dominant roles in
the process of economic integration in Asia. The issue is what kind of Asian regionalism
China and India pursue? Bilateralism (the so-called hub and spoke pattern); Pan Asian Free
Trade Area; or Sub-regional integration in East Asia and South Asia respectively, with the
two sub-regions linked through ASEAN-India FTA and China-India FTA.

Hub and spoke bilateralism connotes that if China and India, ignore the global free trade and
regional free trade in Asia, but just sign bilateral free trade agreements with other countries
then those two countries as hubs can become the largest beneficiaries. The sheer size of the
two economies can make them the center of any network of FTAs. The two largest countries
in Asia will harvest proportionately larger benefits than other countries. This can be

15
perceived as unfair because this will be at the expense of smaller countries and regions in
Asia. According to the ADB model, China’s welfare gains from having a regional hub
position is almost four times that from pan-Asian free trade. In contrast, “Asian free trade” in
spite of the overall gains could lead to a significant deterioration in the terms of trade for
Asia’s two mammoth economies-China and India.”5

I argue that China and India as the two leaders in Asia and important players in the world,
have the responsibility to promote regional economic integration in Asia for a number of
reasons: They have the responsibility to promote regional stability and to strengthen their
domestic policy reform and they also have the responsibility to offset the influence of
NAFTA and EU. If China and India pursue hub and spoke bilateralism, it will be a stumbling
block to the multilateral trading system, which they should not allow to happen as they have
significant interest in the global free trade system. Furthermore they should provide
leadership to other Asian countries for improving their bargaining position in the multilateral
trade negotiations.

Road to Pan Asian Free Trade Area

My view is that a pan-Asian free trade area or an Asian economic community is unlikely to
be achieved or even seriously discussed. However, the numerous sub-regional initiatives have
demonstrated that the countries involved are preparing for economic and financial integration
at the sub-regional level. Hence, it is suggested that East Asia (ASEAN, China, Japan and
Korea) and South Asia (centered on India) should strive to realize their sub-regional
integration respectively, while linking the two sub-regions with bilateral integration
agreements between individual countries. A China-India bilateral FTA will be most helpful in
linking East Asia and South Asia. China-India trade is one of the most rapidly growing
bilateral trade relationships in the world. Another recommendation is that China and India
should lead Asia to practice open regionalism and deeper integration, of course, in selected
areas. Deep integration goes beyond trade, involving investment, services, product standards
and technical regulations, competition policy, and even environmental and labour standards,
among others. China and India should lead Asian countries to develop common guidelines or

5
Asian Development Bank (ADB), Asian Development Outlook 2006 (Manila: Asian Development bank 2006)

16
best practices for RTAs in Asia so that they ultimately become the building blocks of a
multilateral system. Eventually for the benefit of all trading nations in the world, a global
free trade system is. For this reason, the Asian FTAs should adopt, to the extent possible,
common principles, institutions, terminologies etc. For example, the Asian FTAs should
probably have common rules of origin and common technical standards in certain areas.
Harmonization of regulatory standards is not necessary, but it should be achieved as much as
possible. Asian FTAs should also have a dispute settlement mechanism to promote
regionalism. In short, these FTAs should actually turn the spaghetti bowls into building
blocks for a global free trade area.

Dr. Nagesh Kumar, Director General, RIS, New Delhi:

Trigger for Asian Regionalism

Major Asian countries, such as, Japan, Korea, India, China, did not sign any FTAs with any
countries and were very faithfully adhering to multilateralism. The Asian regionalism started
because some countries started practicing bilateralism and regionalism essentially with the
formation of EU and NAFTA. In fact, the most favoured nation (MFN) concept became
something of a lesser common concept. About 60% of world trade is now conducted on
preferential basis and not on MFN basis. Asian regionalism was therefore, a response to the
western regionalism because they really felt threatened from trade diversion resulting from
the western FTAs, which became deeper and deeper and EU adopted even a single currency.
Now, EU has 27 countries and NAFTA is trying to expand southwards to become a free trade
area of the Americas. In 1999, Japan conducted a review of its trade policy to assess whether
regionalism should have a place in its trade policy. It found that there was a very strong case
for regionalism and they concluded their first FTA with Singapore in 2002.

Asia is becoming a center of final demand of goods and services and that makes Asian
regionalism a viable trade strategy. The trade amongst Asian countries is also considerable:
55% of the Asian trade is within Asia.

History of Asian Regionalism

Asian regionalism to some extent can be traced back to the formation of Bangkok
Agreement, which is now called the Asia-Pacific Trade Agreement. It was singed in 1975 but
it was a very partial, very shallow agreement limited to exchanging some shallow trade
preferences between 5-6 countries. Then there are sub-regional attempts which include the
economic integration within the framework of ASEAN, which are now contemplating an
ASEAN Economic Community by 2015. Then there is a grouping within South Asia, called
SAARC, which has adopted SAFTA. There is another sub-regional grouping linking some
South Asian and some South East Asian countries, BIMSTEC which has also adopted a free
trade agreement which is due to be implemented soon. Then there is a trend for ASEAN+1
FTAs. These are FTAs between China - ASEAN, India-ASEAN and Japan-ASEAN and
South Korea – ASEAN. There is also a trend of FTAs between these plus countries and
individual ASEAN countries, like India-Singapore, India-Thailand. China and Japan also
have several such agreements. India-China has been studying one, India-Japan are
negotiating one and India-South Korea are negotiating and area close to completing the
negotiations. Then there are emerging groupings, such as, ASEAN +36 which has been

6
ASEAN +3: An acronym for ASEAN plus China, Japan and South Korea

17
around for nearly 10 years and in December, 2005 another one was formed which brings all
of these together all of ASEAN and all of plus one countries together, called East Asia
Summit, or sometimes called ASEAN+6.

Asian Regionalism: Proposed Framework

If you were to put together all these initiatives at the bilateral level, putting ASEAN in the
center and Japan, China, Korea and India (JACIK)7 on four corners, one can see something is
happening between every pair of these countries. This is a sort of spaghetti syndrome in
which rules crisscross and it doesn’t give a seamless market at the end of the day. That is a
major limitation of these initiatives. There is a need to bring them within a single framework
coalescing all these FTAs or whatever work has been done at bilateral and sub-regional levels
and evolve a broader formation which could be evolved further to make a really PAN-
ASEAN community.

A Virtual Asian Community is already

emerging from a complex web of FTAs
Japan China

Malaysia

Philippines

CLMV
Countries
ASEAN Indonesia

Brunei
Singapore

Thailand

S. Korea India

Frame work Agreements signed

Under negotiation
Under study

How to Accomplish Asian Integration?

The question is where do you begin? Obviously it should begin where some work has already
been done and then expand it in a phasedn manner. In 2005 the East Asia Summit (EAS)8
came up with a new grouping bringing together all JACIK countries plus Australia and New
Zealand. There is a movement towards at least studying a broader formation linking all these
bilateral and sub-regional FTAs, which could eventually be extended to other countries and
make a true Asian economic community. We seek to build broader PAN Asian Economic
Community, which brings together different parts of Asia. Since Asia is a large continent it
has to be a phased attempt and there are several ways of phasing and one was suggested by
Dr. Wang that you build an East Asian component and a South Asian component and bring

7
JACIK: An acronym for Japan, ASEAN, China, India and South Korea
8
EAS connotes pan-Asian community comprising JACIK group (Japan, ASEAN, China, India and South
Korea) plus Australia and New Zealand

18
them together or work through the EAS which could be the right forum for evolving a
broader regional arrangement in Asia.

Economic Justification for Asian Regional Integration

The sub-regional and bilateral cooperation agreements alone will not be sufficient to exploit
the full potential of the pan-Asian economic integration framework. Sub-regional initiatives
could provide for limited complementarities only due to similar factor endowments and
economic structures. It also does not enable the business to undertake region wide industrial
structuring by providing an Asia wide seamless market.

The EAS in purchasing power parity terms could be larger than EU and NAFTA but in
nominal GDP terms, it will be very close to EU, in terms of trade larger than NAFTA and in
terms of population it is nearly 50% of world’s population.

Emerging EAS in relation to EU and

NAFTA
billion US$ in 2004

Parameter EU NAFTA EAS

• EAS is larger
than EU and Gross National Income, PPP 10137 12847 16716
NAFTA in terms (in Purchasing Power Parity)

of GDP, trade % of World total 20.14 25.53 33.22

bigger than GDP 10505 12431 8198

NAFTA, half of % of World total 29.37 34.76 22.92
world’s Exports (2002) 3523 1486 1757
population and
% of World total 46.50 19.62 23.20
more than two
thirds of world’s International Reserves 285 170 1757
foreign exchange Population (millions) 381 425 3089
reserves % of World total 6.12 6.83 49.65

We have done some simulations of JACIK. EAS is slightly bigger than JACIK, because it
brings Australia and New Zealand in the fold of JASIC. There are three scenarios of
progressively deeper economic integration. One should be aiming to work on the third
scenario. You could have welfare gains adding up to 3% of region’s GDP. If one looks at the
numbers generated by Dr. Wang, they are very close. It is very striking and which is
corroborated by other studies that Asian regionalism need not be trade diverting and could be
actually trade creating. That’s why you find that even rest of the world also benefits in the
third scenario. It suggests that there are some profound complementarities within Asia, which
will create more trade than it will divert.

19
 Gains from broader Economic
Integration in Asia

• Substantial welfare gains

from economic million US$
integration in scenarios of Scenario I Scenario II Scenario III
progressive integration
Japan 107626 111807 150695
• All participants benefit Korea 13043 13317 14076
• Welfare gain up to 3% of China-HK 6327 7100 16328
region’s GDP
ASEAN (5) 13451 13553 19405
• Even the rest of the world India 6971 7379 9937
benefits from deeper
JACIK 147418 153156 210441
integration
Rest of the w -27293 -45306 109916
World 120125 107849 320357

The Asian Development Bank (ADB) study9 also reached the similar conclusion using a
different model. It concluded that regional economic integration in Asia could transfer the
growth stimulus from China and India to their neighbors. It could be a win-win for rest of the
world and for Asia. Now, there are two approaches and some people prefer the ASEAN+3
process rather East Asia Summit process. East Asia Summit is just in its second year. The
ASEAN+3 process, which has been around for a while and a feasibility study, was completed
much earlier. Whether that should be the approach or we should go for the new formation,
EAS, which has just been formed. For that we went back to our simulations and tried to see
which one gives more welfare gains for the region and for the rest of the world. Clearly, the
gains for all the members in EAS mode far exceeded the ASEAN+3. That is largely because
of the complementarities between India’s economy and the East Asian economies. As you
know, all of East Asia’s economies have taken a typical manufacturing hardware driven
direction. India has gone in a slightly different direction with an economy dominated by
software and services. So the complementarities between them are very strong, which could
create welfare gains for everyone.

EAS versus ASEAN plus Three

• Welfare gains are
significantly higher for all
partners in EAS than in an
APT framework Asia

• Gains to the region higher India

than India’s gains ASEAN (5)

– Possibly due to dynamism and China-HK

synergies that India brings to Korea
the grouping in terms of JACIK Asean+3
Japan
services and software to the
hardware and manufacturing 0 50000 100000 150000 200000 250000
prowess of East Asia million US$

9
Brooks et all, 2005, ADB

20
Dr. Rajiv Kumar, ICRIER: Thank you Nagesh. I think that these numbers do really matter
because putting up these numbers does influence the policy makers and it’s nice to see that
we now have got the whole Asian community into the numbers.

Ms. Aparna Sawhney, Associate Professor, Centre for International Trade and
Development, JNU:

SAARC in Asian Regionalism

Asia has emerged as a major hub in world commerce and it is indicated by rising share of
merchandise and service trade. Over 16 years between 1990 and 2005, there has been steady
increase in trade. Similarly the regional share of commercial service exports rose between
1990 and 2005. However, for South Asia, the share of trade remains barely 1% of total global
trade. But if we split the figures between goods and services, the share in global merchandise
exports increased from 0.9% in 1995 to barely 1.2% in 2005, largely led by India. The share
in global commercial services exports increased from 0.87% in 1995 to 2.5% in 2005. Hence,
the comparative advantage of South Asia in services trade seems to be high.

Regional Shares in World Merchandise Regional Shares in Commercial Services

Exports, 1990, 2000, 2005 Exports, 1990, 2000, 2005
60 Asia
60 Asia
50 N America
50 North America
40 Europe
40 Europe
30 Africa
30 Africa
20 Middle East 20 Middle East
10 South-Central 10 South Central
America
Amercia
0 CIS 0 CIS
1990 2000 2005 1990 2000 2005

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU

Let us analyze the intera-regional merchandise exports as of 2005 as a share of each region’s
total exports: In Europe it is 73%, North America 55%. In Asia it is already more than 50%.
The intra-regional trade in South Asia is barely 6% (not more than 10% even after
considering the informal trade) whereas, in Asia, it is already more than 50%.It represents
low economic integration among SAARC countries.

Intra-regional Merchandise Exports, 2005

(as % share of each region’s total exports)
Europe 73.2
North America 55.8
Asia 51.2
SAARC 6.2*
South-Central America 24.3
Commonwealth of Independent States 18.1
Middle East 10.1
Africa 8.9
* Computed from IMF DOTS data
ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU

21
Despite the slow progress of economic integration among SAARC countries, launching of the
South Asian Free Trade Agreement (SAFTA), no matter how restrictive and how shallow
these agreements are, can be seen as political breakthroughs. The reasons behind low
integration are:

1. Restrictions contained within the trade agreements themselves - limited product

coverage, negative list, the restrictive rules of origin and destination and difficult
business environment in participating countries.
2. Perceived fear of de-industrialization of smaller SAARC partners considering that
India is by far the largest economy, in terms of GDP, share of the regional GDP,
and population. To give an indication of the size difference, India’s regional GDP
is almost 80% of the total GDP of SAARC followed by Pakistan, Sri Lanka and
Bangladesh.
3. No coverage of the services sector in the trade agreements or the preferential trade
agreements signed by the South Asian countries.

Afghanistan
Pakistan 1%
Bangladesh
11% Sri Lanka
6%
2%
Nepal
1% Bhutan
M aldives 0%
0%

India
79%

Country Share of SAARC Regional GDP 2005, (US$ 995.82 billion)

ITC-ICRIER, 28th March 2007 A parna Sawhney, CITD, JNU

India’s Role in SAARC

India’s strategy in the South Asian integration for last 22 years has been driven by her
perception of gains and based on reciprocity. India can and should look beyond the
reciprocity and take unilateral liberalization in SAARC following the good experience of Sri
Lanka-India FTA. India-Sri Lanka expansion in trade came as a surprise because first it
appeared that there are very few complementarities between the two economies. But it turned
out that there were dynamic gains to trade that could be made, and trade emerged in sectors,
which were not quite been traded earlier. It should encourage India to be more aggressive in
promoting integration in South Asia. There is scope for attracting greater FDI for the SAARC
countries with a more stable and business conducive environment in South Asia. All SAARC
economies have been pursuing multilateral liberalization, which means that it would
minimize the risk of trade diversion. There would also be increased efficiency in provision of
public goods and services considering South Asia as an integrated geographical system and a
cooperative approach is pursued in the management of energy, water, infrastructure and so
on. Regionally integrated South Asian space will also help realize trans-Asian connectivity.
Therefore, greater integration among the SAARC countries is critical for integration with
greater Asia.

Dr. Rajiv Kumar, ICRIER: Now we have the views from the private sector represented by
Dr. Ahmed Mahmood who is the Chairman of Standing Committee on WTO, the Federation

22
of Pakistan Chamber of Commerce and Industry and he is an active member of the SAARC
Chamber of Commerce.

Dr. Ahmad Mahmood, Chairman Standing Committee on WTO, FPCCI, Pakistan:

Regional Integration: Concerns of Smaller Economies

It was very apparent from the first two presentations that they were talking about only the big
economies of Asia and nothing was mentioned about the small economies. That is perceived
as a threat by the small countries. They believe that the benefits of integration will go only to
the larger economies and the smaller economies will be marginalized. Regional integration
should be approached very carefully; otherwise the fear of smaller economies will remain.
China is a very big and growing economy and they have also to take along everybody. India
and China, if they both take care of the smaller economies then the integration is not far
away. Smaller economies can also play an important complementary role, for example,
Bhutan and Nepal have huge hydro potential. They can supply power to all SAARC countries
if investment is made to develop these sectors.

Regional Integration: A Sequential Approach

The economic integration of Asia should be done in a staged manner. First, we should do it in
South Asian region, then with ASEAN and finally the whole of Asia. It should not be done
immediately with whole of Asia if we are not able to integrate first the SAARC region. It will
be very difficult to achieve Asia wide integration when there are different economies with
different attitudes and with different rules and regulations including rules of origin. The
issues like different standards in different markets further complicate the situation. Even
when there is a trade agreement, exports may not take place because of differences in
standards in different markets. Difference in standards of engineering goods in India and
Pakistan is a case in point. To add to the complexity, standards differ from one state to
another in India. India also has complicated procedures, for example, it prescribes that certain
product should be imported at one port but the goods should be tested for compliance with
standards at another port. Such a prescription acts as a stumbling block to trade. So, first there
should be coordination amongst members in SAARC before the sub-region looks outwards.

Dr. RajivKumar, ICRIER: It is most refreshing to hear the perspective from the business and
that too coming from a relatively a small economy because that this is very clear that the
three giant economies of Asia - Japan, China and India will have to play a role. What is the
role that these three economies could play in pushing the Asian regionalism forward without
evoking the fears of the rest? For me it is clear that it is a win-win situation for all concerned.
Mr. Mahmood’s point about beginning with integration in SAARC rings a very sympathetic
bell within me because we have got to get SAARC up and running before thinking of a
bigger role in Asian regionalism. The other point is about the sequential approach. Can we do
it all in parallel, can we do multilateralism and regionalism in parallel or are we dissipating
our capacities or can the Asians agree on a kind of sequential approach where to focus? With
those let me throw the discussion open.

Issue: Addressing Concerns of Smaller Economies

Mr. Asif Ibrahim, Bangladesh: I feel China plays a more proactive role when it comes to
addressing trading imbalances with its neighboring countries, specially with smaller Asian

23
economies than India. Perhaps, India’s approach is more reactive or it can also be sometimes
termed as more protective whereas we feel that India perhaps doesn’t have to be afraid of
being marginalized. For example, recently under the SAFTA Tariff Rate Quota Agreement,
India has agreed to take 6 million pieces of garments from Bangladesh duty free. However,
certain conditionalities have been attached to the agreement, which we feel could have been
avoided. For example, the condition that has been attached is Bangladesh can only use land
ports to export the products to India whereas majority of our exports to other countries is
through our seaports and airports. It acts like a barrier. Moreover, the rules of origin are quite
restrictive. For example, 50% of the raw materials for these 6 million pieces should be
sourced from India. Our view is that giving access to 6 million pieces to Bangladesh without
any conditions will not really hurt India’s cause. I agree with Mr. Mahmood when he says
that India needs to take a more proactive role, specially when dealing with Sri Lanka, Nepal,
Bangladesh and Bhutan and we definitely feel that China’s approach is much more proactive.

Ms. Subhashini Abeysinghe, Sri Lanka: I also wanted to say that India’s negotiating
strategy had been defensive and demanding. One complaint, which most business people
trading with India have, is that India itself is not a single country. It’s not a single market.
Moving goods between different states, in some state you may be competitive and in another
you may not be because of different access conditions and regulations. Not every entry port
in India recognizes free trade agreement concessions. Sometimes your immediate market is
near one port, but you have to unload the cargo at another port and go through the internal
transport system, which makes your product commercially unviable. May be India while
integrating with the world has to harmonize its taxes, regulations within India itself.

Dr. Jiangyu Wang, The Chinese University of Hong Kong: Seeing from the indicators,
China has a much more liberal and an open economy. China is more willing to give unilateral
concessions to its small neighbors and the ASEAN- China Free Trade Agreement is an
evidence. I am not in a position to give any suggestion to India because I don’t even know
what are the national conditions and the special circumstances of India. The Chinese
experience has two components. One, the overall trend is trade liberalization, that’s overall
trend and China is actually one of the largest beneficiary of the open trade. Secondly, during
the trade liberalization process, China has used quite a number of industrial policy
instruments to protect its domestic sectors.

Dr. Rajiv Kumar, ICRIER: India is now far more open and the Commerce Secretary said in
the morning India would make unilateral concessions.

Mr. T.S. Vishwanath, Confederation of Indian Industry: The Indian industry is supporting
the government in working out some unilateral concessions in textiles, which are of export
interest to our partners.

Mr. Tashi Wangyal, Bhutan Chamber of Commerce and Industry: Slow progress of
economic integration in SAARC is because of: (i) lack of complementarity among
economies, (ii) economic asymmetry and (iii) political differences.

Looking to the future, the presenter painted a fairly optimistic picture although it is not borne
out by history. The three issues that constrain progress in the regional cooperation are not
likely to disappear overnight. I wonder whether the sequential approach as outlined by the
presenters is the best way forward. In keeping with India’s Look East Policy and also in
keeping with the lack of such problems in a regional grouping like BIMSTEC, will

24
BIMSTEC overtake SAARC in the medium term. If so, is it really worth spending the limited
negotiating capacity within SAARC?

Dr. Nagesh Kumar, RIS, India: The point on non-tariff barriers and all trade facilitation is
very well taken and should be addressed. But at the same time we should recognize that 80%
market of SAARC is India’s market and India also needs market access to grow. For that it
had to look at bigger markets in the vicinity and these are the East Asian markets and that’s
why the ‘Look East’ policy was adopted. If South Asia becomes a coherent unit, obviously
the spill over of India’s integration with East Asia will become available to all the SAARC
countries if they have joined by then the mainstream of economic integration. One has to
work on two tracks, integrating South Asia and then working with the East Asia to evolve a
broader Asian neighborhood or broader Asian community of which an integrated South Asia
will be an important part.

Issue: Harmonization of Rules of Origin and Standards

Speaker: We see that in South Asia, countries are members of different free trade areas. They
have to follow different rules of origin; different dispute settlement mechanisms and such
other parameters as have been laid down in different agreements. It creates confusion? What
is the solution to this spaghetti bowl phenomena?

Representative from Malaysia: From manufacturers point of view standards are created
really to protect consumers and therefore standards are very important. Non-compliance of
certain standards means the consumers might be cheated and not get what they are paying for.
This is a very important point that one has to remember. Secondly, of course in this area
China being a big economy, so is India, carry responsibilities. It is important indeed it must
be a two-way situation, must be a win-win situation in any FTA. Therefore, a political will is
necessary to make sure those manufacturers, exporters, traders comply with standards,
carefully analyse issues, such as, subsidies - explicit or implicit, in all bilateral/ regional
negotiations.

Speaker from Pakistan: Pakistan is entering into a number of free trade agreements: FTA
with China, with Malaysia and Singapore. There is an operational provisional FTA with Sri
Lanka. We have made a conscious attempt to have almost identical rules for origin. Basically
the ASEAN pattern of having 40% value addition has been followed. The rules of origin
should be tailored to take the commercial implications for specific products. For example, in
our FTA with Malaysia, it was pointed out that 40% value addition rule in jewelry is not
workable. This is against the commercial realities; there can’t be any 40% value addition
because gold and other high value stones have to be imported. So in this case the rule is based
on ‘change in tariff heading’ concept and not the value addition concept.

25
 SESSION III: SUPPLY CHAIN LINKAGES ACROSS BORDERS IN ASIA

Prof. Prema-Chandra Athukorala, Professor of Economics, Reserach School of Pacific

and Asian Studies, Australian National University:

Concept of ‘Production Fragmentation’

You are familiar with the concept of ‘production fragmentation’, even though you may not
have heard about this term. However, you may not have thought about how significant is this
phenomena in the analysis of trade patterns. We still think that countries trade in goods. For
example, a country exports motorcars and imports readymade garments or a country exports
computers and imports shirts. But in reality that peculiar focus on trade is losing its
relevance. Now the increase in share of manufacturing trade is not in final form but in terms
of components. This phenomenon has implications for analyzing relative prices, trade model
in analyzing benefits of trade, etc. The concept is simply the ‘geographic separation of
activities involved in the producing a given good (or service) across two or more countries’.
There are alternative terms used to refer to the phenomenon, such as, vertical specialization,
intra-product specialization, slice in the value chain, intra-shelf product sharing, outsourcing,
intermediate trade and so on. You can come up with numerous examples but I am going to
illustrate the point using one of the widely used textbook cases. That is the Barbie Doll.

Barbie Doll
A ‘product’
product’ of
Mattel Inc, a US-
US-based MNEs

But,
produced in factories in Hong Kong
and China
with,
hairs from Japan,
Japan,
paints and decorations from US,
cotton cloth from China, and
labour in final assembly from Hong
Kong and China

Sold world-
world-wide at the rate of two
dolls every second under the trade
name of Mattel Inc.

The product - Barbie doll - is segmented and the production is undertaken in different
locations depending on the factor proportion advantages of different countries. Another
example, the computer: it is a composite of components produced in more than 60 countries.

Why production fragmentation deserves special attention in trade policy analysis?

1. Production fragmentation opens up news opportunities for export led industrialization

in developing countries. Many people do not favor export orientated development strategy.
They argue, quite convincingly, that when many countries get into exporting for the world
market, the market can be inundated with goods and the terms of trade can deteriorate. But
this argument loses its relevance in the context of production fragmentation because if you
consider a motorcar, the value of the motorcar is separated into segments and different
countries can take part in the production process. To give a simple example, the wiper blade

26
of a BMW car is produced in Sri Lanka. The wiper blade is a tiny component of a BMW car
but it generates thousands of jobs in Sri Lanka. There are many such examples in the
electronic industry. Simple component assembly, testing operations and so on create more
opportunities for countries to participate in the globalization process as a result of
fragmentation.

2. The key players in the fragmentation process are multinational enterprises and other
foreign direct investors. Therefore, under export led industrialization whether a country can
get into this production chain depends on policies aimed at concurrent liberalization of trade
and foreign direct investment (FDI) regimes. If a country undertakes trade liberalization but
still maintains constraints on FDI, that country would find it very difficult to get into this
form of international specialization.

3. It makes a strong case for the removal/harmonization of non-border policy barriers as

the non-tariff forms of government intervention negatively impact on the attractiveness of a
given country as a location for fragmentation based trade.

4. Production fragmentation has implications for the debate on regional versus

multilateral economic integration approach to international trade. There are a number of
recent studies, which suggest that meeting rules of origin obligation for a firm involved in the
fragmentation process is a very costly and a tedious process. Sometimes the custom officials
do not know what the component is. It takes a long time to negotiate with them about the
relevant tariff rate. At the same time, value addition based rules of origin virtually prohibits
this type of specialization simply because each task involved in the segmentation process
operates with in a very thin value added margin. It doesn’t mean the gains are low. Even
though the value addition for a given segment is tiny but it can generate rapid
industrialization because of the volume effect.

History of the process of international production fragmentation

It is not an entirely new phenomenon, but began to expand rapidly from about the late 1960’s.
The process started in electronics industry with Fair Child, one of the US multinationals
starting single component assembly in Hong Kong in 1965. Then it spread to many other
industries, such as, sport footwear, automobile, televisions, radio receivers, sewing machines,
office equipment, electrical machinery, power and machine tools, cameras and watches, and
printing and publishing. Furniture produced by IKEA is also an example of fragmentation.
Legs of chairs sold by IKEA come from Vietnam. Another part comes from another country.
In the entire product manufacturing area, now fragmentation is becoming more and more
important.

Initially, the process involved locating small fragments of the production process in a low
cost country and re-importing the assembled components to be incorporated in the final
production in the ‘home’ country. Over time, production networks have begun to encompass
many countries involved in the assembly process at different stages, resulting in multiple
borders crossing of product fragments before getting incorporated in the final product. Some
segments or the components of the production process in certain industries have become
‘standard fragments’ which can be effectively used in a number of products, for example,
cellular batteries, electronic chips etc. There are many examples to suggest that standard
technology has been replaced by modular production, which has made possible cross-industry
production of different fragments. That is one of the reasons driving the rapid growth of this

27
industry. Again, multinationals are the key players but over time arms length trade has also
become increasingly important.

The multinationals (MNEs) are the key players in this game and there is a close relationship
between FDI and fragmentation based trade. However, in recent years, fragmentation
practices have begun to spread beyond the domain of MNEs. When they become firmly
established in a particular locality, they begin to sub contract some activities to local firms to
which they provide detailed specifications and even fragments of their own technology. As a
result, the process has expanded beyond the domain of multinational enterprises. Now many
non-MNE firms have begun to procure components globally through arm’s length trade – a
process that has been facilitated by the standardization of some components.

Factors that have contributed to the rapid expansion of fragmentation trade

1. Advancement in production technology, enabling the industry to slice the value

chain into finer components.

2. Technological innovations in communication and transportation that have

contributed to significant reduction in the cost of ‘service links’ involved in
coordinating international operations. The time factor is very important in the
process because even a slight delay in manufacturing one segment of the
production process can destroy the entire production chain. Therefore,
improvement in communication technology, transportation facilities, has
contributed to expand the concept of the factory to the global level.

3. Liberalization policy reforms in both home and host countries have enabled the
manufacturing process to be fragmented.

Trends and patterns of fragmentation based trade

1. Trade in parts and components that I dub the fragmentation trade has grown much
faster than the total world manufacturing trade.

2. This pattern is more prominent in trade in machinery and transport equipment, which
account for more than half of total manufacturing trade. Even in the short period from
1988 to 2005, the share of part and component in total manufacturing has increased
from about less than 20% to about 24%. In terms of actual figures, currently total part
and component trade would be close to $2000 billion out of the total trade of $7000
billion. The pattern is much more pronounced in trade in machinery and transport
equipment, as the fragmentation-based trade is more concentrated. The fragmentation
practices are increasing rapidly in computer and motorcar industry.

3. The growth of fragmentation trade in the East Asian region has been much faster
compared with other major trading regions in the world, like NAFTA or EU. The four
major ASEAN economies have become the most dynamic centers of fragmentation
activities in the world. The degree of dependence of East Asian countries, as a group,
on fragmentation trade is much higher by world standards. In Malaysia, parts and
components account for more than 60% of total manufacturing trade. In the
Philippines it is over 70%. One can observe this pattern in Indonesia and Thailand
also.

28
 4. Rapid manufacturing growth in a country or a region is closely related with the share
of fragmentation-based trade.

5. China is becoming an important player in regional fragmentation based trading

networks. It is specializing in final assembly. It is procuring components not only
from Korea, Taiwan and Japan but also increasingly from Malaysia, Singapore and
the Philippines. In fact, Malaysia is the largest component supplier to China among
the ASEAN countries. When China started to become a dynamo in the region,
governments got panicked, but not the private sector players. There were newspapers
articles in that saying multinationals are going to leave Malaysia and going to relocate
everything in China. It didn’t happen. China’s expansion is generating more and more
demand for components coming to China because component production is much
more capital intensive than final assembly. As a big country with a big market, China
has the unique cost advantage in the final assembly of hand phones, computers etc.
and they use components imported from other countries. It has resulted in forging
complementarities of trade between China and its neighbors. Moreover, China’s
poverty reduction success story is intricately related with employment generation.
Employment generation has come from labour intensive assembly activities.

6. India and South Asia is still a minor player in fragmentation bit in international
specialization. One of the reasons is that India has not put in place the policy
configuration of trade liberalization coupled with FDI liberalization, which is a sine-
qua-non for success in this area. Sri Lanka, in the immediate liberalization period in
the late seventies, had put in this place this policy configuration and some big
multinationals like Motorola and Prince Corporation came to Sri Lanka. But they left
because of the domestic political instability. Does this really matter? Specialization
pattern has to be inline with your resource endowment. What is the point in
producing airplanes or sophisticated items if it doesn’t benefit the poor in terms of
employment generation? My hypothesis is that India’s relatively low export
performance can largely be ascribed to its failure to get into production networks.

Expansion of fragment based trade: Role of intra-regional and extra-regional liberalization

and implications for the rules of origin

While the parts and components account for a much larger share of intra-regional trade in
East Asia compared to total global trade, but that process entirely depends on the dynamism
generated by extra-regional trade. People who advocate regional rather global approach to
trade liberalization miss this point. The expansion of parts and components trade points to the
increasing importance of the region as an assembly center in the global economy with China
playing the central role. The growth dynamism of assembly activities depends on the demand
for final products, which in turn depends on extra-regional growth dynamism.

As a result, the East Asian region’s dependence on extra-regional trade in final goods has
increased over the years. The upshot of this key point is that the ongoing process of
international fragmentation strengthens the case for global rather than regional approach to
trade and investment policy making in East Asia as well as in Asia at large. The ongoing
process of fragmentation based trade makes a strong case for the multilateral liberalization
pursued through the WTO negotiations.

29
What about FTA approach? Rules of origin in FTAs can be even more constraining for
fragmentation-based trade compared to conventional trade. It is very hard to design rules of
origin to cover fragmentation-based trade because each task operates with a very thin margin.
The enterprises operating under such thin margins can never meet the value addition based
rules of origin. In other words, the business implication is that if a country wishes to pursue
an export led growth strategy by getting in to the global supply chains through the fragment-
based trade, that strategy can not work if value addition based rules of origin are prescribed in
that country’s regional agreements.

Mr. Andin Hadiyanto, Director, Ministry of Trade, Indonesia:

I want to talk about the benefits of the supply chain linkage, the lessons learned and also what
is the way forward for Indonesia.

Indonesia has benefited by becoming a link in the global supply chain. Indonesia has been
able to specialize in a segment of production chains. There is greater room for specialization,
especially in labour intensive stages of production. This linkage also provides an impetus for
improved infrastructure and trade facilitation. Integration into global supply chains means
interdependence in the region and impetus for more market oriented policies and less risk of
reverting to protectionism.

The big challenge however, is to develop diverse products in a timely and cost effective way
in response to market demand. What is the way forward?

We support deeper integration within ASEAN. So we are pushing ASEAN towards a single
market and production base by 2015. ASEAN has taken a number of initiatives to promote a
single market and production base, for example, integration for 11 private sectors, agro-based
products, automotive products, electronic, healthcare, rubber based products, textiles, tourism
etc. These 11 sectors comprise around 50% of intra-ASEAN trade. Then we have ASEAN
investment area, ASEAN industrial cooperation scheme, and ASEAN single window.
ASEAN single window is part of the improvement of trade facilitation.

The other is the infrastructure policy package launched in February 2006. We are also
promoting public-private partnership in infrastructure. We are adopting a new investment law
in which we will have equal treatment to foreign and domestic investors. The process of
investment approval will be streamlined and it will be a one-stop service. There are still some
difficulties on accessing land by foreign investors. The government will provide some
guarantee so that this does not become an impediment to investment.

Regarding improvement of trade facilitation measures, this year we will implement the single
window system in Indonesia. Next year (2008), we have to implement ASEAN single
window. So, it is one stop service. It is only one document. Instead of now which has 25
agencies for dealing with export and import and this development is very significant. There
will be significant improvement in terms of improving our competitiveness. We will have
Special Economic Zones. We want to adopt the best international practice to attract investors.

In summary, there are many benefits of integration. It increases our competitiveness,

improves efficiency of production, improve logistics, improve information technology etc.
We are now taking steps to improve the investment climate regionally and unilaterally.

30
Issues:

1. What is the potential for the fragmentation effect spreading to other areas. It’s very
clear from your presentation that there is potential for spreading it geographically
from East to South Asia. But what about the spread sectorally? What’s the potential
for this kind of phenomenon spreading to other parts of manufacturing and services?

2. What is the role of industrial policy? The thrust of your policy inference is about
simultaneous trade and FDI liberalization. What if some people were to get back to
you and say that the way to enhance the country’s niche in these areas is to have a
more selective approach to the tariffs as well as to FDI in terms of special economic
zones, fiscal incentives and so on?

Prof. Prema-Chandra Athukorala, Australian National University: One of the points that if
often made that Thailand is doing extremely well in the automobile sector compared with
other countries and the reasons cannot be entirely ascribed to FDI and trade policy alone.
Again, it was correctly pointed out that China and Malaysia are not doing well. Again, this
kind of comparison reinforces my point. I had a PhD student who did a thesis on FDI and
manufacturing process in Thailand. He studied the automobile industry in Thailand. His
finding is that Thailand started getting into fragmentation very rapidly only after the
government removed domestic procurement requirements. I mean, Thailand also believed in
the value added myth and they wanted automobile firms to procure certain shoddy
components produced by local firms. How can you be competitive in component trade by
using these components? Once the government removed them it really helped the automobile
industry.

Malaysia, because of their policy of developing the national motorcar, prescribed a policy
regime for production of cars that is very stringent. Therefore, Investors ignored Malaysia
mainly because of these stringent restrictions. And again, China’s investment regime, unlike
in other areas, is very stringent in automobile sector. I interviewed some people working for
Toyota in Tokyo. Actually Toyota is scaling down its investment in China mainly because of
the stringent environment in the export-oriented car segment in China.

The concept of fragmentation does cover process outsourcing as well. To give an example,
Intel set up an electronic industry in Vietnam recently. It is mostly to undertake process
activities. Some of the components assembled in Malaysia will be exported to their plant in
Vietnam for testing. It is the process, not production. Both are complementary. Printing
industry is a good example. The publication - Lonely Planet is a product of a Melbourne
based company but the production process takes place in 6-7 countries, printing somewhere,
designing and other things. Even in pharmaceutical industry, for example, Bangladesh is
involved in some simple packaging of several imported generic products.

Prof. T.S. Srinivasan, Yale University: Why is India not engaging in as much as one would
think it should be engaging in the parts and components trade? Two major bottlenecks, one is
India’s labour laws. India’s labour laws are the most inflexible labour laws in the world.
Unless the labour laws are liberalized sufficiently, there won’t be any interest in any outsider
to come and establish a plant of a sufficient scale employing labour intensive manufacture of
components to export abroad. Second, the broad investment climate is not favourable
especially at the sub-federal levels.

31
 SESSION IV: TRANSACTION COSTS IN REGIONAL TRADE AND TRADE
FACILITATION

Dr. Upali Wikramasinghe, University of Sri Jayewardenepura, Sri Lanka

Transaction cost in a broader perspective

IMPORTANT COMPONENTS OF TRANSACTION COST

1. Transport
• Transport costs + Transport cost incidence (share of international shipping costs in the value of trade)
outweigh tariff in many developing countries (World Bank, 2001)
• Transports costs are particularly high for low-value products, which are produced by developing
countries, and land-locked countries
• Sea freight for cargo loaded on Asian ports has not fallen but that loaded on the western ports has
already fallen
• South Asia is well endowed with ports numbering 250, and 25 of them ports are in operation (RSI,
2005)
• The efficiency of the ports measured in the speed of handling cargo in South Asia is still low in
comparison to East Asia
• Areas that need improvement in South Asia:
o Maritime cargo handling
o Storage facilities
o Fuelling and watering
o Repair facilities
• Transport problems of land-locked countries are severe – need attention to multi-model transport
facilitation

2. Information & Communication Technology (ICT)

• Internet penetration for business:
o South Asia 28.6 %
India 35.9 %
Bangladesh 31 %
Sri Lanka 29 %
Pakistan 18 % but improved much faster in the last year or so
o East Asia & the Pacific 27 %

32
 o OECD 80 %
• Other key factors (2006 enterprise survey)

South Asia East Asia

Time to get an electrical 55 days 12 days
connection
Time to get a telephone 64 days 10 days
connection

3. Trade Procedures and Documentation

Trade Procedures and Documentation

Trading Across Borders 1

import (days)
export (days)
Documents

Documents
Signatures

Signatures
for import

for import
for export

for export
/Economy

(number)

(number)

(number)

(number)
Time for

Time for
Region

East Asia & Pacific 7.1 7.2 25.8 10.3 9 28.6

Europe & Central Asia 7.7 10.9 31.6 11.7 15 43
Latin America & 7.5 8 30.3 10.6 11 37
Caribbean
Middle East & North 7.3 14.5 33.6 10.6 21.3 41.9
Africa
OECD 5.3 3.2 12.6 6.9 3.3 14
South Asia 8.1 12.1 33.7 12.8 24 46.5
Sub-Saharan Africa 8.5 18.9 48.6 12.8 29.9 60.5
Denmark 3 2 5 3 1 5
Bangladesh 7 15 35 16 38 57
Bhutan 10 12 39 14 12 42
India 10 22 36 15 27 43
Maldives 7 4 24 12 4 29
Nepal 7 12 44 10 24 38
Pakistan 8 10 33 12 15 39
Sri Lanka 8 10 25 13 15 27
Source: World Bank (2006), Doing Business in 2006: Creating Jobs, World Bank and International Finance
Corporation: Washington D.C
1. Procedural requirements for exporting and importing a standardized cargo of goods of a company with
more than 100 employees

• Benefits of improvements in customs procedures or removal of unnecessary:

o Efficiency gain for both the exporter and the importer
o Increase in government revenue for the importing country
o Reduction in corruption is critical for a country (in many countries corruption begins
at the customs)
• We all understand the benefits and the standards procedures that can be adopted in streamlining
customs procedures, but the mechanics are problematic for several reasons
• Traders invent ‘institutions’ (rules of the game) to minimize TCs
• ‘Rent seeking behaviour’ and ‘corruption’ in many cases are the results of their attempt to min. TCs
• Once established, these ‘institutions’ become so strong, and reforms become difficult
• Strong political will or external pressure are needed in many cases; therefore, there is a strong case for
regional or multilateral approach for resolving the impasse
• Maybe public-private dialogues can help, but separating genuine private & public representatives
from corrupt ones is not easy
• Three critical achievements in customs reforms:
o Transparency: low-cost access to relevant trade and procedural information
o Predictability: requires the provision of clear customs regulations that are made
available in advance, and uniformly and effectively enforced; that will help
exporters/importers plan and make decisions on import, marketing, and investment
decisions
o Participation: of the private sector is essential to obtain reliable information and to
serve as a reality check and watchdog for government action; provide feedback
necessary for monitoring access to and quality of the services.

33
 ATTEMPTS FOR TARDE FACILITATION IN SOUTH ASIA

• Each country has made some attempt to comply with GATT requirements, but in general
import/export procedures are cumbersome and inefficient, and have high TCs.

GATT Article V: Freedom of Transit

Bangladesh India Nepal Pakistan Sri Lanka

GATT Article V: Critical for Bang Not much Governed by Not featured Not
Freedom of transit and India headway in transit India-Nepal featured
Bang. Has not issue with Treaty
agreed so far Bangladesh
Transit for Nepal
is governed
through Indo-
Nepal Treaty
India, Bangladesh
and Nepal have
so far not acceded
to international
transit
conventions

GATT Article VIII: Fees and Formalities connected with Imports and Exports
Bangladesh India Nepal Pakistan Sri Lanka
Simplification of Self-assessment Several Making some Not much Attempted early
formalities and rapid programs are progress but progress but the progress
clearance underway, but slow is slow
not so much
progress

Simplification of Some effort but Still complex Smaller number Still relatively Attempted
tariff structure not significant of tariff bands complex earlier but again
has introduced
more bands and
exceptions
Levy of fees and Three types of Some fees are Large number of Certain sensitive A number of fees
charges surcharges are based on service levies and items are subject and levies still in
levied cost, but others charges to specific or operation
are still charged compound rates
on ad-valorem Complex set of
basis requirements
exist
Simplification of No progress Impressive Implemented Lot of Made headway
documentation progress in ASYCUDA and procedures but slow
Electronic Data IT-based system Complex set of progress
procedures
Interchange in three entry conditions exist ASYUDA ++
(EDI) points Introduced since 2003
Electronic Valuation
Assessment database for risk
System (EASY) management has
in 2000 been established
Committed to
introduce
international
standards
Processing time No progress Principles have Not much Not published Expected to
accepted, but progress times yet achieve through
implementation automation
is weak across
India

34
 GATT Article X: Publication and administration of trade regulations
Bangladesh India Nepal Pakistan Sri Lanka
Publication of Publicize all trade Publicize all trade Publishes all trade Official gazettes Official gazettes
regulations related related related are published are published
regulations in regulations in regulations in regularly regularly
official gazettes official gazettes gazettes
Advance rulings No progress Authority No mechanism No known
established in procedure
1999, but scope is
limited to foreign
firms
Use of electronic media Introduced Widely used Committed under Increased use of Introduced
SPEED and WTO accession the Internet electronic
ASYCUDA customs
documents under
ASYCUDA
Enquiry points No known No official Recognized the No officially No single window
enquiry points enquiry point Nepal Bureau recognized Several agencies
Standards and institution are involved
Meteorology
Consultative mechanism Has been Some progress No formal Some progress Established a
established mechanism permanent Tariff
Advisory Council
Appeal process Have provisions, Has an elaborate Has provisions, Has provisions, Has provisions;
but slow appeal process Department of the Ministry of Director General
Customs Excise Commerce is Trade is of Commerce is
and Gold Control responsible responsible responsible
Appellate
Tribunal is the
highest authority

ISSUES, PRIORITIES AND STRATEGIES

• Trade facilitation, although important, is not a burning issue for South Asia given the urgency of
many other issues
• People seem to have got accustomed to the ‘status quo’ and there is no strong pressure to change
• Government are concerned over the heavy upfront investment on trade facilitation, of which benefits
are not well known, because earlier reforms have not produced much results
• Regional arrangements can play a major role, given resistance to include trade facilitation under the
WTO under binding constrains.

Ms. Nisha Taneja, Senior Fellow, ICRIER:

Definition of trade facilitation

Even though the WTO negotiations focus only on GATT Articles V, VIII and X and limit
trade facilitation to simplification, harmonization and automation of trade procedures, all
South Asian countries should look at the issue more holistically in a broader context that
would include things like infrastructure and TBT and SPS measures which often would
obstruct trade at the borders in South Asia. For example, if it takes eight days to reach the
border and fifteen minutes to cross the border it’s of no use. So, we need to look at the entire
chain, which means that we are looking at behind the border measures. In fact, if any measure
or action contributes to reduction in transaction cost it effectively contributes to trade
facilitation.

Benefits of Trade Facilitation

The benefits of trade facilitation are well known and documented, but I would like to
highlight the possibility of effective integration of production networks through reduced
transaction costs. This is particularly true for textile and readymade garment sector where
production networks are buyer driven mostly located in US and the European Union. For
example, let’s take GAP, a major brand located in the US. They have a buying office in India

35
and if they specify that they would fabric from say, Nishad Textiles in Pakistan, but at present
it takes India the same time to import fabric from Pakistan as it does from Europe. This
inhibits the countries from producing through efficient supply chains.

Bottlenecks to cross border trade in SAARC

Over the years a lot of work has been done on identifying bottlenecks to cross-border
movement of goods in the region. A recent ADB Study highlights the core areas where
attention should be given both for developing infrastructure and for related software. This
study has been prepared for the SAARC Secretariat and it lays down a roadmap for seamless
transportation of passengers and freight across the length and breadth of the region. If you
look at the report you get the vision of what seamless transportation would be like.

Slow progress in improving trade facilitation in SAARC

Why is it that in spite of the recognition of merits of trade facilitation, no action has been
taken so far?

1. India has been more preoccupied with reducing transaction costs of trading with the
rest of the world. A recent study points out that India’s transaction costs of trading with the
rest of the world is lower than trading with its neighbors.

2. All member countries has been concerned about reducing transaction costs related to
exports, but not enough emphasis has been given to reducing transaction costs of imports.
Transaction cost in terms of number of documents, signatures and time taken is higher for
imports than for exports by almost 40% to 50% for all South Asian countries. This ratio is the
lowest for the OECD countries. Each member country should focus as much on imports as it
does on exports.

3. There has been lack of political will on the part of member countries to undertake
measures towards improving connectivity. But this is changing now.

4. A move towards seamless transportation will not be without problems because it will
strike at the root of some entrenched interests. Let’s take the example of the transit issue.
Bangladesh does not grant transit facilities to India to connect with its northeastern region.
Over the years Bangladesh has been exporting to the northeastern region of India. Now if
Bangladesh allows transit to India through its territory there is a possibility of it losing this
market. Similarly, Pakistan is Afghanistan’s largest trading partner and therefore it is in
Pakistan’s interest not to grant transit facilities to India. Now India is also a culprit by not
offering transit rights to Nepal and Bangladesh through its territory, which has effectively
blocked trade between these two countries and Pakistan while it’s own export to these
countries has been soaring over the years. Therefore, in the process of transitioning to the
ideal situation of seamless transportation there will be gainers and losers and these issues
need to be addressed.

Mr. Shahid Bashir, Joint Secretary, Ministry of Commerce, Pakistan:

I will speak about Pakistan’s own experience in trade facilitation area as to what we have
done and how we have done, what are our motives and what our objectives are? Pakistan is of
the view that there must be multilateral agreement on trade facilitation for the simple reason

36
that even if we simplify and harmonize custom procedures and all the other facilitation
measures then we may be confronted with about 50 different simple procedures that may
have been adopted by various countries which will complicate the situation further. There has
to be one harmonized, simplified procedure in all the countries. In this case, UNCTAD has
worked very well because they created a single administrative document by replacing all the
documents. Pakistan has adopted that and we are working on that.

Pakistan’s reforms are home grown. The World Bank funded them but the entire system
originated within Pakistan. The strongest opposition for any reform is from within the system
itself. The important thing is to create an ownership of the functionaries. The creation of
ownership took about a year or so. Each and every individual of the department was brought
in, through regular discussions. In some places in Pakistan, the custom procedure now is
totally paperless. The goods can also be cleared electronically. With a profiling system in
place no consignment is opened for checking.

How to motivate people? You have to either scrap the whole department and recruit new
people or you have to find ways to motivate the existing staff. In order to motivate the staff,
an ad-hoc decision was taken to raise the pay of all staff members by 100%. Further, instead
of retrenchment of staff, the government stopped new recruitment. It was complemented
through training of the staff for undertaking new functions. At mid-management level all
officers were given the incentive to do the MBA course.

We now have automatic customs clearance system, which is based on the principle of risk
management. We are also installing equipment to scan the whole container, which need not
be opened. Now with that I think the cost of doing business has definitely reduced. And also
the rent seeking has reduced. In Pakistan’s trade policy we have abolished the system of
licensing and quotas.

I may also add that after these reforms the customs revenues have doubled.

The benefits of trade facilitation cannot be fully realized unless all the new measures are
coordinated and synchronized manner. The participation of stakeholders and business
communities is essential for these initiatives. The unpredictable and cumbersome trade
regime mostly affects imports into the countries and the domestic stakeholders remain under
false impression that their interests are being protected. These types of trade regimes sustain
rent seekers and remain an impediment for economic development. Pakistan is of the view
that though regional and bilateral agreements can help to achieve the objectives of facilitation
of trade, there cannot be a substitute for a multilateral trade system. Keeping this in view
Pakistan is actively participating in the multilateral negotiations on trade facilitation in the
WTO.

Mr. Raja Abdul Aziz Raja Musa, Federation of Malaysian Manufacturers Wisma (FMM):
(Public-Private collaboration in Trade Facilitation)

What are the challenges faced by Malaysian businesses?

1. Duplication of physical examination of shipments by different authorities and

agencies: Of course this causes delays for example, food products will have to be inspected
by Ministry of Health, Veterinary Department and so on. This results in loss of time. There is
a gap in the information and overall resources among different inspection authorities. Further,

37
different agencies use different IT administration systems, which result in different
interpretation of the same document. There is, therefore, a need for coordination among
agencies, especially agencies involving regulation of imports and exports.

2. Insufficient time for stakeholders to react to regulatory changes: Normally new

regulations are implemented instantaneously but companies or importers and exporters,
mainly importers and not able to adapt immediately to the new requirements and make
necessary adjustments. These are important causes of delays. As an organization, the
Federation of Malaysian Manufacturers’ Association has been pursuing this matter with the
government.

3. Increasing cost of doing business: Difference in trade documents and different

formalities observed for clearing import and export consignments cause delay and impose
extra costs. Significant efforts have been made to streamline this, but it takes time.

4. Malaysia has created a national single window. This is awaited as it takes time.

How do we address these problems?

The Federation of Malaysian Manufacturers’ (FMM) Custom Committee has regular

dialogue with the Customs. This is also an initiative, which is being pushed by the Ministry,
and there have been some improvements in the functioning of customs. In February 2007, the
Prime Minister of Malaysia set up a special steering committee comprising the Chief
Secretary of the Government and co-chaired by FMM President. The committee consists of
all the Heads of Chambers and Government departments. This committee looks at all the
problems and takes decisions to solve them and suggest ways to simplify and quicken the
process in government delivery system. For example, it looks at different interpretations of
HS code given by different customs jurisdictions etc. The Customs department has promised
to standardize the customs rulings on these matters.

The private sector has also come forward to give training to customs officials so that they
better understand the business practices and reduce discrepancy in interpretation of the
classification of various products.

What can the private sector do?

At the enterprise level, all involved must have an interest to be aware of the latest regulatory
changes and take appropriate action.

At association level, manufacturers, importers and others will have to play active role in
disseminating information to the business community, to their members so that they know
what incentives are available, etc. Associations have to provide avenues for companies to
interact with the government. In Malaysia the government listens more to associations than to
individual companies. It also provides a forum for enabling public sector consultative process
to improve government delivery system.

At the government level, they should have regular consultation with business community on
trade facilitation, regulatory reforms etc. We need governments to listen to private sector and
take action based on inputs received from stakeholders. It’s a question of attitude. It is

38
important to understand that government agencies are not there just to regulate but to
facilitate and to provide enabling environment.

Finally, at the regional level there should be sharing of information and experiences, playing
a role in strengthening regional and trade facilitation initiatives and promoting regional
integration.

Views from the private sector

Bangladesh: Trade facilitation, in layman terms, is simplification of trade procedures. From

Bangladesh’s perspective when I listened to these presentations from Pakistan and Malaysia
we feel that we are way behind in achieving standards or steps that need to be taken to
improve efficiency especially of our ports. Majority of our buyers are looking for reduced
lead time but we are spending 6 to 7 extra days on every consignment that we are shipping in
or out of Bangladesh because of the bottlenecks that we have in the port. We have to redouble
our efforts to engage with our government on this issue.

Nepal: As a representative from the landlocked country I feel that reduction of transaction
cost is a concern for a country like ours. Simplification of customs documents and customs
procedures is very important. This is particularly so in respect of a land locked country
especially for improvement in movement of goods in transit.

Just to give you one example, if we have to move a consignment transiting through
Bangladesh, India and Nepal we need to follow three different sets of documentation
procedures. Bangladesh Customs require one set of documents, Indian Customs and Nepalese
Customs require different sets of documents. This is increasing costs. Unless we simplify and
harmonize the customs in transit, there will not be much benefit from regional integration. If
we really want to have regional integration in true sense it is really required to have
harmonization of customs at the regional level. This will help reduce transaction cost to a
greater extent.

Concluding remarks, Mr. Rajesh Aggarwal, ITC: The trade facilitation agenda in the WTO
is much narrower than what is the businessmen’s understanding of trade facilitation. While
everyone recognizes trade facilitation or the improvement in trade facilitation, whether it’s
the government or the private sector or the academia but the context in which these
negotiations take place in various fora are different. In the WTO where negotiations tend to
take north-south alignment, the developing countries want to use the negotiations to leverage
aid for trade and technical assistance. They say they if you want developing countries to take
obligations then developed countries should commit some resources for aid for trade. But, in
the regional context, there is much better opportunity to pursue domestic reforms and even
politically it is easier to justify the balance between what has been given or taken in the
negotiations. Therefore, many countries are taking regional/ bilateral agreements to reform
their domestic set-ups for facilitating trade.

39
 SESSION V: INTRA-REGIONAL SERVICES TRADE IN ASIA

Services and economic integration in South Asia (This section is based on the
presentations made by Mr. Kailas Karthikeyan, UNCTAD India office and Dr. Arpita
Mukherjee, Senior Fellow, ICRIER and the subsequent discussion on these presentations.)

Preliminary remarks

The World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS)
identifies defines four ways countries export services. They are called “modes of supply”.

Mode 1, cross-border, from one state to another, where neither service provider nor
consumer leaves their home country.

Mode 2, consumption abroad, where the consumer travels to country of the service provider,
for example as a tourist or to seek health care.

Mode 3, commercial presence, where a service provider sets up a service outlet in the
consumer’s country, for example a bank setting up business in a foreign consumer market;
and

Mode 4, movement of natural persons, where the service within the consumer market is
supplied by a citizen of the service provider market.

1. Status and growth of services in South Asia

Current statistics fail to reflect how important service exports have become to the economies
of the South Asia region. They give the impression that, with the exception of tourism in
island nations like the Maldives, the proportion of service exports in the total exports of
important regional economies such as Nepal, Pakistan and Sri Lanka has stagnated or even
fallen. Only India bucks the trend, its rapidly growing service exports, notably IT business
and business support services, making a vast contribution to both its total trade and to South
Asia’s services exports, which expanded from USD 7.9 in 1993 to some USD 29 billion
today.

What official statistics fail to reveal is the significant impact of one specific export, labour,
on the region’s economies. Remittances, currency sent home to their country by nationals
working in foreign markets, provide a high proportion of South Asia’s trade but, due to the
informal nature of the transfer, the real sums involved and their true contribution to national
economies go largely unreported. In Sri Lanka, remittances provide more export income than
tea; in Nepal, remittances accounted for 12% of GDP in 2004; 40% of Bangladesh’s
remittances come from informal sources; in Pakistan, official sources report only USD 1
billion in remittances, out of an estimated total USD 10 billion.

2. Is South Asia’s services economy competitive?

Given the importance of services, especially remittances, to South Asia’s economy, it is

useful to focus attention on how competitive South Asia’s service economy is within the

40
region itself, and with neighbouring regions such as South East Asia, as represented by the
regional trade bloc the Association of South East Asian Nations (ASEAN).

Countries which had RCA in sector more than 1

CONSTR
TRANSPO COMMUNI UCTION
RT CATION SERVICE OTHER TRAVEL FINANCIAL
SERVICES SERVICES S BUSI SERV SERVICES SERVICES
China, Hong China, Hong
Kong SAR Bangladesh China China Cambodia Kong SAR

Korea, India China, Hong China, Hong Korea,

Republic of Kong SAR Kong SAR China Republic of
China, Hong China, Macao
Philippines Kong SAR India Singapore SAR Singapore
Singapore Indonesia Malaysia Indonesia
Sri Lanka Pakistan Philippines Malaysia
Philippines Sri Lanka Maldives
Sri Lanka Thailand Myanmar
Nepal
Philippines
Sri Lanka
Thailand

Figures from United Nations Conference on Trade and Development (UNCTAD) for the year
2003 suggest South Asian countries are more competitive in communication and travel
services. Countries of ASEAN are more competitive in financial and other business services.

3. Asian trends

South Asia is also a highly competitive supplier of Mode 4 services. WTO defines Mode 4 as
“a service supplier of one Member, through presence of natural persons of a Member in the
territory of any other Member”. They can be self-employed, or employed by a service
provider and sent abroad to supply a service, for the same company, with commercial
presence in another WTO member or to visit a service consumer in another WTO member’s
territory. In practice, Mode 4 services involve high or low skilled migrant workers
temporarily supplying services in countries other than their country of origin, and transferring
the proceeds to their home country through remittances. South Asia is the second largest
recipient of remittances in the world, receiving some USD 32 billion in 2005.

South Asia exports its services frequently in the form of outsourcing, a practice that has
proved highly profitable to developing countries but has raised concerns in developed
countries. However, South Asian countries such as India and Pakistan, along with countries
in the neighbouring ASEAN regions such as Malaysia and Thailand are increasingly viewed
both as source and destination countries.

4. Factors leading Asian countries to liberalize

A number of factors have encouraged Asian countries to adopt a more aggressive approach to
services liberalization, despite their previous reluctance:
• New economic realities: emergence of major players in Asia, notably China and
India;

41
 • Emerging markets: increasing trend of growth in intra-emerging economies trade,
although their major markets continue to be in developed countries;

• Export potential: realization that the availability of services such as tourism, health,
education etc. in Asia can attract consumers from other parts of the world;

• Complementarities: Asian countries share same concerns. Because of the similarity of

interest, Asian countries are joining hands in WTO on issues like Mode 4.

5. Some factors towards achieving successful liberalization

When seeking to liberalize their services markets, developing countries should bear in mind
that:
• Liberalization of Mode 3 (commercial presence) is vital to attracting foreign direct
investment (FDI);

• Efficiencies created through Mode 3 liberalization in, for example,

telecommunications and financial services have a knock on effect in other sectors of
the economy, making other sectors such as manufacturing and agriculture more
efficient;

• Pre-requisites for successful liberalization include:

o An independent, transparent and predictable regulatory regime. Lack of

appropriate pro-competition regulation and transparent mechanisms can be a
constraint to liberalization because it can erode necessary public support for
the process. Market access is not much of an issue in services, barriers to trade
are mostly related to regulations,

o A competitive market and an independent regulator to enforce competition;

• Liberalization under Modes 2 (consumption abroad) and 4 (movement of natural

persons) is more effective in achieving social and economic goals;

6. Barriers to intra-Asian trade in services

Commitments on market access and national treatment are not, in themselves, enough to
increase opportunities for trade. Major trade barriers that need to be addressed include non-
recognition of professional qualifications in regulated sectors such as healthcare, engineering,
architecture, accountancy, which is a major trade barrier. Article 7 of the GATT allows WTO
members to enter into mutual recognition agreements but in Asia, not much mutual
recognition is actually taking place.

The most serious barrier to intra-Asian trade in services is regulatory regimes

• A climate of evolving regulations leads to uncertainty in the business climate;

• Lack of transparency, where ease of setting up a company’s operations is countered

by the day-to-day problems associated with running it;

42
 • Inconsistencies within countries: e.g. Sri Lanka has allowed 100% FDI in the
insurance sector but Sri Lankan residents cannot take foreign insurance except for
health and travel.

• Inconsistencies between countries: Indians and Pakistanis cannot use their mobile
phone services in each other’s country.

Other factors inhibiting trade include:

• Inadequate transports links and telecommunications infrastructure. This can be

remedied by policies to attract investment to the sectors;
• Regulation of professions, which, in the absence of region-wide standardized
educational systems, render mutual recognition agreements ineffective in terms of
improved market access;

• Administrative issues such as work permits, visas and other requirements;

• Fear of export of jobs;

• Issues related to security;

• Lack of cooperation in provision of social services, e.g., health and education, where
countries are not working together to solve problems of surpluses and shortages;

• Lack of cooperation in provision of services such as energy and water, where even
neighbouring countries are not working together to eliminate barriers and diminish
dependence on service providers from outside the region;

• Cultural barriers, for example, through restrictions and regulation of content;

7. Business to business cooperation

An important barrier to intra-Asian trade is lack of business-to-business cooperation. This

could remedied by:

• More trade road shows in each other’s markets;

• More sharing of information and skills;

• Policies promoting intra-regional emerging economy business cooperation, rather

than emerging-developed, such as lowering capital requirements for commercial
presence in Pakistan; or lowering restrictions on foreign direct investment (FDI),
notably in India

8. Barriers to Asian trade in services with developed countries

The principal barriers to trade in services between countries of South Asia (and Asia too) and
developed countries are:

43
 • Anxiety in developed countries over the export of jobs to developing countries,
through outsourcing, especially in information and communication technology (ICT).
This has resulted in protectionist legislation and a range of other barriers. These
include requirements over wage parity, strict visa procedures, economic needs tests
(i.e. is there no-one locally that can do the job), non-recognition of professional
qualifications, imposition of discriminatory standards and licensing requirements,
payment of social security without, for example, medical and pension benefits,
insurance schemes and requirements to register with professional organizations.

• Concerns over piracy and lack of an intellectual property (IP) protection in some
Asian countries.

9. Public policy issues

Public policy issues related intra-Asian trade in services include:

• Requirements for attracting FDI to develop services infrastructure includes:

adequately-sized domestic market, predictability through WTO commitments, and
the promise of rule of law through independent regulator.

• The importance of linking reforms in the different economic sectors in order to attract
investment, for example, liberalizing transport at the same time as opening up the
tourism sector - otherwise, shortcomings in one sector can have a negative impact on
the development of another sector; until the whole chain linking manufacturing and
services is reformed, the gains will not be realised, for example, mere opening of the
agro-processing sector without concurrent reforms in the retail trade and agriculture
sector will not bring desired benefits

• The importance of providing policy space so that countries are able to achieve a
degree of regulatory maturity that can only come from a gradual liberalization of the
domestic market;

• There is no need for a formal preferential trade agreement to be in place for

professional bodies to make their own sectoral mutual recognition agreements with
professional bodies in other countries. However, such agreements do encourage the
professional bodies in these countries to seriously engage in negotiations on MRAs.
This is exemplified by a series of MOUs signed between the Indian and Singaporean
universities in the aftermath of the Singapore-India Economic Cooperation
Agreement.

10. Some concluding remarks

• Complementarities exist in services sectors within Asia, and regional integration is

likely to have a positive impact on Asia’s services exports; countries, which are
competitive, in particular services are likely to increase their export earnings. For
realising best results, the economic integration should go deeper and cover the
regulatory aspects as well;

44
• A recognised benefit of services liberalization is to introduce efficiencies into the
economies of some important countries. The sequencing should however be right. The
basic infrastructure services, such as, transport, telecommunications, energy should be
high on the agenda as they provide the foundation for growth of other sectors.

• Evidence already points to high levels of intra-Asian FDI flows in the services sector,
particularly from China.

• The economics of service liberalization is evolving, but recent opinion suggests that,
very much like liberalization in manufacturing or other form of economic activity,
service liberalization is subject to some trade adjustment costs;

• Liberalization of services may not inherently generate inequalities given the multiplier
effects of growth in services on other areas of the economy. Policy choices are very
much a matter of experimentation;

45
 SESSION VI: INTRA-REGIONAL INVESTMENT OPPORTUNITIES AND
CHALLENGES

Based on the presentations of Mr. Debapriya Bhattacharya, Centre for Policy Dialogue,
Bangladesh, Ms. Aradhna Aggarwal, University of Delhi and the subsequent discussion

Relationship between Regional Integration and Investment

Investment can be intra-regional or extra-regional. The major logic of intra-regional

investment is that regional liberalization, deregulation and privatization process is
increasingly integrating the economies, markets and the sectors and creating uniform trade
policies, standards, regulations, administrative procedures and business support measures.
Consequently, flow of investment heightens between economies of a region by decreasing
information, adaptation and transaction costs of trade. Essentially, the economic integration
flattens differences between member states in production factors like wages, interest rates,
economic policies and so on, influencing the flows of intra- regional investments.

Intra-regional investment can take place in two forms: One, vertical investment, in which
different stages of production are localized in different economies to take advantage of the
differences in factor prices, producing for both the domestic market and the source country
market. The most popular example of vertical integration is car manufacturing. Wheels are
made in Sri Lanka, body of the car is made in India, get the upholstery from Nepal and
something else from Bangladesh, and do the assembly somewhere else. In horizontal
investment, different production facilities are placed in different economies to take advantage
of the local markets as well as the local production factors including interest rates, mostly
targeting the domestic markets.

Regional integration has stimulating effect on intra-regional investments, which are vertically
integrated, efficiency seeking and export oriented. It has a dampening effect on intra-regional
investments of horizontal nature. Thus, intra-regional investments can shift from horizontal to
vertical mode. However, in developing countries, as the size of enterprises is small for whom
the transaction costs of exports remain high, they may still go and invest in other countries
within the region in spite of the regional integration having taken place. The trend for extra-
regional investments gets surely augmented to take advantage of the increasing size of the
potential market. This is because when there is regional integration, there is a sphere of some
protection and this attracts foreign investors to set up, to internalize the enlarged market.

With regional integration, a kind of investment climate is created that is conducive to total
increase in the investments. Moreover, as trade increases, there is increase in productivity and
this leads to higher growth rate and higher growth in turn is positively related with
investment. Increase in investment further generates a multiplier effect by creating
confidence among the investors. Empirical studies have also shown that there has been
positive impact of regional trading agreement on investment flows. The differences however
remain, on whether the increased flow of investments is due to intra-regional investment
flows or due to increase in extra-regional investment flows.

Foreign investment into Asia

Intra-regional investment in Asia has picked up significantly during 1990s and it is

essentially the large multinational enterprises that are investing within the region mainly in
the horizontal mode. They are setting up production networks and channels of marketing

46
together in all the three major sub-regions - East Asia, South East Asia and South Asia - but it
is in South East Asia and East Asia that the intra-regional investment is more prominent are
more prominent. Furthermore, there are inter-regional investments between East Asia and
South East Asia, which is still not the case in South Asia. Japan, Hong Kong China, Chinese
Taipei, Republic of Korea and increasingly Malaysia and mainland China are investing in
East Asia and South East Asia. Most of this investment has gone to the relatively high-
income countries.

China has been the major recipient of foreign direct investment. The share of intra-regional
investment in South-East Asia is around 13% compared to intra-regional trade share of 40-
50%. The investment figures are, therefore, significantly lower than the intra-regional trade
figures.

South Asia during this period also had been liberalizing, since late 80s, India a bit later from
early 1990s but Bangladesh and Sri Lanka had been doing it much earlier. They have
liberalized the investment regime also, opening most of the sectors for foreign direct
investment. The major sectors or the broad sectors where the investment is sought to be
attracted are export oriented industries, export processing zones along with special economic
zones and of course the modern technology sectors. South Asia still accounts for only 1.08%
of the global FDI flows.

Nevertheless, liberalization of FDI regime in South Asia has contributed to significant

increase in overall flow of foreign investment to the region, rising from a mere US$ 0.2
billion in 1980-85 to US$ 1.7 billion in 1991-96 and US$ 9.8 billion in 2005. But the major
share of the inflow went to India (68%) while India and Pakistan jointly holds 90% of the
total inflow in South Asia in 200510. The global growth figure has been lower than the South
Asian growth figure, which means South Asia has been more successful in attracting more
foreign direct investment in comparison with other regions of the world but it remains slower
compared to South East Asia and East Asia.
Overall FDI Trends in South Asia ($US mn)
1980-85 1990-2000 2003 2004 2005
Bangladesh -0.1 190 (2.5) 350 (2.9) 460.43 (3.4) 692 (4.9)
Bhutan NA 2 (0.1) 1.06 (0.3) 1 (0.1) 1 (0.2)
India 62 1705(3.0) 4585(3.4) 5474(3.1) 6598(3.5)
Nepal 0.2 11(0.6) 14.78(1.3) -- 5 (0.4)
Pakistan 75 463 (7.2) 534 (4.2) 1118(7.5) 2183(13.0)
Sri Lanka 42 159 (5.6) 228.72(5.7) 233 (4.7) 272 (5.2)
Maldives -.03 9 (7.6) 14(7.2) 15(5.4) 14(4.8)
South Asia 178.8 2539(2.3) 5727.56 (3.5) 7301.43(3.4) 9765 (4.3)
Asia 5043 76616(8.0) 110489(7.7) 157328(9.4) 199951(11.1)
Developing ctys. 12634 134670(8.9) 175138(9.3) 275032(10.7) 334285(12.8)
World 49813 495391(7.6) 557869(7.3) 710755(7.7) 916277(9.4)

Note: Parentheses show the ratio of FDI to gross capital formation

Source: UNCTAD (2006b)

10
WIR 2006

47
Share of Individual Countries in SAARC FDI Inflows in Selected Years ( 1990-2005)
1990-2000 2003 2004 2005
Share in South Asia’s FDI inflows:
Bangladesh
7.48 6.11 6.31 7.09
Bhutan
0.08 0.02 0.01 0.01
India
67.15 80.05 74.97 67.57
Nepal
0.43 0.26 0.05
Pakistan
18.24 9.32 15.31 22.36
Sri Lanka
6.26 3.99 3.19 2.79
Maldives
0.35 0.24 0.21 0.14
Share of South Asia in:
Asia
3.31 5.18 4.64 4.88
Developing countries
1.89 3.27 2.65 2.92
World
0.51 1.03 1.03 1.07
Source: UNCTAD (2006b)

Pattern of Foreign Direct Investment in South Asia (SAARC)

The bulk of FDI flows into the region come from outside the SAARC region. Firms from the
EU and US are major investors in the region. But there are systematic source country patterns
in the region.

FDI from developed country sources is directly related with the industrial sophistication of
the host country. India, which is industrially the most advanced country attracts most of the
FDI from developed countries. The share of developed world investment is relatively small
for two other major recipients of FDI- Pakistan and Bangladesh. FDI inflows to Bhutan,
Nepal and even Sri Lanka originate mainly from developing countries.

Share of 5 top investors in Individual South Asian Countries (%)

Host country Top 5 countries Share of top 5 No. of source
countries countries
India Mauritius, EU, US,Japan, 79 114
Singapore
Bangladesh Norway, US,EU, South 68 30
Korea, Hong-Kong
Pakistan UAE*, US, EU, Saudi 83.3 35
Arabia*, Norway
Nepal India, US, China, Vir. 75.2 50
Islands,Norway,
Sri Lanka Malaysia, Singapore, UK, 62 NA
India, USA
* Share of UAE and Saudi Arabia are exceptionally high due to the inclusion of privatisation proceeds. If they
are not included in the analysis, US, EU, Norway, UAE, and Switzerland emerge as the largest investors.
Sources: BOI: Pakistan and Bangladesh; DOI: Nepal; SIA: India; ESCAP (2003): Sri Lanka.

48
Future prospects for intra-regional FDI flows in SAARC

The decision to invest is made on economic grounds: macro economic dynamism, regional
cooperation and multilateral liberalisation amongst others.

The macro economic dynamism of the region is encouraging. These countries’ GDP has been
increasing at the rate of 6% plus and this rate of growth is expected to be 7% for the next two
years according to the global economic prospects. So the growth prospects are quite bright.
Median age of the population is only 21.7 years, which means that both the demand for goods
and labour supply will be good for a long time to come.

Regarding regional cooperation, SAFTA (South Asian Free Trade Agreement) has replaced
SAPTA (South Asian Preferential Trade Agreement) and new regional integration
agreements are under negotiations. There is however, some pessimism in certain quarters
abut the prospects of increased trade and investment under SAFTA. In spite of the SAPTA
being in effect for last 10 years, intra regional trade in SAARC has been mere 4.5% of the
total trade of the region in comparison to 55% for intra -EU and 61% for intra- NAFTA trade.
Some argue that this situation is due to similarities in the export competitiveness in SAARC
which discourages trade and investment flows. Others feel that the problems are merely
political in nature. There is considerable informal trade within the region. Another study
identifies 1500 products, which have the potential of being traded in this region. There are
dissimilarities amongst countries based on the competitiveness report. Even the export basket
of countries in the region is quite different. Bangladesh and Maldives area primarily
dependent on low technology labour intensive products like textiles, leather but Sri Lanka,
Pakistan and India are increasingly moving into mechanical, chemical and engineering
industries. These variations can give rise to complementarities in trade and investment in the
region. This has been empirically proved by the results of India-Sri Lanka FTA.

Extra-regional investment flows also have bright prospects. There are possibilities of extra-
regional efficiency seeing investment because of dismantling of trade and investment
barriers. Similarly these investments could also find the combined size of the market quite
attractive.

If the services sector is also included in the regional agreements, it will allow the region to
take advantage of existing complementarities in this sector. In services, India has comparative
advantage in the IT sector, Bangladesh and others have comparative advantage in travel,
transport and tourism.

Along with deepening of regional cooperation it is also important to continue with

multilateral liberalisation. This kind of liberalisation will continue as most of these countries
have acceded to WTO. However, multilateral liberalisation alone will not be sufficient. It has
been seen that despite having gone through the economic reforms since 1990s, total
investment flows have not increased significantly. So it is important that regional integration
is deepened to attract foreign investments.

Challenges in attracting foreign investment

The major challenges in attracting foreign investment are:

49
 1. Political mistrust: There is still resistance to incorporate investment related
provisions in SAFTA.

2. Domestic Barriers: Whether it is governance, infrastructure, trade rules, political

instability, visa rules etc. the region fares quite poorly in terms of attracting
foreign investment. The related issue of different regulatory regimes, different tax
systems and custom laws, rules of origin, standardization, certification etc also
makes it difficult to attract investment. So harmonization of rules, procedures and
prior consultation before imposing sanctions assume considerable importance.

3. Restrictions on repatriation of profits further constrain the prospects for attracting

investment. India and Pakistan impose lock in period; Bangladesh and Sri Lanka
discriminate between classes of investors. Much will depend on how the trade
policy and industrial policy will be synchronized in the region.

4. Low income countries are apprehensive that they can attract investment only in
the natural resources sectors, such as, energy. How do these countries move from
resource seeking FDI to efficiency seeking investments? The domestic reforms
and intra-regional connectivity through good infrastructure are crucial to achieve
this.

5. It is true that regional cooperation will benefit the larger economies to begin with.
Deep regional cooperation however, gives rise to dynamic effects which have a
beneficial effect on investments even in to smaller countries.

Mr. Crisanto Joselito Frianeza, Philippine Chamber of Commerce and Industry:

Role of Private Sector in Improving the Investment Climate (Case study of the National
Competitiveness Council in Philippines)

The functioning of the National Competitiveness Council (NCC) in the Philippines, which
was convened with the representation from both the private and government sectors was
explained. The Philippine Chamber of Commerce and Industry and the Philippine Exporters
Confederation represented the private sector. The Centre for International Competitiveness
and the Bureau of Export Trade Promotion represented the government on this Council. It
provided an institutionalized mechanism for integration of the business concerns in fostering
a better investment climate on the same lines as was done in integrating the business
dimension in trade negotiations.

The NCC is tasked to recommend policies that can enhance competitiveness, assist in
identifying critical gaps and mobilize resources to move forward, conduct studies and build
on best practices on competitiveness, provide a platform to communicate the principles of
competitiveness and facilitate strengthening or expansion of public private partnership as the
engine for competitiveness. The NCC frequently consults other major business groups like
the Management Association of the Philippines, the Philippine Quality Movement, the
Employees Confederation, the Business Club, the Federation of Philippine and Chinese
Chambers of Commerce, the American Chambers of Commerce, the European Chambers of
Commerce and other industry associations like electronics, handicrafts, and furniture.

50
This group agreed to work on all possible areas to make the Philippines one of the most
attractive investment destinations in Asia. They agreed to work on such areas as,
development of competitive human resources, creating efficiency in public and private sector
management, effective access to financing, improve transaction flows and reduce costs,
upgrade infrastructure network, promote energy cost competitiveness and self sufficiency.
The National Competitiveness Summit was convened with the objective of adopting the
action plan for implementation in the short and medium term for both the private and public
sector players. The summit highlighted the commitment at the highest levels from both the
government and the private sector in this endeavor.

The Council also set up a public- private task force for improving competitiveness. It was
aimed at institutionalizing the quality management system in government by regularly
monitoring the improvements in transaction cost and flows, proficiency of students in
Mathematics, English and Sciences, up gradation of infrastructure network and energy us
efficiency.

Some of the achievements of the Council, which can be highlighted, are:

a. Investment in education was increased to develop skilled manpower in target fields.

b. ISO 9 standards for all the government agencies were developed which helped in
aligning the various productivity programmes of government agencies and private
sector organizations. The challenge was to get the ISO 9 standards implemented down
the line by local government units and create an environment for IPR protection to
encourage cultural innovation.

c. Central Bank relaxed the banking rules for providing easy access to finance.

d. The challenge in reducing transaction costs is to get the Bureau of Customs to

implement computerization.

e. Government and private sector jointly identified 20 infrastructure projects to be

implemented on priority and establish a mechanism to ensure timely execution of
these projects.

f. In collaboration with the Department of Energy, guidelines for implementing the

efficiency-enhancing programme were developed. Now the challenge lies in making
the small industrial users to implement those guidelines, promote development of
alternative fuels and formulate an investment policy for commissioning new power
plants.

It is an example of the efforts that are underway to improve the investment climate in the
country through enhanced public- private cooperation.

51
 SESSION VII: FUTURE PROSPECTS OF ASIAN INTEGRATION

Prof. Razeen Sally, London School of Economics:

My talk is based on two papers: one on FTAs and the prospects for regional integration in
Asia11 and Trade policy in Asia12.

Global trade policy trends – general slowdown of economic liberalisation

They can be summed up following lines: Compared with the heyday of trade and FDI
liberalization, which was in the 1980s and the 1990s we have seen not a reversal but a
slowdown of forward momentum. So if you look at the EU and the US there is no longer a
big project for liberalization as there was during the times of Margaret Thatcher, Ronald
Reagan and the single market programme in the EU. We have seen reform fatigue in Eastern
Europe after Eastern European countries joined the EU. We have seen a slowdown of
liberalization and structural reform in Latin America, especially in the lead markets of Brazil
and Mexico. We have seen a slowdown of liberalization in Africa - look at what South Africa
today compared with South Africa 10 years ago. We have seen liberalization in stops and
starts in South Asia, India of course being the lead example. We have seen a slowdown in
South East Asia with the exception of Singapore. The conspicuous exception to this story is
China. While others have slowed down, China has raced ahead. It is arguably slowing down
now compared with what was the case 5 or 6 years ago but China is very much as a reform
exception to the general trend.

The reasons for slowdown can be summarized as follows: It is a combination of

circumstances. It is more difficult to liberalize when you get to the trickier domestic
regulatory issues, which are politically more sensitive. Arguably there is more caution after
the Asian crisis and one should not forget that the climate of ideas has also changed. Old
ideas in new garb, for example, have appeared on policy space. Even infant industry
protection is back in flavor. This combination of ideas and circumstances actually makes it
more difficult to assemble coalitions for further reform, which of course does not mean to say
that it should not be attempted.

General picture of emerging FTAs

The proliferation of FTAs in the last decade or decade in East and South Asia is like catching
up with what has already happened in other parts of the developing world. The average Latin
American country is a member of about 7 FTAs, in Africa it is about 4 FTAs. So we are
seeing catch up on FTAs in this part of the world.

11
ECIPE Working Paper, 2006 available at www.ecipe.org

12 Launch Internet Explorer Browser.lnk

ECIPE Policy Brief, 2007 available at www.ecipe.org

52
 The map shows FTAs signed or under negotiation in January 2006.
East Asia is defined here as the 10 ASEANs, China, Japan and Korea. Source Richard Baldwin 2006

Noodle bowl syndrome in Africa

Source: World Bank

Noodle bowl syndrome in America

Source: Inter-American Development Bank.

53
Foreign policy objectives, so called high political goals on security and other grounds have
often been the lead factor in these FTAs. So often one wants to cement relationship with a
country and thinks of negotiating an FTA. The rhetoric coming out of governments almost
universally is that FTAs are building blocks or stepping-stones to overall liberalization. Let
me just mention some benchmarks for this actually being the case. Being consistent with
WTO rules is by no means enough. Many FTAs now are not even consistent with that. But
the fact is that Article 24 of the GATT and Article 5 of the GATTs is a very low floor for
FTAs. These are weak provisions, which are policed even more weakly. For FTAs to make
any sense, and this is still a question mark, they should have comprehensive coverage, they
should cover substantially all issues such as services and investment that are weakly covered
in the WTO and they should also have serious coverage of regulatory, behind the border
barriers, where again little progress has been made in the WTO, and finally, rules of origin
should be as simple and as harmonized as possible.

The point I want to emphasize is that serious FTAs are the rare exception, not the rule. There
are only really three serious RTAs on the books. It is the Australia-New Zealand CER, EU
and NAFTA. Two of them- NAFTA and EU have serious Rules of Origin complications with
respect to third countries, less so with Australia-New Zealand CER. If one looks at nearly all
other FTAs and Customs Unions around the world - South-South and North-South FTAs -
they are weak and partial. There are serious carve outs on agriculture and other areas, many
of them might repeat WTO language on services, investment and other so called WTO plus
issues but they don’t go beyond WTO disciplines, and there are very serious overlapping and
complicated Rules of Origin restrictions. That is the general story. That is the story of what
has happened in Latin America and Africa where there has been little serious trade created as
a result. That is in my view the emerging story of FTAs in East and South Asia.

Emerging pattern of weak and partial FTAs in Asia

If one takes a snapshot of trade policy in Asia today compared with a snapshot of what was
the case ten years ago, broadly speaking one could say this: 10 years ago roughly pre-Asian
crisis, the emphasis was on unilateral MFN liberalization, backed up to some limited extent
by the Uruguay round experience but with relatively little emphasis on discriminatory
bilateral or regional so called Free Trade Agreements. 10 years hence we see a shift in trade
policy in Asia from non-discrimination to discrimination. This is especially pronounced in
East Asia. East Asia, in fact, undertook much more unilateral liberalization which has slowed
down more or less in the last decade. East Asian countries also had relatively stronger
commitments in the Uruguay Round but they have shifted very much to FTAs in the
meantime. Of course in South Asia there has been less unilateral liberalization over a sweep
of time. South Asia in general took weaker commitments in the GATT/WTO but there as
well we have seen the shift to discriminatory FTAs.

If one looks at the China-ASEAN FTA the picture is mixed but I think on balance the news is
not necessarily positive. The good news is that they have come to an agreement to liberalize
what looks like 90% plus of trade with tariffs down to zero by 2010, with relatively simple
rules of origin based on the ASEAN criteria of 40% local content accumulation. The problem
with the China-ASEAN FTA is that it does not look like the negotiating parties are really
serious about tackling the non-tariff barriers in goods, let alone services investment and other
WTO plus issues. If that remains the case this is not going to deliver serious results because
the record is if you carve out bits and pieces of agriculture on the one hand and if you take

54
account of already very low tariffs in many manufacturing goods on the other hand, there is
very little left just on the tariffs and goods to take advantage of.

China is having serious negotiations with Australia and New Zealand but these are in trouble
particularly with Australia because they are getting to the really serious WTO plus issues as
well as some ‘standards’ issues.

The problem also lies with the FTAs that China is doing elsewhere in the world and here the
emphasis seems to be much more on symbolic soft power politics than it is on serious
economics because China appears to be relatively comfortable with doing partial tariff
concession deals in other parts of the world, for example with the South African Customs
Union (SACU), perhaps with India coming up, there is nearly harvest agreement with
Pakistan, but these do not look like being really serious FTAs. The danger here is that if
China goes down this route of doing FTAs more for reasons of politics than serious
economics then it will send even more powerful signals for others to do the same.

Let me now come to the ASEAN countries. It is a very complicated picture because there are
10 countries involved they are all at it. To look at this optimistically, Singapore has done
some relatively strong WTO plus FTAs notably the FTA with the US which is a very strong
one. Singapore has free trade in goods, it is largely open in services, it has strong regulatory
capacity and therefore to do a strong FTA with Singapore is relatively simple and relatively
clean, if one looks aside at some of the rules of origin complications. Singapore was followed
by Thailand, then Malaysia and others with FTAs and I think if one looks at the other
countries and perhaps Thailand in particular, one gets a better impression of the kind of FTAs
that are emerging in South East Asia. The picture is not encouraging. In my view the Thai
government went ahead with FTAs without any serious economic preparation or strategy.
The FTAs on the books and those that are still to be negotiated look on the whole very trade
light. They are weak and partial, even the ones that have been advertised as relatively strong
such as with Australia and New Zealand really do not go that much into the WTO plus issues,
services, investment and so on and there are rules of origin complications. But in negotiations
with the United States, you can’t do ‘trade light’ agreements. These experiences of Thailand
are in the process of being repeated in Malaysia and further down in Indonesia and the
Philippines. These problems are complicated by the ASEAN plus FTAs. ASEAN itself is
negotiating collective FTAs with China, with India, with Australia, New Zealand, with
Korea, with Japan. And the problem here lies very much in the overlapping and contradictory
rules of origin as between the ASEAN plus FTAs and the bilateral FTAs.

I think India is one of the worst with FTAs in the region. So, when we are talking about
‘trade light’ and partial FTAs, India is probably worse than the other major players. Again
my sense is that this is a policy launched for political reasons with very little serious thought
about the economic implications i.e. to say basic cost benefit analysis. If one looks in detail
at India – ASEAN FTA, we see very weak, very partial FTAs with the Indian government
insisting on large carve outs and pretty tight restrictive, complicated rules of origin. There is a
problem with SAFTA and the bilateral FTAs in the immediate region and South Asia. From
the outside it is very difficult to take SAFTA and the bilaterals with the partial exception of
the bilateral with Sri Lanka really seriously and it is difficult equally to take India’s FTAs
with other countries at all seriously again with the partial exception of Singapore but as was
mentioned in one of the presentations earlier today, this supposedly strong FTA with
Singapore does not really involve any net liberalization of services in India, even in
telecommunications where you already have a 74% limits on FDI. The gist of my point is that

55
you cannot expect FTAs to drive economic policy and trade policy reform in India. It has
ought to come bottom up mainly through unilateral liberalization.

Japan, which is a developed country and has long experience in the GATT/WTO is
negotiating pretty conservative and ‘trade light’ bilateral with ASEAN. We see a some what
similar situation in South Korea especially in terms of defensiveness on agriculture, although
South Korea’s agreements in some respects are more serious and more commercially
oriented.

United States is finding more and more difficult to actually concede in terms of market access
to the United States in FTA negotiations. So there is greater insistence on labour and perhaps
environmental standards and less willingness to concede modest extra access to the US
markets. The upshot of that is that the US may well disengage from FTAs. The EU has
belatedly hitched itself on to the FTA bandwagon in Asia. Three new FTA negotiations
about to start will introduce a lot of trade related and some will argue non-trade measures
notably on environmental standards in the FTAs. We are also going to see an attempt by the
EU to export aspects of its regulatory model to the developing world in Asia, particularly
through a trade unsustainable development chapter which is going to be part of the FTAs. In
other matters, the EU will probably be more willing to tolerate weaker FTAs than the US.

Asian regional integration efforts

I cannot take the initiative for an APEC FTA seriously. It is simply not going to happen.
Whether or not it has merits on economic grants, this is stuff for academics, officials,
negotiators and politicians but not for real human beings who are producers and consumers.
Again I find it very difficult as an outsider to take ASEAN very seriously. It does not make
that much difference in terms of AFTA and the so called AFTA+ issues where little progress
has been made. There are wider initiatives for an East Asian economic community and Asian
Economic Community and so on. Again, I think this is largely empty talk, difficult for an
outsider to take really seriously. The bottom-line in my view is this. The FTAs we are seeing
emerging around the region are largely bilateral in a kind of hub-spoke pattern, they are not
going to contribute seriously to regional integration and thereby to global economic
integration. But they will cause complications particularly through Rules of Origin and have
the danger of distracting attention from more serious reforms in the WTO and particularly on
the unilateral front.

The best option- unilateral liberalization

I am rather a dark pessimist first about the prospect of these FTAs delivering anything serious
but secondly even of the prospect of the WTO delivering serious multilateral trade
liberalization in the future. There are diminishing returns when it comes to liberalization from
trade negotiations all round whether done multilaterally, bilaterally or regionally. The silver
lining is that two thirds of the tariff liberalization done by developing countries since the
early 1980s has been unilateral. Most of the rest from the Uruguay round and 10% or less
from bilateral or regional agreements. This has been particularly strong in East Asia and
driven by fragmentation based production system.

56
 Share of total tariff reduction, by type of
liberalization, 1983–2003

Multilateral
Agreements
25%
Autonomous
Liberalization
66%

Regional
Agreements
10%

Source: World Bank

http://siteresources.worldbank.org/INTGEP2005/Resources/GEP107053_Ch02.pdf

Now my proposition is this: If we are going to see further serious liberalization in East Asia
and South Asia it is much more likely to come from this route. In other words unilateral
liberalization with a kind of ripple effect than from trade negotiations, whether the WTO or
FTAs and again the signal setter is and will be China. So what China does in terms of its
further reforms is going to be crucial, much more important than the WTO and the FTAs.
Fragmentation based production chains in manufacturing happens very little in agriculture
and happens very patchily in services. And it does not really solve the issue of the ‘Rules’
that is why we need the WTO.

There are three priorities post Doha. The first is getting the WTO on its legs again, more to
safeguard rules than to deliver further liberalization. Secondly, China needs to set appropriate
benchmarks on FTAs. Thirdly and importantly, we need to see the Chinese engine of
liberalization continuing. It is by no means pre-programmed, it depends on a combination of
domestic and external factors to give the leadership in Beijing the space to liberalize and
reform further in order to have ripple effects elsewhere in Asia and beyond.

Comment: These views did not find complete resonance with the private sector participants
and even from some of the academics in the meeting. These views are reflected below.

Ms. Maria Regina Serafico, Department of Trade and Industry, Philippines:

Benefits derived and / or expected from bilateral / regional initiatives

The Japan-Philippines Economic Partnership Agreement or the JPEPA is a comprehensive

agreement that covers goods, services, investments and other areas of cooperation. In the area
of goods, it covers substantial reduction and elimination of tariffs on about 90% goods based
on a schedule of deduction with some exceptions of course on the highly politically sensitive
products such as rice. In the area of services there are substantive market access and national
treatment commitments and that covers around 57 sectors and sub-sectors by the Philippines,
and 209 sectors and sub-sectors for Japan. We have concluded the negotiations last year and
the agreement is for ratification by our Senate.

57
The Philippines is committed to its membership of ASEAN and the realization of AFTA
which calls for us to be 100% tariff lines down to zero by 2010. Currently, 99.77% of tariffs
are in the zero to 5% band for ASEAN 6, that includes the original members of ASEAN. For
Philippines that translates into 99.32% or 10970 tariff lines having tariffs of 0-5%. With
respect to achieving the target of 0% tariffs by 2010 ASEAN 6 is already at 60.10% and the
average tariff for ASEAN 6 has gone down to 1.74% compared to 12.76% in 1993 when
AFTA was first implemented. Since much effort has already been done in the area of tariffs,
ASEAN is working on a programme of elimination of non-tariff barriers. The work
programme is basically like that in the WTO, which calls for the elimination of NTBs
according to the red, amber and the green boxes. The NTBs in the the Red box would require
immediate elimination by 2008, the Amber Box will be negotiated and the so called NTBs in
the Green box could be justified and maintained. More importantly we have also taken an
active role in the effort to realize an ASEAN Economic Community by 2015 and that calls
for the free flow of goods, services, people and capital by 2015. Currently discussions are
focused on identifying specific measures towards achieving the AEC by 2015 including the
pre-agreed flexibilities required by member countries to achieve that goal.

Second is our engagement with China - the ASEAN-China FTA. The negotiations for trade in
goods agreement in ASEAN-China FTA took about 4 years to complete. We are now
implementing the trade in goods component of that FTA. The early harvest programme called
for immediate elimination of tariffs on 326 lines, covering Chapters 1 to 8. One significant
development was the signing of trade in services agreement last year. Although the initial
package of commitments is not that substantive, currently a new round of negotiations is
being undertaken to improve on those existing commitments. And negotiations on
investments have also started.

ASEAN-Japan FTA is causing complications because of the existing or the ongoing bilateral
negotiations that Japan has undertaken with each of the ASEAN member countries. Japan has
negotiated an FTA with Thailand, with Malaysia, with the Philippines and negotiations are
ongoing with Indonesia and Vietnam. So the ASEAN-Japan negotiations are struggling to
ensure that this agreement is consistent with the bilateral agreements that Japan has
negotiated or has concluded with the various individual members of ASEAN.

For the Philippines, the ASEAN-Korea FTA is extremely valuable as it represents one of the
strongest potential for portfolio diversification.

The ASEAN-India FTA is the most problematic of all. As with China we see this relationship
as competing at the same time complementing. Of interest to us at the bilateral level are tie-
ups with India’s industries in the information technology, pharmaceuticals and jewellery
sectors. The ASEAN-India negotiations are now focused on tariff treatment to specific
products, which India wishes to be exempted from liberalization. We believe that this
relationship is also a good building block for our overall portfolio diversification.

Mr. Buntoon Wongseelashote, The Thai Chamber of Commerce, Thailand:

Regarding Professor Sally’s comments that Free Trade Agreement which do not contain
provisions on services or investment etc are complete or useful, I would like to say that
Thailand believes in moving things slowly. A comprehensive FTA is more or less like a fast
moving car where you cannot actually see clearly where as a slow progressing FTA will be
more like a slow moving car where things become clearer as we move along. Whenever tariff

58
rates are lowered there will be trade expansion even though it is limited to goods only. The
second advantage is that FTAs provide us with an opportunity to diversify our markets.

The slow progress of creating free trade in ASEAN has enabled us to see the problems along
the way and given us time to resolve them. We never suddenly arrive at a comprehensive
agreement. FTA has benefited us by making us allocate our resources efficiently, gain in
productivity through economies of scale and encouraging us to improve our productivity in
the presence of increasing competition. FTAs also benefited the consumers and the resulting
increase in consumption further triggered GDP growth. It has also nudged us to improve our
customs procedures. FTAs provide a venue for negotiations on resolving non-tariff measures.
And has helped us even in attracting more FDI.

Even with a limited and shallow FTA with India in which we had an early harvest of 82
items, we saw trade expansion. With China, after FTA, we have increase bilateral trade by
about 31% in 2004, 36% in 2005 and 15% in 2006. We feel threatened by FTA with China as
our trade deficit with them is growing. Influx of goods from China has flooded the Thai
markets. Thai garlic and onion farmers have been completely driven out of business and their
livelihood is adversely affected. The Chinese Provincial Authorities impose non tariff barriers
on import of Thai agricultural products. Exporting to China is like exporting to 20 different
countries as they have different regulations in each province. However, the FTA gives us an
opportunity to raise such issues around non-tariff barriers with them.

The progress in FTA must be slow as such problems take time to resolve. But they do get
resolved finally as FTA is about exchange of benefits. I would also like to add that many Thai
garment factories have gone out of business because the negotiations were done in secret
without involving the private sector.

Regarding the Rules of Origin, in ASEAN FTA, I believe that in the end, we will probably
work towards rules based on ‘a change of tariff line’ method rather than the ‘value addition’
method that is giving rise to the so called spaghetti bowl syndrome.

I also believe that FTAs between developed and developing countries do not enhance flow of
FDI to developing countries. The main reason for investment in developing countries is that
since developing countries normally have high tariffs, they invest in developing countries to
capture the domestic market. I understand that factors like low labour costs can also lure the
investors but with tariffs gone, low labour cost alone may not be attractive enough for them
to invest. So FTA with developed countries need to be more carefully considered as countries
like the US demand a lot. They want the FTAs to be comprehensive, rigorous intellectual
property rights in the area of data exclusivity for pharmaceutical products, prohibition on
compulsory licensing and demand free trade on agricultural products in spite of having huge
subsidies on agriculture products. Moreover, there is hardly anything to gain from them as
they have low import tariffs, except on clothing and footwear. So the concessions asked of
developing countries in these FTAs are disproportionate to their anticipated benefits.

I believe that the WTO forum is better for developing than the FTA in the sense that all the
benefits that I enjoy by FTA will be pronounced under WTO and the FTA is going to be
unfair when economic powers negotiate with dependant countries.

Mr. Stephen Browne, ITC: Thank you very much Buntoon, On that I conclude two or three
things, one you like the multilateral path more than the bilateral path; two, you are therefore

59
rather skeptical about North – South FTAs in; and three, you clearly and this is a very
important message that as a private sector representative you did not feel that you are very
fully in the picture when some of these agreements were being negotiated and that really is
one of the lessons of these discussion that we are having over the last two days.

Dr. Ram Upendra Das, Fellow, RIS, India:

First of all, may I begin by saying that as someone who is a student of economics and
researching on trade issues, I do not see any contradiction between unilateral trade liberation,
regional trade liberalization and multilateral trade liberalization process. I think they can be
mutually reinforcing but if they are not approached with care and adept handling of issues
they may become counter productive.

Talking about India, we have grown studying Prof. Bhagawati and Srinivasan’s work on how
high cost and inefficiencies are actually engendered by import substitution policies and we
needed to liberalise. We all agree we need to liberalise to make our economy more efficient
by inducting doses of both internal and external competition. But at the same time, a point is
made by the domestic stakeholders that they needed the level playing field. While some of
those concerns may have been genuine and others not so genuine, these were two probably
conflicting objectives of addressing the efficiency concerns on one hand through
liberalization and inducing foreign competition in the high cost economy at the same time
need to be resolved to provide a level playing field to the domestic business stakeholders.

Regional trading arrangements by the very nature of those arrangements provided an avenue
to balance these seemingly conflicting objectives. Such a balance was perhaps struck by
calibrating the extent of trade coverage, the time frame over which tariffs are reduced, the
depth of tariff concessions, the safeguard provisions set in place, while committing trade
liberalization and also choosing your partners. That provided an avenue to the policy makers
to enable the domestic stakeholders to carry out restructuring and withstand global
competition. But this argument should not be overstretched to oppose the process of
multilateral trade liberalization.

Rules of Origin, if not instituted properly can become non-tariff barriers. There is no doubt
about that. But if we situate them in proper context they can play a developmental role in the
partner countries. Any measure used to grant originating status, whether it is change in tariff
heading or value added criteria, emphasize on one thing that the partner country should be
doing manufacturing and it is by the merit of manufacturing that its product should be
eligible for receiving a preference in the partner country market. Now, manufacturing
triggered by Rules of Origin is a worthy objective because of employment generating and
income generating effects. I do understand that if there is plethora of different rules of origin
in trade agreements and if they are not harmonized and implemented properly, they can
become non-tariff barriers that can be counterproductive. That point is well taken.

Finally, the whole concept of Asian economic integration needs to be viewed in a context of
the global trends of what is happening in Africa, Latin America and even the Asian economic
integration is not happening in vacuum. We must today think about Asian economic
integration by looking beyond Asia, the dynamics beyond Asia, whether it is in Africa, or in
Latin America or in terms of addressing the global macro economic imbalances of the US
and EU.

60
 Question and Answer Session

Prof. T.N. Srinivasan, Yale University: China, in my view has liberalized through the WTO
accession agreement. We all know that in the accession agreements, the existing members of
the club try to extract as much as they can from the potential new member and China went
along with their demands. I agree with you in many ways that China is the lonely leader in
the current context of liberalization.

Unilateral trade liberalization, once again you are absolutely right in pointing out the
substantial share of the liberalization that took place is all unilateral but it is important to
recognise there is no binding in the unilateral liberalization, there is no dispute settlement in
the unilateral liberalization, so much of the rules and the other things that the WTO brings in
is absent in the unilateral liberalization and to some extent in FTAs as well.

Speaker: Mr. question is to Prof. Sally or Dr. Ram Upendra Das. I would like to know the
observation on the significance of RTAs and FTAs with regard to or vis-à-vis the erosion of
preferential margin, at the same time the multilateral efforts to reduce the tariffs and non
discrimination policies, what do you think about it. The significance of FTA or RTA with
regard to the erosion of preferential margin.

Mr. Jiangyu Wang, The Chinese University of Hong Kong: My question is regarding
China’s stance and the Chinese participation in RTA movement and whether China is able to
undertake the role of a new liberalization angel, although recently after WTO accession
China has done certain liberalization measures both unilateral and multilateral front, but now
China’s major focus seems to be on FTAs. In my view this is because of three reasons. No.1
China needs some time to adjust to those commitments it has already made, there are a lot of
commitments on liberalization it has made during the WTO accession, No.2 is China is very
much frightened by the rising regionalism especially the FTAs concluded by its major trading
partners especially the US and the EU and the third reason is China is also frightened by
rising trade protection in developed countries EU and US and some other developed countries
as well and India is a particular concern because for example the obsessive use of anti-
dumping measures by India against Chinese exports and China has enhanced WTO
agreement, China agreed to not having the market economy status for a number of years. So
China needs to use FTA to get a kind of agreement from its trading partners to agree to its
market economy status. Practically it seems a little bit difficult for China to become
liberalization angel as you may expect. I wish to hear your comments on these and I also
want to share your view on the development of RTAs, it diverts resources from multilateral
liberalization and in the long run it is not good for long term benefit of trading nations but
what can we do about it. Regionalism is here to stay and you have to live with it. Practically
what trading nations do about it, especially those leading trade partners, those are my
questions.

Mr. T.S. Vishwanath, Confederation of Indian Industry: I just want to make two short
points. First is in response to what my colleague from Thailand said. I think industry in India
thankfully has been fully involved in the process of FTA negotiations, in the sense that we
have been taken on board, we were consulted on what is happening on the FTAs, it is a
different issue that we are not always fully heard, that is fine, but it is a very transparent
process. But, our main concern in India on FTAs has been that while we do have a timetable
for international obligations, we do not have a timetable on domestic reforms. That is
something on which CII came up with a document, suggestions to the government saying that

61
okay we are fine with you going ahead and signing all these FTAs but we really want is to
also set up a time table for domestic reforms so that there is a kind of balance between what
happens in international obligations versus what is happening on domestic reforms as well.

As my other colleague from Thailand said I think FTAs now which India is negotiating is
more comprehensive. It is not just goods, but it is investment and services. So we believe
there is some kind of a balance that comes in when we negotiate most of the FTAs.

Prof. R. Sally, London School of Economics: First, given my pessimism on FTAs and the
WTO, politically speaking what is most important is to try and create the political space for
unilateral bottom up liberalization. What the WTO is going to be useful for in the future is
Rules so for the WTO, the important thing is to get the politics of the Rules right rather than
going after the will of the wisp of further substantial liberalization. Regional level, again the
importance here is not so much the liberalization but the regulatory cooperation where it is
feasible. The important link is between trade policy and domestic policy reforms. That is
much neglected and arguably more important than the link between trade policy and trade
negotiations.

With respect I have to disagree with the Thai speakers here. I have seen no evidence that the
FTAs have delivered benefits for Thailand. All kinds of factors come into play including
macro economic factors in the world economy but what has really delivered the benefits for
Thailand over the medium term is the unilateral reduction of tariff and inward investment
barriers.

The Asian way of doing FTAs, doing things slowly, easy, comfortably, as opposed to doing
things comprehensively - it is the political line of least resistance but this leads to distraction
from other important things one should be doing. The important thing is to have policies that
are simple, transparent, and preferably non-discriminatory. When you start making rules in
the Asian way as it were for this company or that company, for this sector or that sector you
end up with an unholy mess and all kinds of unanticipated consequences. That is an argument
against FTAs as a tool of industrial policy as it were.

Regional integration – The real boost for regional integration is not going to come from
negotiations and blueprints, it is going to come from the unilateral measures undertaken by
the lead country. For South Asia what is really important is that India does something more
on the unilateral front to have a triggering effect in the neighboring countries. Same situation
applies in South America with Brazil, and same situation in Southern Africa with South
Africa.

62
LIST OF PARTICIPANTS Mob: +975.17611839
Fax : +975.2.323936
Afghanistan E-mail: twangyal@gmail.com

Mr. Torialai RASTAR Cambodia

Officer in Charge of Foreign Investment
Ministry of Foreign Affairs Mr. Bonnivoit CHAN
Malak Azghar Road Technical Officer for WTO Office
Kabul, Afghanistan Ministry of Commerce
Tel: +93.700.104056 20 A-B Norodom Blvd.
Mob: +93.799303392 Phnom Penh, Cambodia
Fax: +93.20.2100374 Tel: +855.12.836515
E-mail: trastar@gmail.com Fax: +855.23.426346
E-mail: trastar@mfa.gov.af E-mail: bonnivoit@yahoo.com

Bangladesh Mr. Leng DIEP

Deputy-Director General
Mr. N.M. Zeaul ALAM Cambodia Chamber of Commerce
Deputy Secretary to the Government of the N°7B Corner of Road n° 81 & 109
People’s Republic of Bangladesh Sangkat Boeung Raing, Khan Daun Penh
Ministry of Commerce Phnom Penh, Cambodia
Bangladesh Shachibaloi Tel: +855.12.315315/858532
Dhaka, Bangladesh Fax: +855.23.212270/212265
Tel: +88.02.7162295/8057517 E-mail: lengdiep2001@yahoo.com.au
Mob: +88.0152.311492
Fax: +88.02.7167999 People’s Republic of China
E-mail: zeaulmoc@yahoo.com
Mr. Yiting WAN
Mr. Asif IBRAHIM Deputy Director
Director Department of WTO Affairs
The Dhaka Chamber of Commerce & Industry Ministry of Commerce
65-66 Motijheel Commercial Area Add No.2 Dong Chang'an Avenue
Dhaka 1000, Bangladesh Beijing 100731, People’s Republic of China
Tel: +880.2.9552552/9115032/ Tel: +86.10.65197316
8112704/9552562 Fax: +86.10.65197335
Mob: +880.1711563452 E-mail: wanyiting@mofcom.gov.cn
Fax: +880.2.9560830/8113518 E-mail: wyt99@yahoo.com
E-mail: dcci@gononet.com
E-mail: dcci@bangla.net Mr. Wang JIANBO
E-mail: asif_ibrahim@newage-group.com Third Secretary
Economic & Commercial Counsellor’s Office
Bhutan Embassy of People’s Republic of China in the
Republic of India
Ms. Dechen ZAM 50-D, Shantipath, Chanakyapuri
Foreign Trade Officer New Delhi 110021, India
Department of Trade Tel: +91.11.26111101/24672687
Ministry of Trade and Industry Fax: +91.11.26111099
P.O. Box 141 E-mail: wangjianbo@mofcom.gov.cn
Thimpu, Bhutan
Tel: +975.02.321337 India
Fax: +975.02.321338
E-mail: tenzin107@yahoo.com Mr. G.K. PILLAI
Commerce Secretary
Mr. Tashi WANGYAL Government of India
Research Analyst/Trade Policy New Delhi, India
Bhutan Chamber of Commerce & Industry
PO Box 457 Mr. Ankur Singh CHAUHAN
Doyboom Lam Executive
Thimphu, Bhutan India Habitat Centre
Tel: +975.2.323140 4th Floor, Core 4A

63
Lodi Road Fax: +62.21.3452953
New Delhi 110003, India Mob: +62.8128064481
Tel: +91.11.24682230/35 E-mail: andin9@indosat.net.id
Fax: +91.11.24682229
E-mail: ankur.chauhan@ciionline.org Malaysia

Mr. T.S. VISHWANATH Mr. Abdul Ghafar BIN MUSA

Head-International Trade Policy Senior Director
Confederation of Indian Industry (CII) Ministry of International Trade and Industry
Indian Habitat Centre Asia Pacific Economic Cooperation
4th Floor, Core 4A, Lodi Road 5th Floor Block 10
New Delhi 110003, India Government Offices Complex, Jalan Duta 50622
Tel: +91.11.24622228/24682230-35/41504514-19 Kuala Lumpur, Malaysia
Fax: +91.11.24682229 Tel: +603.62034794/62011294
E-mail: t.s.vishwanath@ciionline.org Fax: +603.62031305
E-mail: ghafar@miti.gov.my
Mr. Dilip CHENOY
Director General Mr. Subash Bose PILLAI
Society of Indian Automobile Minister Counsellor
Manufacturers – SIAM Economic Affairs
Core 4-B, 5th Floor Ministry of Trade and Industry
India Habitat Centre, Lodhi Road High Commission of Malaysia
New Delhi-110003, India 50-M, Satya Marg, Chanakyapuri
Tel: +91.11.24647813 New Delhi 110021, India
Fax: +91.11.24648222 Tel: +91.11.26111291/26111297
E-mail: siam@siam.in Fax: +91.11.26882372
E-mail: dchenoy@siam.in E-mail: subash@miti.gov.my
E-mail: subash@tradenewdelhi.net
Mr. Khan Masood AHMAD
Professor and Head Mr. Raja Abdul Aziz RAJA MUSA
Department of Economics Vice President
Jamia Millia Islamia Chairman, Customs Committee
Central University Federation of Malaysian Manufacturers
Jamia Nagar Wisma (FMM)
New Delhi 25, India No 3 Persiaran Daganf PJU 9
Tel: +91.11.26985243/26985607 Bandar Sri Damansara
E-mail: mkhan_imi@yahoo.com 52200 Kuala Lumpur, Malaysia
Tel: +603.62761211
Mr. Jamia Millia ISLAMIA Fax: +603.62776715
Professor, Deptt. Of Economics E-mail: johanceramics@po.jaring.my
A central University by an Act of Parliament E-mail: jean@fmm.org.my
Maulana Mohammad Ali Jauhar Marg E-mail: raja_aziz.jcb@po.jaring.my
Jmia Nagar, New Delhi 110025, India
Tel: +91.11.26985243/26981717 Nepal
Fax: +91.11.26980229
E-mail: azad_jmi@yahoo.com Mr. Purushottam OJHA
E-mail: azad_eco@jmi.ernet.in Joint Secretary
Ministry of Industry, Commerce
Indonesia and Supplies
Singh Durbar
Mr. Andin HADIYANTO Kathmandu, Nepal
Director Tel: +977.1.4226046/4221579
Business Climate Research and Development Fax: +977.1.4220319
Center E-mail: puruojha@gmail.com
Trade Research and Development Agency E-mail: moc@wlink.com.np
Ministry of Trade E-mail: info@moics.gov.np
Jalan M.I. Ridwan Rais No.5
Building 1, 11th Floor Mr. Bijendra Man SHAKYA
Jakarta 10110, Indonesia Chief, WTO Cell
Tel: +62.21.3446576 Garment Association – Nepal (GAN)

64
Sankhamul Road, New Baneswor Secretary
Kathmandu, Nepal Ministry of Export Development and International
Tel: +977.1.4275115/4780773 Trade
Fax: +977.1.4780173 Rakshana Mandiraya
E-mail: wto@ganasso.org 21, Vauxhall Street
E-mail: khasty@ecomail.com.np Colombo, Sri Lanka
Tel: +94.11.2445581
Pakistan Fax: +94.11.2421340
E-mail: ranugges@sltnet.lk
Mr. Shahid BASHIR E-mail: fortrade@doc.gov.lk
Joint Secretary & Director General
Foreign Trade Ms. Pathirannaahalage Chandima
Ministry of Commerce Subhashini ABEYSINGHE
Block A, Pakistan Secretariat Economist
Islamabad, Pakistan The Ceylon Chamber of Commerce
Tel: +92.51.9201858 50, Navam Mawatha
Fax: +92.51.9201570 Colombo 2, Sri Lanka
E-mail: shahidbashir50@yahoo.com Tel: +94.11.2380152/2421745-7
E-mail: shahidbashir50@gmail.com Fax: +94.11.381012/449352
E-mail: subhashini@chamber.lk
Mr. Ahmad MAHMOOD
Chairman Standing Committee on WTO Federation Thailand
of Pakistan
Chambers of Commerce & Industry (FPCCI) Ms. Poonsri KHULIMAKIN
II Floor, 100 Commercial Area Main Cavalry Assistant Director-General
Ground Lahore Cantt Department of Trade Negotiations
Lahore, Pakistan Ministry of Commerce
Tel: +92.42.6680307 44/100 Thanon Nonthaburi, 1
Fax: +92.42.6651274 Amphoe Muang
E-mail: sglmahmood@yahoo.com Nonthaburi 11000
Bangkok, Thailand
Philippines Tel: +662. 5475639/5077613
Fax: +662.5077614
Ms. Maria Regina SERAFICO E-mail: poonsrik@moc.go.th
Supervising Trade and Industry Development E-mail: poonsrik@dtn.go.th
Specialist
Bureau of International Trade Relations Mr. Buntoon WONGSEELASHOTE
Department of Trade and Industry (DTI) Chairman of the Subcommittee on Trade Related
4th Floor, DTI International Building Issues
375 Sen. Gil J. Pujat Avenue The Thai Chamber of Commerce and the Board of
Makati City, Philippines 1200 Trade of Thailand
Tel: +632.8978292/8978289 loc. 401 150 Rajbopit, Pranakon District
Fax: +632.8905149 Bangkok 10200, Thailand
E-mail: bitr_rdc@dti.gov.ph Tel: +662.2622186076 ext. 639
E-mail: rdcallo@yahoo.com Fax: +662.26221881
Mob: +66.14094563
Mr. Crisanto Joselito FRIANEZA E-mail: buntoon1@yahoo.com
Secretary General E-mail: buntoon@wongseelashote.com
Philippine Chamber of Commerce and Industry
19th Floor Saldeco Towers Viet Nam
169 H.V. Dela Costa St.
Salcedo Village Ms. Khanh Ngoc NGUYEN
1227 Makati City, Philippines Head of Services Group for AKFTA Negotiation
Tel: +632.8433148/8445713 National Committee for International Economic
Fax: +632.8434102 Cooperation
E-mail: cris.frianeza@philippinechamber.com 31-33 Ngo Quyen Str.
Hanoi, Viet Nam
Sri Lanka Tel: +84.4.8264472
Fax: +84.4.9348959
Mr. Sugathadasa RANUGGE E-mail: khanhngoc@mot.gov.vn

65
Kingdom of the Netherlands Mr. Debapriya BHATTACHARYA
Executive Director
Mr. Eric F. Ch. NIEHE Centre for Policy Dialogue (CPD)
Ambassador House 40/c, Road 11 (New)
Royal Netherlands Embassy Dhanmondi R/A
6/50-F, Shintipath, Chanakyaouri Dhaka 1209, Bangladesh
New Delhi 110021, India Tel: +880.2.9141655
Tel: +91.11.24197600 Fax: +880.2.8130951
Fax: +91.11.24197712 E-mail: debpriya@bdonline.com
E-mail: nde-cdp@minbuza.nl
Mr. Ram Upendra DAS
European Commission Fellow
Research and Information System
Mr. Fabrizio TOVAGLIERI for Developing Countries (RIS)
Trade & Economic Affairs Fourth Floor, Core 4B
Delegation of the European Commission India Habitat Centre, Lodhi Road
to India, Bhutan and Nepal New Delhi 110 003, India
65, Golf Links Tel: +91.11.24682177/80
New Delhi 110003, India Fax: +91.11.24682173/74
Tel: +91.11.24629237 ext. 263 E-mail: upendra900@gmail.com
Fax: +91.11.24629206
E-mail: fabrizio.tovaglieri@ec.europa.eu Mr. Somesh K. MATHUR
Fellow
Resource Persons Research and Information System
for Developing Countries (RIS)
Ms. Aradhna AGGARWAL Fourth Floor, Core 4B
Associate Professor India Habitat Centre, Lodhi Road
Department of Business Economics New Delhi 110 003, India
University of New Delhi South Campus Tel: +91.11.24682177/80
Benito Juarez Marg Fax: +91.11.24682173/74
New Delhi 110021, India E-mail: someshmathur@ris.org.in
Tel: +91.11.24111141
Mob: +91.98.10338077 Mr. S.K. MOHANTY
Fax: +91.11.24111141 Fellow
E-mail: aradhna.aggarwal@gmail.com Research and Information System
for Developing Countries (RIS)
Mr. Prema-chandra ATHUKORALA Fourth Floor, Core 4B
Professor of Economics India Habitat Centre, Lodhi Road
Division of Economics New Delhi 110 003, India
South Asia Research Centre Tel: +91.11.24682177/80
Research School of Pacific and Asian Studies Fax: +91.11.24682173/74
Australian National University E-mail: skmohanty@ris.org.in
Canberra, ACT 0200 Australia
Tel: +61.2.61258259/61252188 Ms. Veena JHA
Fax: +61.2.61253700 Coordinator
E-mail: prema-chandra.athukorala@anu.edu.au Strategies and Preaprehendes
for Trade and Globalisation in India
Ms. Kailas KARTHIKEYAN United Nations Conference on Trade and
Trade Officer - Legal Development (UNCTAD)
United Nations Conference on Trade and Room 421
Development (UNCTAD) Taj Ambassador Hotel
The Ambassador Hotel 2, Sujan Singh Park
Room 421 New Delhi 110003, India
2, Sujan Singh Park Tel: +91.11.24633658
Cornwallis Road Fax: +91.11.246350300
New Delhi 110003, India E-mail: veenajha@unctadindia.org
Tel: +91.11.24635036/24635054 ext.18
Fax: +91.11.24635054/55 Mr. Nagesh KUMAR
E-mail: kailaskarthikeyan@unctadindia.org Director-General

66
Research and Information System ICRIER
for Developing Countries (RIS)
Core 4B, India Habitat Centre Mr. Rajiv KUMAR
Lodhi Road Director & Chief Executive
New Delhi 110 003, India ICRIER
Tel: +91.11.24682177/80/76 Core 6A, 4th Floor
Fax: +91.11.24682175/2173 India Habitat Centre
E-mail: nkhumar@ris.org.in Lodi Road
E-mail: nagesh@ndf.vsnl.net.in New Delhi 110003, India
Tel: 91-11-24627447/24698862
Mr. Razeen SALLY Fax: 91-11-24620180
Director Email: rkumar@icrier.res.in
European Centre for International
Political Economy Ms. Arpita MUKHERJEE
c/o London School of Economics Senior Fellow
Houghton St. ICRIER
London WC2AE, United Kingdom Core 6A, 4th Floor
Tel: +44.207.9556788 India Habitat Centre
Fax: +44.207.955.7446/9557560 Lodi Road
E-mail: r.sally@lse.ac.uk New Delhi 110003, India
Tel: +91.11.24645218-20
Mr. Thirukodikaval N. SRINIVASAN Fax: +91.11.24620180
Professor of Economics
Yale University Ms. Aparna SAWHNEY
Economic Grouth Centre Associate Professor
Department of Economics Centre for International Trade and Development
27 Hillhouse Avenue Jawaharlal Nehru University (JNU)
P.O. Box 208269 External Consultant
New Heaven, Connecticut 06520-8269 ICRIER
Tel: +1.203.432.3630 821, Secto 21, Gurgaon
Fax: +1.203.4323635 Haryana 122016, India
E-mail: t.srinivasan@yale.edu Tel: +91.98.10319070
Fax: +91.11.24620180
Mr. Jiangyu WANG E-mail: aparnasawhney@yahoo.com
Associate Professor
School of Law Ms. Nisha TANEJA
4/F Mong Man Wai Building Senior Fellow
The Chinese University of Hong Kong ICRIER
Shatin, New Territories Core 6A, 4th Floor
Hong Kong, SAR China India Habitat Centre
Tel: +852.26961045/66907291 Lodi Road
Fax: +852.29942505 New Delhi 110003, India
E-mail: jywang@cuhk.edu.hk Tel: +91.11.24645218-20 Ext.224
Fax: +91.11.24620180
Mr. Upali WICKRAMASINGHE E-mail: ntaneja@icrier.org
Professor of Economics
Department of Economics ITC
University of Sri Jayewardenepura
11/2 Wijerama Lane, Dewananda Road Mr. Stephen BROWNE
Nawinna Maharagama Deputy Executive Director
Nugegoda, Sri Lanka Office of the Executive Director
Tel: +94.11.5518970 International Trade Centre (ITC)
Mob: +94.777.116040 54-56 Rue de Montbrillant
Fax: +94.11.2573823 1202 Geneva, Switzerland
E-mail: upaliw@sjp.ac.lk Tel: +41.22.7300374
E-mail: uwickramasinghe@sl.asiafound.org Fax: +41.22.7300575
E-mail: upali-wick@hotmail.com E-mail: browne@intracen.org

Ms. Aicha A. POUYE

s Director

67
Division of Trade Support Services
International Trade Centre (ITC)
54-56 Rue de Montbrillant
1202 Geneva, Switzerland
Tel: +41.22.7300512
Fax: +41.22.7300576
E-mail: pouye@intracen.org
Mr. Rajesh AGGARWAL
Senior Adviser
International Trading System
Division of Trade Support Services
International Trade Centre (ITC)
54-56 Rue de Montbrillant
1202 Geneva, Switzerland
Tel: +41.22.7300306
Fax: +41.22.7300576
E-mail: aggarwal@intracen.org
Mr. Laurent MATILE
Senior Officer
Multilateral Trading System
Division of Trade Support Services
International Trade Centre (ITC)
54-56 Rue de Montbrillant
68
1202 Geneva, Switzerland
Tel: +41.22.7300275
Fax: +41 22 730 0576
E-mail: matile@intracen.org
Mr. Jean-Sebastien ROURE
Adviser on Multilateral Trading System
Division of Trade Support Services International
Trade Centre (ITC)
54-56 Rue de Montbrillant
1202 Geneva, Switzerland
Tel: +41.22.7300303
Fax: +41.22.7300576
E-mail: roure@intracen.org
Ms. Grazia LOMBARDI
Galli della Loggia
Logistics Coordinator
Division of Trade Support Services
International Trade Centre (ITC)
54-56 Rue de Montbrillant
1202 Geneva, Switzerland
Tel: +41.22.7300389
Fax: +41.22.7300576
E-mail: lombardi@intracen.org