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When the head of states travel abroad, their entourage includes many chief business managers
and executives. A couple of decades ago, military generals and admirals usually accompanied
presidents or prime ministers on state visits. Military alliances or non-aggression treaties
commonly occupied the agenda. Such peace policies have been replaced in recent years by
commercial or trade policies, given the fact that the primary focus of all countries now a days is
economic growth and development as this is what that determines the Global standing of a
country in the present global scenario.

Regionalism is described in the Dictionary of Trade Policy Terms, as ³actions by governments to

liberalize or facilitate trade on a regional basis, sometimes through free-trade areas or customs
unions´. Trade liberalization is widely recognized as a cornerstone of economic development
and growth, and, ultimately poverty reduction. A Regional Trade Agreement (RTA), as the name
itself suggests, is a an agreement undertaken by countries located within a defined geographic
area whereby the participating countries align themselves with each other to achieve some form
of economic integration. The agreement could take various forms like free trade areas, customs
unions, common markets and economic unions, each of which has a different scope and
purpose. Regional trade groupings are a natural and logical choice for the countries of a region
to increase the quantum of their international trade and also to increase their clout in other
international markets. This is particularly true for small developing economies, which singularly
lack strong economic influence. Regional collaboration should help attain improved efficiency,
however, cumbersome approval processes and bureaucratic friction often impede progress on
such efforts. Regional or bilateral free trade agreements (RTA/FTA) are not a new phenomenon
and have become important aspects of any country¶s trade policy. The trend started with the
formation of the single European market by the European Union in 1992 and the North
American Free Trade Agreement (NAFTA) in 1994. Over 300 FTA/RTAs are currently in
different stages of negotiation. More than half of world trade is now conducted on preferential
basis within FTAs. Therefore, any country that ignores this route of regional integration can do
so only at its own peril.

However, there is a raging debate in the context of RTAs that, regionalism generates not only
trade creation but also trade diversion. Trade creation refers to the situation where, in the
absence of tariffs or trade barriers, an efficient member country produces the output in which it
has a comparative advantage in an amount exceeding domestic demand in order to export to a
less efficient member country. India happens to be a labour intensive country therefore it has a
comparative advantage in labour intensive products. Trade diversion, on the other hand, occurs
when a member country switches imports from an efficient non-member country to those from
an inefficient member country because of the RTAs biased tariff structure. From a global
perspective, trade creation is a clear-cut contribution of the RTA to efficiency in resource use,
while trade diversion is the opposite. Nevertheless from each country¶s viewpoint the RTA
typically brings about a higher volume of international trade.

Liberalization is thus extremely important for a country¶s development. Regional trading

arrangements and FTAs have increasing become the preferred mode of trade liberalization
amongst the countries of a region even though they may be members of WTO. The reason for
this can be traced to freedom that such arrangements provide for addressing the trade issues
peculiar to a region or the member countries of an FTA. In a nutshell FTAs/RTAs can be used
as a tool for, material management, cheaper imports ± domestic prices in control, better quality
products at competitive price, better market access, investments flow ± JVs, coverage of
services, mutual recognition of standards & laboratories, trade facilitation, harmonisation of
customs procedures etc. The most sophisticated FTAs/RTAs go beyond traditional trade policy
mechanisms, to include regional rules on investment, competition, environment and labour.

Developing countries often find it beneficial to participate in regionalism for the following
reasons: (1) upgrade production techniques and standards; (2) expand import and export
markets; (3) develop the capacity to compete; (4) broaden investment prospects; (5) improve
consumer welfare; and (6) prevent the adoption of, or cope successfully with, unilateral
measures.

Focus must be given to those countries, which have grown under the auspices of agriculture.
India and china have always been agricultural countries, such countries no matter what, cannot
become industrialized so easily. Agriculture is the essence of these countries and its necessity
runs in its veins. There is wide agreement that trade liberalisation has contributed significantly to
global economic growth over the past two decades, there is a need to assess the extent to
which the poor are benefiting from this growth in different countries and sectors. An UNCTAD
India report states that, poverty reduction has become the litmus test for positive development
impacts of trade liberalisation and for it to be seen as benign and therefore justified not only in
efficiency but also welfare terms. A deduction that one can safely make is that during the 1990¶s
trade liberalisation policy that India followed, led to a reduction in the percentage of people living
below poverty. There were no such steps that were taken particularly for poverty alleviation as
such during the late 1990¶s, so it can be deduced that liberalization, and regionalism had a part
to play in this reduction. The various regions started consolidating trade which has led to
increase in industrial development, infrastructure and raised the forex reserves. As a result of
this a lot of funds were gathered that were channelised towards rural development and raising
the standard of living of the poor. Due to the immense labour potential in such countries, like
India and China who truly have come a long was from being a purely agricultural country,
numerous other countries have been attracted to the prospects that these countries promise. So
the other more developed countries have felt the freedom to invest by way of trade. This will in
turn reduce the growing numbers i.e. there will be a reduction in growth rate and the unexploited
underdeveloped countries will be fully made use of. This I believe can only be achieved when a
country is not developed, because it will not be feasible to develop an already developed
country.

Coming to the demographic reports, although, the net addition in population during each decade
has increased consistently, the change in net addition has shown a steady declining trend
especially during the decade 1991to 2001. • A swooping 27.9 million more people were added
between the decades 1981-1991, this was drastically reduced to 17.6 million for the decades
1991-2001. This implies although India continues to grow in size, its pace of net addition is on
the decrease. Here too no measures were as such taken specifically to reduce the population
growth, but it had declined that too in the decade were liberalization was adopted for the first
timeË.

Also one of the primary reasons for the increase in the regional Free Trade Agreements is that
regionalism and regional FTAs are the only path available for many developing countries to
integrate into the world economy, as the best way to learn to compete is by competing. Initial
competition between neighboring states that understand the needs of weaker states leads to
strengthening of the economies of the weaker states so as to be able to face global competition.
We must realise the importance of being a member of the WTO and how working in
consonance with its rules and regulations will benefit us. The WTO agreements are the legal
ground ± rules for international commerce. Essentially, they are contracts, guaranteeing
member countries important trade rights. They also bind governments to keep their trade
policies within agreed limits to everybody¶s benefit. The agreements were negotiated and signed
by governments. But their purpose is to help producers of goods and services, exporters, and
importers conduct their business. The goal is to improve the welfare of the peoples of the
member countries. The WTO¶s rules-the agreements-are the result of negotiations between
members. Through these agreements, WTO members operate a non-discriminatory trading
system that spells out their rights and their obligations. The vast majority of WTO members are
party to one or more regional trade agreements. The rush of RTAs has continued unabated
since the early 1990s. This is the period where India¶s economy reflected a liberalized policy,
the same policy, which resulted in a reduction in poverty. For weak economies the pooling of
regional resources such as land, livestock and agricultural products and development of intra-
regional trade is the only practical method for building the required capacity. A higher level of
cooperation would enable countries in a region to cope with development problems and with a
complex business environment. The restructuring of productive sectors would be more feasible
on a regional than on a national basis.

Regional trade agreements, could serve as a stepping-stone towards multilateral trade

agreements. Regional trade agreements must maintain and strengthen momentum towards
global economic integration.

i

i, Lead Partner, Kaden Boriss Legal LLP, India; Vice President, SAARCLAW;
Chairperson, IICLAM, Singapore; Advisory Board Member, OIC, USA