Regional trade arrangements (RTAs) or bilateral free trade agreements (FTAs) have become an important aspect of the trade policy of any country. The trend has been started with the formation of the single European market by the European Union in 1992 and NAFTA in 1994. These RTAs involve a deeper integration covering FTA and mobility of capital across the region. Economic integration has progressively deepened and the coverage expanded over time. EU has gone as far as to have a single currency and membership of 25 countries.

The ?new regionalism? fashioned by EU and NAFTA was motivated by the desire of major developed countries to strengthen the competitiveness of their industries. This was in the context of completion of the Uruguay Round of trade negotiations, and through rationalisation of industry across the region so as to exploit economies of scale and specialisation. The importance of RTAs can be judged by the fact that about 60 per cent of world trade is now conducted on preferential and not on Most Favoured Nation basis. Therefore, any region can ignore regional integration only at its peril as its exports would face discrimination against those of trade bloc partners.

The prescription of the conventional trade theory, that multilateral or unilateral trade liberalisation is the most optimal policy response, is not valid any more if your major trading partners are pursuing preferential regionalism. Therefore, different regions responded by forming their own RTAs such as MERCOSUR and Andean Pact in South America, and COMESA and SADC, SACU in Sub-Saharan Africa. The East Asian Crisis of 1997 prompted East Asian countries also to take a serious look at the potential of regional economic integration. The ASEAN countries expedited the programme of implementation of ASEAN Free Trade Area (AFTA) from 2008 to 2002 and moved on to further deepen economic integration. The crisis also led to the launch of several regional initiatives under the framework of ASEAN plus three (Japan, Korea and China).

Japan signed a bilateral FTA with Singapore in 2002. China signed a Framework Agreement for FTA to be implemented within 10 years with ASEAN in 2002. India first experimented with a new age FTA with Sri Lanka in 1998 which initially attracted resistance from different pressure groups. However, with the safeguards built into it, it has led to a healthy expansion of mutual trade and initial apprehensions have vanished. Significantly, it has prompted a significant wave of Indian investments into Sri Lanka to exploit synergies, e.g., investments by Indian companies in Lanka?s rubber-based industries.

The encouraging experience has prompted Sri Lanka and India to consider expanding the scope of the FTA to cover investments and services in a comprehensive economic partnership agreement (CEPA). The current year has seen two important initiatives in liberalisation of intra-regional trade in South Asia. The Framework Agreement on South Asian Free Trade Arrangement (SAFTA) in January 2004 followed closely by the signing of the Framework Agreement for BIMST-EC FTA in Phuket in February 2004 at the Ministerial Meeting of the grouping combining initially Bangladesh, India, Myanmar, Thailand, Sri Lanka and now Bhutan and Nepal as well.

Regional economic integration in South Asia is desirable as it has the potential to exploit their considerable synergies and complementarities for their mutual advantage. The economic interdependence and prosperity that it will generate also has the potential of fostering lasting peace in the region. However, a country of India?s size and aspirations has to look beyond its immediate neighbourhood to seek economic opportunities while consolidating South Asian economic integration. It was with this objective that India adopted the Look East policy in 1991.

India?s Look East policy has involved increasing engagement with ASEAN and other East Asian countries. Indian economy has increasingly integrated with East Asian countries as important sources of trade and investment accounting for nearly 25 per cent of India?s trade. India became ASEAN?s sectoral dialogue partner in 1992, a full dialogue partner in 1995 and has been interacting at a Summit-level since 2002. In 2003, India signed a Framework Agreement for Comprehensive Economic Cooperation involving an FTA to be implemented over a 10-year period. This Agreement is usefully complemented by bilateral agreements with Thailand and Singapore and subregional initiatives such as BIMST-EC and Mekong-Ganga Cooperation. India also unsuccessfully sought membership of APEC in the 1990s.

East Asian countries are planning to form an East Asian Economic Community (EAEC) with Japan taking a lead role. An East Asian Summit has been planned in late 2005 to launch EAEC. EAEC has the potential of evolving into a trade bloc comparable to EU or NAFTA. With the formation of EAEC, India will be the only major economy in the world not part of any major trade bloc. It is, therefore, of critical importance for India to be part of the plans of East Asian economic integration.

For this, India should strive to participate in the East Asian Summit before it is too late. The other option is to seek support for the proposal developed by RIS for an Asian Economic Community built in a phased manner with a core group of Japan, ASEAN, China, India and Korea (JACIK). After it was unveiled at a conference of Asian think-tanks in New Delhi in March 2003, the proposal has been discussed and has received support at various fora over the past year such as at the high-level conference organised by the Asian Development Bank in Manila earlier this month. The JACIK proposal will be further refined at an RIS conference of regional think-tanks in Tokyo in November 2004 to follow-up the New Delhi conference.

East Asian countries are likely to welcome JACIK over EAEC because of two reasons. India brings to EAEC not only a dynamic economy of over US$ 500 billion but also capabilities in software and services that complement theirs in hardware and manufacturing. Pan-Asian economic integration is gathering momentum and the imperatives for India are obvious.

The author is Director General, Research and Information System for the Non-aligned and Other Developing Countries. These are his personal views. Email: nkumar@ris.org.in.