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

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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

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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.

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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.

15

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

Exports 266.2 762 43.6 89.8 Value of Trade in Goods (US$ bn) Imports 243.6 660.1 49.6 131.6

Exports 4.3 7.3 0.7 0.9 Share in world trade in goods (%) Imports 3.8 6.1 0.8 1.2

Exports 7 28 3 19 Annual percentage change goods (%) Imports 8 18 -3 35

Exports 32.9 81.2 20.4 68 Value of trade in commercial service (US$ bn)

Imports 39.0 85.3 23.4 67

Exports 2.3 3.4 1.4 2.8 Share in world trade in services (%) Imports 2.7 3.6 1.6 2.9

Exports 9 31 15 76 Annual percentage change services (%) Imports 9 19 19 73

Exports 6 3 30 29 Rank in world trade goods Imports 6 3 27 17 Exports 12 8 19 10 Rank in world trade

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

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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)

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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

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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.

Frame work Agreements signedUnder negotiationUnder study

ASEAN

IndiaS. Korea

Thailand

Singapore

Malaysia

Philippines

ChinaJapan

CLMV Countries

Brunei

Indonesia

A Virtual Asian Community is already emerging from a complex web of FTAs

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

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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.

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.

Emerging EAS in relation to EU and NAFTA

billion US$ in 2004

• EAS is larger than EU and NAFTA in terms of GDP, trade bigger than NAFTA, half of world’s population and more than two thirds of world’s foreign exchange reserves

49.656.836.12% of World total

3089425381Population (millions)

1757170285International Reserves

23.2019.6246.50% of World total

175714863523Exports (2002)

22.9234.7629.37% of World total

81981243110505GDP

33.2225.5320.14% of World total

167161284710137Gross National Income, PPP(in Purchasing Power Parity)

EASNAFTAEUParameter

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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

• Gains to the region higher than India’s gains– Possibly due to dynamism and

synergies that India brings to the grouping in terms of services and software to the hardware and manufacturing prowess of East Asia

0 50000 100000 150000 200000 250000

Japan

Korea

China-HK

ASEAN (5)

India

Asia

million US$

JACIK Asean+3

9 Brooks et all, 2005, ADB

Gains from broader Economic Integration in Asia

• Substantial welfare gains from economic integration in scenarios of progressive integration

• All participants benefit• Welfare gain up to 3% of

region’s GDP• Even the rest of the world

benefits from deeper integration

Scenario I Scenario II Scenario IIIJapan 107626 111807 150695Korea 13043 13317 14076China-HK 6327 7100 16328ASEAN (5) 13451 13553 19405India 6971 7379 9937JACIK 147418 153156 210441Rest of the w -27293 -45306 109916World 120125 107849 320357

million US$

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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.

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.

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

Intra-regional Merchandise Exports, 2005(as % share of each region’s total exports)

6.2*SAARC

8.9Africa* Computed from IMF DOTS data

10.1Middle East

18.1Commonwealth of Independent States

24.3South-Central America

51.2Asia

55.8North America

73.2Europe

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

Regional Shares in World Merchandise Exports, 1990, 2000, 2005

0

10

20

30

40

50

60

1990 2000 2005

Asia

N America

Europe

Africa

Middle East

South-CentralAmerica

CIS

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

Regional Shares in Commercial Services Exports, 1990, 2000, 2005

0

10

20

30

40

50

60

1990 2000 2005

Asia

North America

Europe

Africa

Middle East

South CentralAmerciaCIS

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

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

Bhutan0%

Pakistan11%

Maldives0%

Nepal1%

India79%

Sri Lanka2%

Afghanistan1%

Bangladesh6%

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.

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

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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

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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

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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.

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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.

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

Barbie DollA A ‘‘productproduct’’ of of Mattel Inc, a USMattel Inc, a US--based based MNEsMNEs

But,But,produced in factories in Hong Kong produced in factories in Hong Kong and Chinaand China

with,with,hairs from hairs from JapanJapan, , paints and decorations from paints and decorations from US, US, cotton cloth from cotton cloth from China, China, andandlabour in final assembly labour in final assembly from Hong from Hong Kong Kong andand ChinaChina

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

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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

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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.

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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.

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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.

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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.

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Transaction cost in a broader perspective

SESSION IV: TRANSACTION COSTS IN REGIONAL TRADE AND TRADE FACILITATION

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

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 %

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

South Asia East Asia

Time to get an electrical connection

55 days 12 days

Time to get a telephone connection

64 days 10 days

3. Trade Procedures and Documentation

• 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.

Trading Across Borders 1

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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 & Caribbean

7.5 8 30.3 10.6 11 37

Middle East & North Africa

7.3 14.5 33.6 10.6 21.3 41.9

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

Trade Procedures and Documentation

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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: Freedom of transit

Critical for Bang and India Bang. Has not agreed so far

Not much headway in transit issue with Bangladesh Transit for Nepal is governed through Indo-Nepal Treaty India, Bangladesh and Nepal have so far not acceded to international transit conventions

Governed by India-Nepal Treaty

Not featured Not featured

GATT Article VIII: Fees and Formalities connected with Imports and Exports Bangladesh India Nepal Pakistan Sri Lanka Simplification of formalities

Self-assessment and rapid clearance

Several programs are underway, but not so much progress

Making some progress but slow

Not much progress

Attempted early but the progress is slow

Simplification of tariff structure

Some effort but not significant

Still complex Smaller number of tariff bands

Still relatively complex

Attempted earlier but again has introduced more bands and exceptions

Levy of fees and charges

Three types of surcharges are levied

Some fees are based on service cost, but others are still charged on ad-valorem basis

Large number of levies and charges

Certain sensitive items are subject to specific or compound rates Complex set of requirements exist

A number of fees and levies still in operation

Simplification of documentation procedures

No progress Impressive progress in Electronic Data Interchange (EDI)

Implemented ASYCUDA and IT-based system in three entry points

Lot of procedures Complex set of conditions exist Introduced Electronic Assessment System (EASY) in 2000

Made headway but slow progress ASYUDA ++ since 2003 Valuation database for risk management has been established Committed to introduce international standards

Processing time No progress Principles have accepted, but implementation is weak across India

Not much progress

Not published times yet

Expected to achieve through automation

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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

GATT Article X: Publication and administration of trade regulations

Bangladesh India Nepal Pakistan Sri Lanka

Publication of regulations

Publicize all trade related regulations in official gazettes

Publicize all trade related regulations in official gazettes

Publishes all trade related regulations in gazettes

Official gazettes are published regularly

Official gazettes are published regularly

Advance rulings No progress Authority established in 1999, but scope is limited to foreign firms

No mechanism No known procedure

Use of electronic media Introduced SPEED and ASYCUDA

Widely used Committed under WTO accession

Increased use of the Internet

Introduced electronic customs documents under ASYCUDA

Enquiry points No known enquiry points

No official enquiry point

Recognized the Nepal Bureau Standards and Meteorology

No officially recognized institution

No single window Several agencies are involved

Consultative mechanism Has been established

Some progress No formal mechanism

Some progress Established a permanent Tariff Advisory Council

Appeal process Have provisions, but slow

Has an elaborate appeal process Customs Excise and Gold Control Appellate Tribunal is the highest authority

Has provisions, Department of Commerce is responsible

Has provisions, the Ministry of Trade is responsible

Has provisions; Director General of Commerce is responsible

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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

37

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,

38

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

39

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.

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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

41

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).

Thailand

Sri Lanka

Philippines

Nepal

MyanmarThailandSri Lanka

MaldivesSri LankaPhilippines

MalaysiaPhilippinesPakistanSri LankaIndonesiaMalaysiaIndonesiaSingapore

SingaporeChina, Macao SARSingaporeIndia

China, Hong Kong SARPhilippines

Korea, Republic ofChina

China, Hong Kong SAR

China, Hong Kong SAR

IndiaKorea, Republic of

China, Hong Kong SARCambodiaChinaChinaBangladesh

China, Hong Kong SAR

FINANCIAL SERVICES

TRAVEL SERVICES

OTHER BUSI SERV

CONSTRUCTION SERVICES

COMMUNICATION SERVICES

TRANSPORT SERVICES

Countries which had RCA in sector more than 1

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;

42

• 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;

43

• 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:

44

• 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;

45

• 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;

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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

47

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

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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 countries

No. of source countries

India Mauritius, EU, US,Japan, Singapore

79 114

Bangladesh Norway, US,EU, South Korea, Hong-Kong

68 30

Pakistan UAE*, US, EU, Saudi Arabia*, Norway

83.3 35

Nepal India, US, China, Vir. Islands,Norway,

75.2 50

Sri Lanka Malaysia, Singapore, UK, India, USA

62 NA

* 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.

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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:

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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.

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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.

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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 ECIPE Policy Brief, 2007 available at www.ecipe.org Launch Internet Explorer Browser.lnk

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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.

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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

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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

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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.

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

Autonomous Liberalization

66%

Regional Agreements

10%

Multilateral Agreements

25%

Source: World Bankhttp://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.

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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

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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

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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.

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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

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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.

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LIST OF PARTICIPANTS Afghanistan Mr. Torialai RASTAR Officer in Charge of Foreign Investment Ministry of Foreign Affairs Malak Azghar Road Kabul, Afghanistan Tel: +93.700.104056 Mob: +93.799303392 Fax: +93.20.2100374 E-mail: trastar@gmail.com E-mail: trastar@mfa.gov.af Bangladesh Mr. N.M. Zeaul ALAM Deputy Secretary to the Government of the People’s Republic of Bangladesh Ministry of Commerce Bangladesh Shachibaloi Dhaka, Bangladesh Tel: +88.02.7162295/8057517 Mob: +88.0152.311492 Fax: +88.02.7167999 E-mail: zeaulmoc@yahoo.com Mr. Asif IBRAHIM Director The Dhaka Chamber of Commerce & Industry 65-66 Motijheel Commercial Area Dhaka 1000, Bangladesh Tel: +880.2.9552552/9115032/ 8112704/9552562 Mob: +880.1711563452 Fax: +880.2.9560830/8113518 E-mail: dcci@gononet.com E-mail: dcci@bangla.net E-mail: asif_ibrahim@newage-group.com Bhutan Ms. Dechen ZAM Foreign Trade Officer Department of Trade Ministry of Trade and Industry P.O. Box 141 Thimpu, Bhutan Tel: +975.02.321337 Fax: +975.02.321338 E-mail: tenzin107@yahoo.com Mr. Tashi WANGYAL Research Analyst/Trade Policy Bhutan Chamber of Commerce & Industry PO Box 457 Doyboom Lam Thimphu, Bhutan Tel: +975.2.323140

Mob: +975.17611839 Fax : +975.2.323936 E-mail: twangyal@gmail.com Cambodia Mr. Bonnivoit CHAN Technical Officer for WTO Office Ministry of Commerce 20 A-B Norodom Blvd. Phnom Penh, Cambodia Tel: +855.12.836515 Fax: +855.23.426346 E-mail: bonnivoit@yahoo.com Mr. Leng DIEP Deputy-Director General Cambodia Chamber of Commerce N°7B Corner of Road n° 81 & 109 Sangkat Boeung Raing, Khan Daun Penh Phnom Penh, Cambodia Tel: +855.12.315315/858532 Fax: +855.23.212270/212265 E-mail: lengdiep2001@yahoo.com.au People’s Republic of China Mr. Yiting WAN Deputy Director Department of WTO Affairs Ministry of Commerce Add No.2 Dong Chang'an Avenue Beijing 100731, People’s Republic of China Tel: +86.10.65197316 Fax: +86.10.65197335 E-mail: wanyiting@mofcom.gov.cn E-mail: wyt99@yahoo.com Mr. Wang JIANBO Third Secretary Economic & Commercial Counsellor’s Office Embassy of People’s Republic of China in the Republic of India 50-D, Shantipath, Chanakyapuri New Delhi 110021, India Tel: +91.11.26111101/24672687 Fax: +91.11.26111099 E-mail: wangjianbo@mofcom.gov.cn India Mr. G.K. PILLAI Commerce Secretary Government of India New Delhi, India Mr. Ankur Singh CHAUHAN Executive India Habitat Centre 4th Floor, Core 4A

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Lodi Road New Delhi 110003, India Tel: +91.11.24682230/35 Fax: +91.11.24682229 E-mail: ankur.chauhan@ciionline.org Mr. T.S. VISHWANATH Head-International Trade Policy Confederation of Indian Industry (CII) Indian Habitat Centre 4th Floor, Core 4A, Lodi Road New Delhi 110003, India Tel: +91.11.24622228/24682230-35/41504514-19 Fax: +91.11.24682229 E-mail: t.s.vishwanath@ciionline.org Mr. Dilip CHENOY Director General Society of Indian Automobile Manufacturers – SIAM Core 4-B, 5th Floor India Habitat Centre, Lodhi Road New Delhi-110003, India Tel: +91.11.24647813 Fax: +91.11.24648222 E-mail: siam@siam.in E-mail: dchenoy@siam.in Mr. Khan Masood AHMAD Professor and Head Department of Economics Jamia Millia Islamia Central University Jamia Nagar New Delhi 25, India Tel: +91.11.26985243/26985607 E-mail: mkhan_imi@yahoo.com Mr. Jamia Millia ISLAMIA Professor, Deptt. Of Economics A central University by an Act of Parliament Maulana Mohammad Ali Jauhar Marg Jmia Nagar, New Delhi 110025, India Tel: +91.11.26985243/26981717 Fax: +91.11.26980229 E-mail: azad_jmi@yahoo.com E-mail: azad_eco@jmi.ernet.in Indonesia Mr. Andin HADIYANTO Director Business Climate Research and Development Center Trade Research and Development Agency Ministry of Trade Jalan M.I. Ridwan Rais No.5 Building 1, 11th Floor Jakarta 10110, Indonesia Tel: +62.21.3446576

Fax: +62.21.3452953 Mob: +62.8128064481 E-mail: andin9@indosat.net.id Malaysia Mr. Abdul Ghafar BIN MUSA Senior Director Ministry of International Trade and Industry Asia Pacific Economic Cooperation 5th Floor Block 10 Government Offices Complex, Jalan Duta 50622 Kuala Lumpur, Malaysia Tel: +603.62034794/62011294 Fax: +603.62031305 E-mail: ghafar@miti.gov.my Mr. Subash Bose PILLAI Minister Counsellor Economic Affairs Ministry of Trade and Industry High Commission of Malaysia 50-M, Satya Marg, Chanakyapuri New Delhi 110021, India Tel: +91.11.26111291/26111297 Fax: +91.11.26882372 E-mail: subash@miti.gov.my E-mail: subash@tradenewdelhi.net Mr. Raja Abdul Aziz RAJA MUSA Vice President Chairman, Customs Committee Federation of Malaysian Manufacturers Wisma (FMM) No 3 Persiaran Daganf PJU 9 Bandar Sri Damansara 52200 Kuala Lumpur, Malaysia Tel: +603.62761211 Fax: +603.62776715 E-mail: johanceramics@po.jaring.my E-mail: jean@fmm.org.my E-mail: raja_aziz.jcb@po.jaring.my Nepal Mr. Purushottam OJHA Joint Secretary Ministry of Industry, Commerce and Supplies Singh Durbar Kathmandu, Nepal Tel: +977.1.4226046/4221579 Fax: +977.1.4220319 E-mail: puruojha@gmail.com E-mail: moc@wlink.com.np E-mail: info@moics.gov.np Mr. Bijendra Man SHAKYA Chief, WTO Cell Garment Association – Nepal (GAN)

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Sankhamul Road, New Baneswor Kathmandu, Nepal Tel: +977.1.4275115/4780773 Fax: +977.1.4780173 E-mail: wto@ganasso.org E-mail: khasty@ecomail.com.np Pakistan Mr. Shahid BASHIR Joint Secretary & Director General Foreign Trade Ministry of Commerce Block A, Pakistan Secretariat Islamabad, Pakistan Tel: +92.51.9201858 Fax: +92.51.9201570 E-mail: shahidbashir50@yahoo.com E-mail: shahidbashir50@gmail.com Mr. Ahmad MAHMOOD Chairman Standing Committee on WTO Federation of Pakistan Chambers of Commerce & Industry (FPCCI) II Floor, 100 Commercial Area Main Cavalry Ground Lahore Cantt Lahore, Pakistan Tel: +92.42.6680307 Fax: +92.42.6651274 E-mail: sglmahmood@yahoo.com Philippines Ms. Maria Regina SERAFICO Supervising Trade and Industry Development Specialist Bureau of International Trade Relations Department of Trade and Industry (DTI) 4th Floor, DTI International Building 375 Sen. Gil J. Pujat Avenue Makati City, Philippines 1200 Tel: +632.8978292/8978289 loc. 401 Fax: +632.8905149 E-mail: bitr_rdc@dti.gov.ph E-mail: rdcallo@yahoo.com Mr. Crisanto Joselito FRIANEZA Secretary General Philippine Chamber of Commerce and Industry 19th Floor Saldeco Towers 169 H.V. Dela Costa St. Salcedo Village 1227 Makati City, Philippines Tel: +632.8433148/8445713 Fax: +632.8434102 E-mail: cris.frianeza@philippinechamber.com Sri Lanka Mr. Sugathadasa RANUGGE

Secretary Ministry of Export Development and International Trade Rakshana Mandiraya 21, Vauxhall Street Colombo, Sri Lanka Tel: +94.11.2445581 Fax: +94.11.2421340 E-mail: ranugges@sltnet.lk E-mail: fortrade@doc.gov.lk Ms. Pathirannaahalage Chandima Subhashini ABEYSINGHE Economist The Ceylon Chamber of Commerce 50, Navam Mawatha Colombo 2, Sri Lanka Tel: +94.11.2380152/2421745-7 Fax: +94.11.381012/449352 E-mail: subhashini@chamber.lk Thailand Ms. Poonsri KHULIMAKIN Assistant Director-General Department of Trade Negotiations Ministry of Commerce 44/100 Thanon Nonthaburi, 1 Amphoe Muang Nonthaburi 11000 Bangkok, Thailand Tel: +662. 5475639/5077613 Fax: +662.5077614 E-mail: poonsrik@moc.go.th E-mail: poonsrik@dtn.go.th Mr. Buntoon WONGSEELASHOTE Chairman of the Subcommittee on Trade Related Issues The Thai Chamber of Commerce and the Board of Trade of Thailand 150 Rajbopit, Pranakon District Bangkok 10200, Thailand Tel: +662.2622186076 ext. 639 Fax: +662.26221881 Mob: +66.14094563 E-mail: buntoon1@yahoo.com E-mail: buntoon@wongseelashote.com Viet Nam Ms. Khanh Ngoc NGUYEN Head of Services Group for AKFTA Negotiation National Committee for International Economic Cooperation 31-33 Ngo Quyen Str. Hanoi, Viet Nam Tel: +84.4.8264472 Fax: +84.4.9348959 E-mail: khanhngoc@mot.gov.vn

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Kingdom of the Netherlands Mr. Eric F. Ch. NIEHE Ambassador Royal Netherlands Embassy 6/50-F, Shintipath, Chanakyaouri New Delhi 110021, India Tel: +91.11.24197600 Fax: +91.11.24197712 E-mail: nde-cdp@minbuza.nl European Commission Mr. Fabrizio TOVAGLIERI Trade & Economic Affairs Delegation of the European Commission to India, Bhutan and Nepal 65, Golf Links New Delhi 110003, India Tel: +91.11.24629237 ext. 263 Fax: +91.11.24629206 E-mail: fabrizio.tovaglieri@ec.europa.eu Resource Persons Ms. Aradhna AGGARWAL Associate Professor Department of Business Economics University of New Delhi South Campus Benito Juarez Marg New Delhi 110021, India Tel: +91.11.24111141 Mob: +91.98.10338077 Fax: +91.11.24111141 E-mail: aradhna.aggarwal@gmail.com Mr. Prema-chandra ATHUKORALA Professor of Economics Division of Economics South Asia Research Centre Research School of Pacific and Asian Studies Australian National University Canberra, ACT 0200 Australia Tel: +61.2.61258259/61252188 Fax: +61.2.61253700 E-mail: prema-chandra.athukorala@anu.edu.au Ms. Kailas KARTHIKEYAN Trade Officer - Legal United Nations Conference on Trade and Development (UNCTAD) The Ambassador Hotel Room 421 2, Sujan Singh Park Cornwallis Road New Delhi 110003, India Tel: +91.11.24635036/24635054 ext.18 Fax: +91.11.24635054/55 E-mail: kailaskarthikeyan@unctadindia.org

Mr. Debapriya BHATTACHARYA Executive Director Centre for Policy Dialogue (CPD) House 40/c, Road 11 (New) Dhanmondi R/A Dhaka 1209, Bangladesh Tel: +880.2.9141655 Fax: +880.2.8130951 E-mail: debpriya@bdonline.com Mr. Ram Upendra DAS Fellow Research and Information System for Developing Countries (RIS) Fourth Floor, Core 4B India Habitat Centre, Lodhi Road New Delhi 110 003, India Tel: +91.11.24682177/80 Fax: +91.11.24682173/74 E-mail: upendra900@gmail.com Mr. Somesh K. MATHUR Fellow Research and Information System for Developing Countries (RIS) Fourth Floor, Core 4B India Habitat Centre, Lodhi Road New Delhi 110 003, India Tel: +91.11.24682177/80 Fax: +91.11.24682173/74 E-mail: someshmathur@ris.org.in Mr. S.K. MOHANTY Fellow Research and Information System for Developing Countries (RIS) Fourth Floor, Core 4B India Habitat Centre, Lodhi Road New Delhi 110 003, India Tel: +91.11.24682177/80 Fax: +91.11.24682173/74 E-mail: skmohanty@ris.org.in Ms. Veena JHA Coordinator Strategies and Preaprehendes for Trade and Globalisation in India United Nations Conference on Trade and Development (UNCTAD) Room 421 Taj Ambassador Hotel 2, Sujan Singh Park New Delhi 110003, India Tel: +91.11.24633658 Fax: +91.11.246350300 E-mail: veenajha@unctadindia.org Mr. Nagesh KUMAR Director-General

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Research and Information System for Developing Countries (RIS) Core 4B, India Habitat Centre Lodhi Road New Delhi 110 003, India Tel: +91.11.24682177/80/76 Fax: +91.11.24682175/2173 E-mail: nkhumar@ris.org.in E-mail: nagesh@ndf.vsnl.net.in Mr. Razeen SALLY Director European Centre for International Political Economy c/o London School of Economics Houghton St. London WC2AE, United Kingdom Tel: +44.207.9556788 Fax: +44.207.955.7446/9557560 E-mail: r.sally@lse.ac.uk Mr. Thirukodikaval N. SRINIVASAN Professor of Economics Yale University Economic Grouth Centre Department of Economics 27 Hillhouse Avenue P.O. Box 208269 New Heaven, Connecticut 06520-8269 Tel: +1.203.432.3630 Fax: +1.203.4323635 E-mail: t.srinivasan@yale.edu Mr. Jiangyu WANG Associate Professor School of Law 4/F Mong Man Wai Building The Chinese University of Hong Kong Shatin, New Territories Hong Kong, SAR China Tel: +852.26961045/66907291 Fax: +852.29942505 E-mail: jywang@cuhk.edu.hk Mr. Upali WICKRAMASINGHE Professor of Economics Department of Economics University of Sri Jayewardenepura 11/2 Wijerama Lane, Dewananda Road Nawinna Maharagama Nugegoda, Sri Lanka Tel: +94.11.5518970 Mob: +94.777.116040 Fax: +94.11.2573823 E-mail: upaliw@sjp.ac.lk E-mail: uwickramasinghe@sl.asiafound.org E-mail: upali-wick@hotmail.com s

ICRIER Mr. Rajiv KUMAR Director & Chief Executive ICRIER Core 6A, 4th Floor India Habitat Centre Lodi Road New Delhi 110003, India Tel: 91-11-24627447/24698862 Fax: 91-11-24620180 Email: rkumar@icrier.res.in Ms. Arpita MUKHERJEE Senior Fellow ICRIER Core 6A, 4th Floor India Habitat Centre Lodi Road New Delhi 110003, India Tel: +91.11.24645218-20 Fax: +91.11.24620180 Ms. Aparna SAWHNEY Associate Professor Centre for International Trade and Development Jawaharlal Nehru University (JNU) External Consultant ICRIER 821, Secto 21, Gurgaon Haryana 122016, India Tel: +91.98.10319070 Fax: +91.11.24620180 E-mail: aparnasawhney@yahoo.com Ms. Nisha TANEJA Senior Fellow ICRIER Core 6A, 4th Floor India Habitat Centre Lodi Road New Delhi 110003, India Tel: +91.11.24645218-20 Ext.224 Fax: +91.11.24620180 E-mail: ntaneja@icrier.org ITC Mr. Stephen BROWNE Deputy Executive Director Office of the Executive Director International Trade Centre (ITC) 54-56 Rue de Montbrillant 1202 Geneva, Switzerland Tel: +41.22.7300374 Fax: +41.22.7300575 E-mail: browne@intracen.org Ms. Aicha A. POUYE Director

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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

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