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INB 319
US-China-India Relations
Regional Trade Relations
Dr. Lairson
10/23/14
GATT/WTO based on multilateralism, non-discrimination/MFN
Regional trade agreements (RTAs) and Free Trade Agreements (FTAs) are based on
bilateral or restricted multilateralism and preferential terms that discriminate
against non-members.
Two-thirds of global trade in G&S is conducted under RTA/PTAs rules
Three mega groups of negotiations:
Trans-Pacific Partnership (TPP),
US, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, and Vietnam
Transatlantic Trade and Investment Partnership (TTIP)
US and EU
Regional Comprehensive Economic Partnership Agreement (RCEP).
(Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the
Philippines, Singapore, Thailand, Vietnam) and the six states with
which ASEAN has existing FTAs (Australia, China, India, Japan, Korea
and New Zealand).
India does not participate in the former two, and participates only in the
ASEAN+6 grouping which is negotiating the RCEP.
Manger, Mark (05/01/2014). "The Economic Logic of Asian Preferential
Trade Agreements: The Role of Intra-Industry Trade," Journal of East
Asian Studies (1598-2408), 14 (2), p. 151-184
Manger, “The Economic Logic of Asian PTAs”
Do PTAs reflect and reinforce an economic logic, a political logic, a strategic logic or
all of these?
Explain this thesis:
What is a PTA?
EU and NAFTA as big examples
Economies of scale
Differentiated products
If PTAs are based in an economic logic, what are the political and strategic
dimensions of these agreements?
What is APEC and its role in creating rules for regional trade?
How did China, Japan, and Korea respond to the failure of APEC?
PTAs in Asia:
FTAs that reduce barriers (Tariffs) among members only and leave tariffs
levels with rest of the world unaffected
Asian trade has become defined by a dense network of PTAs
Characteristics of PTA nations – general versus Asia
More democratic are more liberal in trade
Few transitions to democracy in Asia
Authoritarian nations are major partners in PTAs in Asia
Allied nations have more PTAs
In Asia, PTAs substitute for defense alliances
Failure of multilateral forums for trade negotiation lead to more PTAs
May be true in Asia
Domino effects – one agreement generates incentives for more
PTAs as strategy to convince foreign and local investors of
commitment to free trade to win more investment
Best explanation for PTAs in Asia is the credibility of government commitment to
free trade and the effort to provide expanded markets for firms with large
economies of scale and/or economies of scope
Two firms
A
B
Fixed costs
$1.2 billion
$200 million
Variable costs
$1000 per unit
$1000per/unit
Sales in Units
T1
2 million
2 million
10 million
10 million
$7000
$1200
$1120
$1020
84%
15%
T2
Cost per unit
T1
T2
% Decline
Trans-Pacific Partnership
“state-of-the-art” trade agreement that would go further than existing arrangements. The
idea is for the TPP to be a structure on to which other nations, including possibly South
Korea, and eventually even China, could be bolted.
develop a new model for US trade negotiations and a new regional approach that focuses
more on jobs, enhances US competitiveness and ensures that the benefits of our trade
agreements are shared by all Americans”. This is not, in other words, intended to be just
another deal that is good for multinational companies but of uncertain benefit to US
workers.
the agreement is intended to deal with what he calls “behind the border” issues. These
include areas of what could be deemed domestic policy, such as government
procurement, which go beyond the normal scope of trade agreements.
Other areas likely to be covered include rules governing the conduct of state-owned
enterprises, which sometimes benefit from cheap financing or government protection.
China, in particular, is often criticised for seeking to ensure the success of national
champions.
The TPP would also include labour, environmental and intellectual property standards.
Finally, it is supposed to help bring benefits to small and medium-sized companies from
trade integration.
In general, regulations would need to be the same in all of the members thereby reducing
the ability to use regulations to gain benefits for citizens of one nation at the expense of
non-citizens. This would include environmental regulations, which could move up to the
most strict or down to the least strict.
Opposition comes from






farmers in Japan,
governments with SOEs,
IP issues designed to protect large pharma firms,
advocates of government regulation,
those hostile to neoliberal ideas regarding trade,
those who see regulations to benefit nations at the expense of
foreigners as good
It has become increasingly apparent that what free trade agreements do best is restrict
governments from regulating the economy for public interest policy reasons, such as
public health and the protection of the environment and local industry.
Has the US been trying to squeeze China out of TPP
India PTAs
India –
Mercosur
Japan
Korea
Maldives
Mongolia
Nepal
Sri Lanka
Thailand
Pakistan
ASEAN (Malaysia, Thailand, Singapore – rest of ASEAN in 2015)
Goods agreement in 2011; services agreement 9/8/14
Surplus for ASEAN
Negotiations with EU have stalled awaiting the new government in
India
EIU, "Prospects for India-EU FTA," 1/21/2013
Indiaeufta.docx
India and the EU have been in discussion for creation of a strategic partnership since
2004. To date, this has not produced significant progress in achieving this goal.
Broad-based Trade and Investment Agreement (BTIA) is official name of proposed
agreement
India’s responsibility for the breakdown of the Doha WTO agreement in 2014 has
damaged the credibility of India as a negotiating partner
India – EU Trade
2011
2012
80 billion euro
75 billion euro
India 2013 GDP
$1.9 trillion
EU GDP 2013
$ 17 trillion
EU is India’s largest trading partner
EU is largest source of FDI to India (25% of total)
Average tariffs
India
EU
17%
2%
India has large non-tariff barriers to trade that would need to be addressed in any
agreement
A major issue in an EU-India PTA is just how preferential these nations will want to
be in relation to each other
Major areas of negotiation:
India wants EU to provide greater market access in the services and
pharmaceutical sectors, data security status for its IT sector and liberalised
visa norms for its professionals.
EU is pressing India hard for "reforms" in the banking & insurance, wines &
spirits, intellectual property regime, automobile and public procurement
sectors. Major focus is on India’s high tariffs (60% - 100%) on autos
What is structural power and how does it affect strategic interactions among
nations?