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CHANAKYA NATIONAL LAW UNIVERSITY, PATNA REGIONAL TRADING AGREEMENT SUBJECT - INTERNATIONAL TRADE LAW Faculty - Submitted by : Mr. P.P. RAO Name – Shrey Apoorv 1

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CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

REGIONAL TRADING AGREEMENT

SUBJECT - INTERNATIONAL TRADE LAWFaculty - Submitted by:Mr. P.P. RAO Name Shrey Apoorv Semester - 6th Roll No 5463

ACKNOWLEDGEMENT

It is my greatest pleasure to be able to present the project topic Regional Trading Agreement on International Trade Law. It very interesting to work on this project.

I would like to thank my teacher, Mr. P.P. Rao, for providing me with such an interesting project topic and for his constant support and guidance.

I would also like to thank my librarian for helping me in gathering data for the project. Last, but not the least, I would heartily thank my family and friends for their unwavering support without which this work would not have been possible.

I hope that the readers will appreciate this project work.

Shrey Apoorv

RESEARCH METHODOLOGYMethod of ResearchThe researcher has adopted a purely doctrinal method of research. The researcher has made extensive use of the library at the Chanakya National Law University only.Aims and Objectives:The aim of the project is to present a detailed study and analysis of the Negligence and Recklessness: A part of Mens rea

Sources of Data:The following secondary sources of data have been used in the project-1. Books

Method of Writing:The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation:The researcher has followed a uniform mode of citation throughout the course of this research paper

0. INTRODUCTIONInternational economic order is rapidly changing. Until the early 1990s, multilateralism was dominant and regional remained marginal. Today, however, regionalism is well acknowledged as one of the two pillars of international economic order, together with multilateralism. It will be thus important to explore the harmony between regionalism and multilateralism .The question is whether regionalism may be a faster way to reach multilateralism or, rather, hurt multilateral liberalization. Are regional integration arrangements building blocks, or stumbling blocks, in Jutice Bhagwatis phrase or stepping stones toward multilateralism? Since the end of the Uruguay Round, the world trading system has experienced the emergence of a large group of regional blocs. Ranging from the NAFTA and the Mercosur to the APEC and the enlargements of the EU, regional blocs seem to become factors that have to be taken seriously in the future trading systemThe agenda of the eleventh Conference of UNCTAD (UNCTAD XI) centered on the coherence between national development strategies and global economic processes to promote economic growth and development, particularly of developing countries. A central aspect of this agenda is international trade and trade negotiations both at the multilateral level under the WTO, and at the regional (including bilateral, subregional and interregional) level. The interface between the two processes has important implications for the trade and development prospects of developing countries. They can be complementary and coherent with the multilateral trading system (MTS), and thus facilitate international trade and enhance development prospects, or they can be divergent and hence undermine the collective and national effort to use international trade as an engine of growth and development. The coherence between multilateralism and regionalism becomes an opportunity and challenge for countries, as well as their regional arrangements and the WTO to manage in the evolving international trading system in order to maximize their potential benefits and minimize their potential adverse effects. Effectively managing the interface between regional and multilateral initiatives requires greater synergy between national development objectives and external commitments. Central to this challenge facing developing countries is to design and implement an appropriate and strategic pacing and sequencing of national, regional and multilateral liberalization, so as to maximize development gains from these processes of trade liberalization and regulatory commitments, by rendering regional processes and multilateral liberalization mutually supportive and coherent. A challenge is that simultaneous participation by countries in a web of regional trade agreements (RTAs) while also engaging in the evolving MTS, both of which have overlapping agendas, increasingly affects sensitive development policies and overloads the limited negotiating capital of developing countries. Negotiating and benefiting from RTAs requires important human and institutional resources and infrastructures and resolving underlying asymmetries, including with respect to size and economic conditions. This new interface between multilateralism and regionalism in terms of coherence and compatibility deserves special attention by policy makers and requires careful and in-depth study

1. THE EVOLVING MULTILATERAL TRADING SYSTEM AND NEW GENERATION REGIONAL TRADE AGREEMENTSRegional trade agreements (RTAs) cover more than half of international trade and operate alongside global multilateral agreements under the World Trade Organization (WTO). Two broad policy lessons have emerged from OECD work in this area. The first is that the actual effects of RTAs bolster the case for a strengthened multilateral framework, particularly when regionalism leads to a patchwork effect between members and non-members within the concerned region, and thereby raise transaction costs for business. A second lesson is that while some consequences of RTA activity contribute to the case for strengthening the multilateral framework, some features of regional approaches may complement multilateral rules. The scope for such complementarily arises from the contribution which regional initiatives can make towards multilaterally-driven liberalisation and harmonious rule-making that goes beyond the WTO. Together, these two elements have yielded highly effective synergies between approaches at the regional and multilateral levels.The conclusion of the Uruguay Round of multilateral trade negotiations in 1994, and the establishment of the WTO in 1995 to provide the institutional support to the multilateral trade agreements, constituted a significant milestone in the evolution of the multilateral trading system. The principle of single undertaking bound all WTO members to all the results of the Uruguay Round negotiations (with the exception of plurilateral agreements), thereby reinforcing the fundamental principle of most-favoured nation (MFN) treatment. With the conclusion of the Uruguay Round and the strengthened MTS, there was an expectation that exceptions to multilateralism, such as regional trade agreements, even though legally covered by the WTO under certain conditions, would either become less of an alternative policy option for countries or will need to be adapted and conducted in such a manner as to become outward-oriented, not inward-looking, and thus constitute building blocks for the new multilateralism ushered in by the WTO. [footnoteRef:1] [1: WTO, Compendium of issues related to regional trade agreements, background note by the Secretariat (TN/RL/W/8/Rev.1), 1 August 2002.]

The debate on the interrelationship between MTS and RTAs is long-standing and well documented. It mainly pertains to the following two broad issues: (i) relative welfare effects of non-preferential across-the-board (MFN) liberalization versus preferential liberalization; and (ii) the political economy implications of RTAs for MTS, as well as those of MTS for RTAs.11 While the first question asks which approaches to trade liberalization are superior in terms of trade and welfare gains for the members of RTAs, third countries and the world as a whole, the second question seeks to ascertain the systemic implications of RTAs for the MTS in general and multilateral trade negotiations in particular, i.e. whether regional integration constitutes a building block or stumbling block to multilateral trade liberalization and a more open and liberal multilateral trading system. In the economic literature, it is well documented that regional integration would entail static and dynamic gain.12 In a simple partial equilibrium model under perfect competition, an RTA may increase the level of trade between members at the expense of less efficient domestic producers (trade creation) or of more efficient third countries (trade diversion). The net effect of an RTA on welfare thus depends on the relative size of these two effects. This depends on a variety of assumptions and conditions, including complementarities of production structure among RTA partners and initial level trade barriers, and cannot be determined a priori. The dynamic effects resulting from regional integration include competition effects and scale effects. These dynamic effects of regional integration have been a major rationale for the formation of recent RTAs, including those arising from FDI flows, strengthened intellectual property rights protection, or the predictability of the trade regime and institution building and governance. Such dynamic effects of RTAs have been observed most vividly in the EU and NAFTA, which not only increased their intraregional exports but also their trade with the rest of the world. With regard to the political economic implications of RTAs vis--vis the MTS, various arguments have been advanced, both in favour of and against regionalism. On the positive side, RTAs enable participating countries to move closer and quicker to freer trade with stronger disciplines over a wider range of goods and services than could be attained at the multilateral level. RTAs could also act as laboratories for testing approaches to new issues, and their operating experiences can provide the basis for future multilateral trade negotiations for developing rules for application at the multilateral level. In this way, RTAs could be halfway houses or building blocks for a more open and liberal MTS. As regards the supremacy of the WTO over RTAs, the constituent treaties of many new-generation RTAs clearly state that these need to be consistent with WTO rules. This indicates that future RTAs would be built on the WTO, seeking to maintain compatibility with its disciplines. This points to a positive, dynamic interface between regional trade liberalization and disciplines on the one hand, and multilateral liberalization and disciplines on the other. Of course, in order for these intentions to become reality, all RTA provisions need to be WTO-compatible. [footnoteRef:2] [2: Jaime d e M e l o : Regionalism and Developing Countries: A Primer, in: Journal of World Trade, Vol. 41, No. 2, 2007, pp. 351-369]

For developing countries in particular, RTAs tend to form the nucleus of a wider regional economic integration process that is an integral aspect of national development strategies. This is particularly so, given that developing countries have a limited number of policy options to maintain and increase their market shares in world trade in goods and services, promote sustained economic growth and development, and enhance their beneficial integration into the global economy. The formation of an enlarged regional market space through regional trade liberalization is not perceived as an end in itself but as a stepping-stone towards the future attainment of a single economic, social and cultural grouping spanning several countries. Developed countries (with the exception of the EU), in contrast, tend to emphasize the free trade agreement feature, which expands beyond trade in goods to cover services, investment and other trade-related issues (such as competition policy). This is clear from the many FTA initiatives launched primarily by developed countries, whereas in agreements to which developing countries are parties, the tendency is to include wider development partnership agreements such as between the ACP States and the EU. Regionalism could serve as a lock-in mechanism for domestic political and economic reforms in developing country RTA members. On the negative side, RTAs may result in inward-looking, discriminatory and protectionist trading entities competing for spheres of influence and becoming self-contained fortresses. In particular, large RTAs those whose membership covers a large share of global trade can potentially have harmful effects for non-members leading to net trade diversion rather then net trade creation. Much depends on the policies and disciplines of RTAs with regard to imports from non-participants, which need to be supportive and complementary to the greatest extent possible with the MTS in a way, which strengthens its credibility.

1. WTO RULES ON RTAS RTAs are governed by Article XXIV of GATT 1994, Article V of the GATS and the Enabling Clause. All provisions allow WTO Members[footnoteRef:3] to depart from the cornerstone principle of the MFN under certain conditions, and establish the requirements to be fulfilled by members of RTAs to be compatible with the WTO. GATT Article XXIV requirements, which apply to FTAs, CUs and interim arrangement leading to either FTAs or CUs, essentially provide that duties and other regulations of commerce should be eliminated for substantially all the trade among RTA members, and that the barriers placed in the way of third countries should not be on the whole higher or more restrictive. These requirements are not applicable under the Enabling Clause The Enabling Clause provides that the MFN clause of GATT Article I.1 is exempted for a limited number of preferential arrangements, including regional or global arrangements entered into amongst less-developed countries for the mutual reduction of tariff reduction or elimination of tariffs (paragraph 2c). Thus, it can be argued that the Enabling Clause sets out less stringent requirements than those contained in GATT Article XXIV. Indeed, a number of South-South RTAs have been notified under the Enabling Clause.19 [3: Germn C re a m e r : Open Regionalism in the Andean Community: A Trade Flow Analysis, in: World Trade Review, Vol. 2, No. 1, 2003, pp. 101-118.]

The examination of notified RTAs with regard to their compatibility with WTO rules is conducted by the Committee on Regional Trade Agreements (CRTA).20 The CRTA has not been able to adopt final reports on its examination to date. This is in large part due to the very limited progress made by WTO Members in resolving "systemic issues" concerning WTO rules on RTAs. Systemic issues pertain to the interpretation of some of the terms and benchmarks in the provisions. 21 For instance, there has been no agreement among WTO Members as to the exact meaning and measurement of key terms such as substantially all the trade, not on the whole higher or more restrictive, and other regulations of commerce (ORC); and with respect to the treatment of preferential rules of origin, other restrictive regulations of commerce (ORRC) and obligations during transitional periods. The relationship between RTAs notified under the Enabling Clause and GATT Article XXIV has also been raised. Systemic issues with regard to GATS include the interpretation of substantial sectoral coverage and absence or elimination of substantially all discrimination.1. REGIONALISM AND MULTILATERALISM IN SAARC COUNTRIESThere is a strange discrepancy in South Asia between regional cooperation on the one hand and open hostilities on the other. The states, which once comprised British India (more or less, given the sophisticated organizational set up of British supremacy), i.e. India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, Maldives, joined hands in 1985 to establish the South Asian Association for Regional Cooperation (SAARC). With the exception of the smallest member, they all have been experiencing strained relations with the largest one. In the case of India and Pakistan, we have been observing open hostilities over decades, an undeclared war along the line of control in Kashmir and an escalating arms race, becoming most terrifying with the Indian and Pakistani missile and nuclear tests of 1998.Thus, SAARC is a marriage of convenience rather than love. All the South Asian states have tried other alignments, if oly in the case of India, with the other non aligned countries. Pakistan joined various defence alliances as a partner of the West in the early days of the cold war and later turned to the Islamic, South West and Central Asian states. None of the South Asian states has been welcome to South East Asian or Pacific Rim associations. India has made it very clear that it would not tolerate closer relations between its Himalayan neighbours and China, which in turn has been Pakistan's most reliable partner.Economics always have been emphasized as a golden opportunity of regional cooperation. So far, however, this has been not more than wishful thinking. Intra-regional trade of the South Asian states has been in the range of 3 per cent of all foreign trade of the member countries; in the face of the numerous quantitative and administrative measures which restrict trade between India and Pakistan Sajal Lahiri speaks of "inverse regionalism". Talks of intensifying regional trade, at present exports of electric energy from Pakistan and of natural gas from Bangladesh are being discussed, thus, are hardly more than wishful thinking.The paper is set out to have a look at the economics of regional cooperation. Given the fact, that present boundaries, especially between Pakistan, India and Bangladesh, run across areas, which constituted a single economic unit until 1947, one could well imagine, that these boundaries may be open at some time in future again. There seem to be, however, few studies dealing with this aspect. Studies on South Asian regional economic cooperation mainly focus on the economic situaton in the member states, which usually are dealt with separately, and on intra-regional trade prospects. Other aspects have to be looked at, too: transnational natural resource utilization (e.g. water), migration and capital movements.Inverse regionalismIn his short introduction into the current debate on regionalism versus multilateralism Sajal Lahiri coined the term "inverse regionalism":"In spite of the formation of the South Asian Association for Regional Cooperation (SAARC) in the mid-eighties, intra-regional trade between the member countires remain negligible even in absolute terms. Trade between India and Pakistan are restricted by numerous quantitative and administrative measures. This can be called inverse regionalism. The political process in the two countries have a lot to do with this inverse regionalism. Clearly such restrictions to trade can be reduced by regional agreements without necessarily imposing trade restrictions against countries outside Asia. Such reversals of inverse regionalism could only reinforce the multilateral trading system."After twelve years of SAARC we witness - contrary to expectations [Zingel 1983] - hardly an improvement in intra-regional trade. The volume of trade, i.e.exports (table 1), in 1996 amounted to only 1.76 bn US$, 3 per cent of the 51.63 bn US$ of all exports from South Asia. Intra-regional trade almost triplicated in the twelve years, but total exports almost quadrupled; accordingly, the three per cent share of intra-regional in total trade were even less than the 4 per cent of 1985.As forimports, we have an almost similar picture: intra-regional imports of SAARC countries quintupled to 2.58 bn US$, wheras total imports of the SAARC countries rose to the two-and-a-half-fold. Imports from SAARC members rose from 2 per cent in 1985 to 4 per cent in 1996.Even if we consider, that South Asian data are often subject to later revisions (e.g. Indian exports reported for 1998 might have been more than hardly a tenth of 1997 as reported by the IMF), intra-regional trade developed just in step with exports from South Asia to third countries.As can be easily seen from a comparison of tables 1 and 2, export and import figures do not match in many instances: Since import figures usually include the cost of freight and insurance (and other charges), the value of world imports is roughly ten per cent higher than that of world exports. The IMF figures, which I used, show, however, more severe discrepancies: To give only one example: According to the IMF, India exported to Nepal in 1989 goods valued 215 mn US$ whereas imports of Nepal from India are given as 36 mn US$. 1989 was a difficult year in Indian-Nepalese relations and the border was almost closed for a number of months for political but also for economic reasons; the IMF uses national figures, and the fact that Indian and Nepalese figures do not tally, may be explained by the fact, that legal exports to Nepal re-entered India illegally, i.e. as smuggel, and thus, remained unreported.Given the poor quality of statistics, it is not possible to say, whether the share of intra-regional trade has remained the same, has declined or has grown since the foundation in 1985. But in any case, the share is not substantial. Of course, one must not expect such high shares of intra-regional trade as we experienced in the European Union: given the fact that India's economy is roughly three times as big as that of the other six taken together, the volume of intra-regional trade is restricted by the much smaller production and absorption capacities of India's regional trading partners, but one easily could expect a more intensive intra-regional trade. This is evident if we look at the smaller members: Just 3 per cent of Pakistan's exports of 9.39 bn US$ (1996) were shipped to the SAARC countries and it received only slightly more. Bangladesh's exports to SAARC countries amounted even to only 2 per cent of total exports of Bangladesh (although it received much more). Only the smallest of the SAARC countries have to rely more on their SAARC partners: Nepal, however, has been successful in reducing its dependency on India; Bhutan might try the same (no separate IMF figures for Bhutan), and the Maldives, which hardly have any agriculture or industry, have to rely on neighbouring Sri Lanka.Besides India's sheer size, geography is responsible for the smaller countries trying to distant themselves from India: as is well known, all the smaller states neighbour India but none of the others. Nepal and Bhutan are land locked and have only one other neighbour, i.e. China. Most of their population live on the slopes and in the plains south of the Great Himalaya; there are no natural boundaries between the two Himalayan states and India; the border areas to the north in China (Tibet), however, are forbidding mountains and high plains and are thinly populated. Politically, India has been treating the Himalayan states as its sphere of influence; it only recently agreed to transit trade from Nepal to Bangladesh; until now it does not permit any direct flights between Nepal and Pakistan.To Bangladesh, India is the only neighbour except Myanmar. The long border to India runs for most of its length across open plains and has been fenced (partly) only recently. Illegal trade and migration have become sensitive political issues in Bangladesh and India. Furthermore, India, lying upstream, controls the main waters flowing into Bangladesh; any withdrawals of water (for irrigation and - in the case of the Hoogly River - for shipping) affect Bangladesh's agriculture, fishery, shipping and ecology. Historically and politically, Bangladesh owes India its very existence; Muslim Bengalis, however, played an important role in the Pakistan movement and in Partition.The delicate relations between India and Pakistan are too well known to be described here [Zingel 1998]. Pakistani feel fundamentally threatened by India; common belief is that India is out to destroy Pakistan and to undo Partition. This even more after India's nuclear tests of May 1998. Like Bangladesh, India controls the upper portions of almost all Pakistani rivers. In a country which relies more on irrigation than any other and which has buit the largest irrigation system of the world, water surely could becomecasus belli. As a rare example of political farsightedness, India and Pakistan agreed in 1960 on the Indus Water Treaty, allocating the waters of the three western rivers (Indus, Jhelum, Chenab) to Pakistand those of the three Eastern rivers (Ravi, Sutlej, Beas) to India. India and Pakistan also agreed to the decision of the International Court after the short and futile war of 1965 over the Run of Kutch. As is too well known, both the neighbours cannot agree on Kashmir, where an undeclared war is going on since years. Both the countries accuse each other of funding, training and arming separatist movements and terrorist groups; hostilities did not loose their momentum after the nuclear tests, proving them to be not deterring and to be not improving national security. Fortunately, there is no talk of massive retaliation, a threat, which is said to have worked during the cold war.Sri Lanka and India are divided by the waters of the Palk Street. Ceylon, as it was called then, was no part of Britsh India and always had been under separate administration. This made things easier after Independence. In the beginning, the fate of the migrants from Souther India working in the tea gardens, the so called Indian Tamils, constituted the main bilateral problem; under the bilateral agreements many of them returned to India, the others, finally, were accepted as Sri Lankan citizens. India's intervention in the civil war was neither helpful nor successful. The Tamil Tigers' alleged involvement in the assassination of the former Indian prime minister Rajiv Gandhi marked the end of clandestine (?) Indian (Tamil) support of the Tamil Tigers.For the Maldives the situation is markedly different from that of the other South Asian states. The Maldives are neighbours to Sri Lanka rather than to India, and to that extent the common phrase, that the smaller countries of South Asia all border India bur none of the others, is not exactly true. Thanks to tourism the Maldives are economically much better off than the other SAARC members. Colombo is the nearest larger city and used to be the natural port of call for all those coming and going to the Maldives. But after Male's airport has been upgraded (and Colombo became too unsafe) directs flights from Europe reach the Maldives and make the country less reliant on Sri Lanka. As for shipping, Singapore is the regional hub, having replaced Colombo.As a consequence of politics and geography, the four South Asian intra-regional land boundaries have their very own characteristics:1. The boundary between India and Pakistan is the longest and most dificult: most of the boundary runs over open, in the southern part, thinly populated areas with no natural dividing features, there is only one official crossing: between Lahore and Amritsar, by road and rail.2. The boundary between India and Bangladesh also mostly runs over open plains, although most of the boundary areas are densly populated. There is a number of crossings; rail service - to the author's knowledge - is possible in principle, but discontinued, more or less, since decades. After India agreed to transit between Nepal and Bangladesh, it now hopes for Bangladesh's permission of transit between West Bengal and the North Eastern states and territories.3. Most of the boundary between Nepal and India is in the Terai, once impenetrable plains, which have been cleared and today have a population of around three millions of Indian origin. The border is known to be easily to cross and subject to massive re-exports, i.e. smuggel to India. In 1989 India closed almost all of the small border crossings, officially to stop smuggling, but inofficially to impress on the government of Nepal and to ensure India's "special interests".[footnoteRef:4] [4: L. Alan Winters, The EC and Protection: Political Economy, 38 European Economic Review at pp.596, 601-02 (1994)]

4. A similar situation exists for the border of Bhutan and India. The main problem here is the influx of migrants of Nepali origin via India (the two Himalayan kingdoms have no common border).Nepal and Bhutan, in principle, could trade with Pakistan via China: road transports to and from Pakistan, for example, would be possible technically, although costly. India, however, uses all its influence to deter the Himalayan states from closer relations with China.Only India has direct flights to the other members and controls all flights from and to Nepal and Bhutan; flying to Maldives is a matter of economics rather than politics. A similar situation exists for sea trade: the Himalayan states have to rely on transit through India; lack of direct shipping otherwise is again a matter of economics; using far away hubs (Singapore, Dubai) for transshipment is not uncommon also in other world regions.To sum up this small chapter: There are no natural unsurmountable hindrances to intra-regional trade in South Asia. One could imagine that once the borders are open again - with many of the centres of economic activity of India and Pakistan located in the plains of Indus und Ganges - goods traded would be transported mainly overland by road and rail rather than by sea, resulting in a restructuring of regional development patterns.[footnoteRef:5] [5: Mina Mashayekhi, Lakshmi Puri and Taisuke Ito, Multilateralism and Regionalism: The New Interface, UNCTAD/DITC/TNCD/2004/7. ]

Obstacles to trade: the energy marketThe literature is full of "potential" of South Asian trade. I shall take up a recent issue, i.e. that of the energy market. Electric power has been mentioned again and again as an ideal example for regional exchange. None of the South Asian countries produces enough natural oil for its own consumption; actually only India and Pakistan produce some of it, but also have to import. India, Pakistan and Bangladesh have substantial proven reserves of natural gas, no gas it is imported or exported, but Pakistan and Bangladesh may be in the position to export and India is believed to be interested in imports. All SAARC members except the Maldives produce hydroelectric power; in Bangladesh the potential has been almost fully utilised, but the others still could mobilize enormous reserves; already, Nepal and Bhutan are exporting electricity to India; there are plans for more export oriented hydel projects in Nepal and Bhutan. India is one of the largest coal producers with enourmous reserves, although partly of poor quality; Pakistan also has coal and produces some; there is coal in Bangladesh, but it has been found to be too expensive to produce. Finally, India and Pakistan have developed their nuclear industries, there are plans to build more nuclear power stations.All South Asian states have been investing heavily in building their national electricity grids; Nepal and Bhutan power plants have been connected to the Indian grid. At Independence only isolated grids existed, until the early 1950s India and Pakistan traded electricity; there has been no exchange of electricity afterwards. A connection of the national grids of India and Pakistan would be easy with both Punjabs well connected to the rest of their respective countries.From the economic point of view, the question, however is, how much South Asia would benefit from intra-regional trade of power. The reason for not more power being traded at the moment simply is the lack of availability. All South Asian states suffer from power famines, as every visitor to South Asia is well aware of. Load sheddings and power cuts are the rules of the day almost everywhere. Liquid gas is rationed in India and petrol pumps at times are to be found without any fuel; voltage fluctuations are even more annoying than power cuts.The lack of availability is not so much a question of lack of potential than inefficiencies, technically and even more economically. Making the systems more efficient would help indeed, but on the longer run additional capacities are needed given the low levels of consumption in all South Asian states. Whether a regional cooperation is needed for this purpose, is doubtful, especially, since the major sources of primary power are located outside SAARC and since the SAARC countries will be needing their own resources for themselves. The major exceptions are hydroelectric power exports from Nepal and Bhutan to India (leaving aside the ecological aspects), and - maybe - natural gas exports from Bangladesh to India.[footnoteRef:6] [6: Antoni Estevadeordal, Caroline Freund and Emanuel Ornelas, Does Regionalism Help or Hinder Multilateralism? An Empirical Evaluation. ]

The political environment for tradeThe end of the cold war raised hopes for a peace dividend, i.e. public funds which no longer had to be spent on defence and could be spent otherwise, e.g. for education, health and infrastucture, or could be returned to the tax payer. This clearly happened in the West (e.g. Germany) and in the East (although at the price of the collapse of the industrial-mlitary complex and much of the state). Some politicians expected a similar development in South Asia, only to learn, that the Indo-Pakistan conflict is a genuine one with the two combattants having associating themselves with the - then - warringsuper powers. The collapse of the old world order, however, had different effects on India and Pakistan as far as defence expenditure is concerned. Pakistan had associated themselves much more with the USA than India did with the Soviet Union. The end of the US engagement in Afghanistan had a dramatic effect on the amount of US aid going to and through Pakistan, officially and inofficially. Furthermore, with Pakistan no longer needed as "front state", the USA returned to their old legal position, i.e. that Pakistan because of its nuclear programme comes under the restrictions of the various amendments (Symington et al.) to the US Foreign Assistance Act of 1961 and - lacking a Presidential waiver - were cut off from most US aid; Pakistan had been subject to such sanctions already in 1979 but was "rescued" by the Soviets invading Afghanistan. Since 1990 Pakistan has (again) to rely more on the international arms bazaar, at higher prices and less concessional conditions. India obviously was less generously treated by the Soviets and had built up substantial defence research and productions facilities. Speculations are that India managed to hire - low cost - defence and nuclear productions specialists from the former Soviet Union. Accordingly, India must have received a much higher peace dividend from the end of the cold war than Pakistan.The present situation seems to be that both countries use substantial resources for national security with the share of defence related expenditures in GNP higher in Pakistan (than in India With a much larger economic basis than Pakistan India might see the chance to "bleed [Pakistan] white", as President Reagan is said to have aspired in the case of the Soviet Union. The last months have shown, that India is suffering from the various economic sanctions after the nuclear tests less than Pakistan, which presently seems to be on the brink of economic collapse.As has been pointed out at the beginning of the paper, the undeclared war in Kashmir is going on despite the nuclear threats, it even seems to have intensified during the last months. It is here, where SAARC is to play its role, providing a forum for a continuous dialogue between India and Pakistan on the levels of heads of state down to the technical committees. SAARC provides a multilateral forum which allows a continued dialogue even when bilateral talks break down. It also allows to work on technical details in the various groups and work to out "innocent" programmes, in which India and Pakistan could participate despite all bilateral tensions. The hope is, that as long as this dialogue goes on a major war can be avoided, this being the real peace dividend of SAARC.

1. CONCLUSIONThere is an increased attention being paid to regional arrangements. The threat to the multilateral trading system does not appear to be as large as is often reported. The debate about whether RTAs are building blocks or stumbling blocks for global freer trade, which was so virulent in the 1990s, faded because, whatever the answer to the question, in practice RTAs have made so little difference either way. The impact on the global trading regime of the hundreds of RTAs notified to the GATT/WTO as being in contravention of the MFN principle has been trivial compared to the establishment of multilateral trade law based on the nondiscrimination principle. The dissemination of regionalism can contract and distort non-discriminatory multilateralism .Countries are too diverse in their developments. Negotiations under the framework of WTO take too much time as well. Regionalism is then an alternative to consider, at least, for countries geographically close to each other, especially for countries with close economic exchanges and interests.The completion of the Uruguay Round of Multilateral Trade Negotiations coincided with the development of a worldwide trend towards increased regionalism, as witnessed by the conclusion of NAFTA, the emerging process of regional integration in Latin America and the launching of APEC. While this new trend has caused some observers to evoke the prospect of a world economy increasingly divided among rival trade blocs, recent studies suggest that regional trade agreements may complement rather than threaten the multilateral trade system. At a theoretical level, economists are divided over the desirability of regional trade agreement in a multilateral trade regime. There is still no consensus about this issue. However, regionalism, with its advantages and drawbacks, is a reality of the current global trade regime. [12] The wave of regionalism is likely to intensify in near future. If a very high proportion of global trade gets diverted through the regional route, WTO is bound to loose some of its relevance in the global trading system. However, in the current state of distorted multilateralism, regionalism has turned out to be one of the more viable alternatives for developing countries to expand their market access. In this context, South-South RTAs are particularly useful as they allow developing countries to expand their market. Also, it is always possible that if the world is divided in a few mega trade blocks, then the weakest countries will be marginalized.Regional trade agreements have proliferated in number, expanded their membership, and deepened their integration since the creation of WTO, and in particular since the launch of the Doha Work Programme. Both developing and developed countries have been actively participating in these processes by establishing and reinvigorating North- South and South-South agreements, often on an inter-regional basis. As regards North-South agreements, the development dimension needs to be taken into account in respect of both market access and entry opportunities and domestic policy space. North-South RTAs may address market entry barriers, most notably rules of origin. They can also result in deeper Mode 4 commitments and facilitated recognition of qualification. Adjustment costs may be significant for developing countries, and this requires meaningful special and differential treatment, including resource transfer for development purposes, to be incorporated in the agreements. As regards South-South agreements, the potential for trade expansion is significant, while a number of South-South integration groupings have yet to exploit their full potential for export expansion and diversification. Deep integration would prove to be beneficial under South-South agreements. Effectively managing the interface between RTAs and the MTS requires, at the national level, comprehensive development-oriented trade policies and a clear assessment and awareness of the impact of the norms and disciplines being entered into at the different levels of trade integration. Clarity of policies addressing the development, trade and financial needs of developing countries is necessary in order to mould RTAs into effective instruments for development. Development objectives deserve priority attention in RTAs and in the WTO, including in the context of questions touching upon special and differential treatment issues. At the regional level, ensuring additional policy space and flexibility available for promoting development in the context of RTAs is necessary. The emergence of issues related to WTO plus and WTO-minus demands comprehensive analysis of the different regulatory developments in the multilateral and regional contexts, and identifying additional policy space available for action at the regional level. At the multilateral level, it is important to strengthen the rules affecting RTAs in order to guarantee that RTAs are indeed instruments for promoting trade liberalization globally, while at the same time the rules needed to allow for special and differential treatment for developing countries to make use of flexibility available to them.

BIBLIOGRAPHY

BOOKS REFERED Freund, Caroline L., and Emanuel Ornelas. "Regional trade agreements." Pomfret, Richard WT. Regional trade agreements. Frankel, Jeffrey A., Ernesto Stein, and Shang-Jin Wei. Regional trading blocs in the world economic system..20