Day 49 – Q 5.How are regional trading blocs affecting world trade? Will it have any impact on India? How is India planning to cope up? Discuss.
5. How are regional trading blocs affecting world trade? Will it have any impact on India? How is India planning to cope up? Discuss.
क्षेत्रीय व्यापार ब्लॉक्स विश्व व्यापार को कैसे प्रभावित कर रहे हैं? क्या इसका भारत पर कोई प्रभाव पड़ेगा? भारत इन चिनौतियों से निपटने के लिए कैसे योजना बना रहा है? चर्चा करें।
A trade bloc is a preferential trade agreement between a range of nations, aimed at significantly reducing or removing trade barriers within the member states. Regional trade blocs are formed by neighbouring countries or countries that are in close proximity to each other.
Regional trading blocs affecting world trade
- Favouritism can be observed by the Trading Blocs upon its member countries. The tariffs and quotas that are been fixed are only in light of benefiting the trade to the member countries. The regional trade bloc members follow Regionalism against World Trade Organization.
- Increased interdependence on economic performance in other countries in trading block. If Eurozone goes into recession, it will affect all countries in the Eurozone. However, this is almost inevitable even if countries are not formally in a trading block due to a close relationship between trade cycles in different countries.
- When a trading bloc transforms into a political union, the sovereignty of the member countries is being lost.
- Greater Bargaining power for such groupings if they put up collective on multilateral platforms such as WTO.
- The non-member countries are provided access to the RTB member countries, only after charging the taxes. Concessions are provided only to the member countries.
- Regional trading blocs, regardless of their expansion properties with reference to intra-regional trade, almost necessarily encompass some form of trade diversion with regard to the point that lower-cost producers who not belong to the regional trading bloc are discriminated against, thus debilitating the efficient global allocation of resources and ultimately reducing the global welfare.
- Regional trade blocs that lower the prudence of states nations to pursue trade liberalisation with non-members are likely to turn into barriers to multilateralism. For example, if China has already been successful in finding a market partner in the United States, it would develop little interest for a free trade arrangement with the United States. But its less thriving rival, India, would be keen to sign a bilateral trade agreement with the United States and hence capture China’s share of the United States market; not by making a better or less costly product, but by obtaining special treatment under the United States trade law. Once India obtains its special privilege, it would not have interested in less interest in attending WTO meetings and signing multilateral free trade agreements that would instead eliminate those privileges.
- Members of the trading bloc may not realise additional economics of scale from global trade liberalisation, which often offers only meek opening of international markets. Regional trading blocs, which often offer more widespread trade liberalisation, may enable local firms to achieve adequate production and hence deplete scale economies.
- Member state of a trade bloc may want to devote the resources they have to creating robust regional connections rather than investing them in international talks.
However, there are some positive aspects too, Regional Trading bloc act as building blocks to liberalization of global economy. As, regional blocs may attain more economic integration than do multilateral talks because of greater harmony of interests and less complicated negotiating procedures.
Regional Trading Bloc Impact on India
- India’s existing agreements with South Korea, Japan and the Association of South East Asian Nations (ASEAN) are often deemed to have benefited the partner countries at India’s expense. The import-export ratio with these countries deteriorated in the years following the implementation of the trade agreements. Even as partner countries have benefited, Indian exports to these regions have remained lacklustre.
- India’s inability to gain market share in these regions may be partly explained by its lack of competitiveness in exports. Unless India removes the structural bottlenecks hurting its exports, it is unlikely to make big gains in the world market.
- Government think tank NITI Aayog, in a note on free trade agreements (FTAs) and their costs for India, has argued that the country needs to rethink joining the Regional Comprehensive Economic Partnership (RCEP) as it will be disastrous to provide more market access to China, which is a key player in the grouping.
- At RCEP, FTA being negotiated even in services, it will add to the advantage for India where they have a comparative advantage over other nations, especially in the context of Information Technology related services, healthcare services and educational services.
- Make in India Program that aided with the Export Policy can help in reducing the trade deficit with the regional blocs.
- Some of the sectors that have been identified as potential sources of India’s export growth impulses under RCEP to the tune of approximately $200 billion. Exports include processed food, gems and jewellery, metal manufactures, refined petroleum, chemicals and pharmaceuticals, leather goods; textiles and clothing, automobiles and parts, electrical machinery, and parts of aircraft and spacecraft, etc.
The focus needs to be on where India can promote its exports, it does not necessarily mean entering into regional trade agreements. India needs to be careful in weighing each trade deal on its own merit. When it comes to free trade agreements, no deal may be better than a bad deal. RCEP negotiations especially with China need to be properly pondered upon and planned.