Harmonizing South-South Trade Agreements
By Yaroslav Lissovolik
With protectionist measures in the world economy picking up pace in recent years, the realm of South-South economic cooperation has been seen increasingly by developing economies as a way to compensate for the rising intensity of adverse shocks. The largest economies of the Global South such as China and India have been particularly active in concluding trade accords with other developing economies, which has been accompanied by a further re-direction of trade flows towards the South-South segment of the world economy. In particular, China is working on FTAs with the Gulf Cooperation Council (GCC) as well as upgrading the China-ASEAN FTA to include digital and green economy cooperation, while India is also exploring the venues to upgrade its trade pact with ASEAN, as well as to build closer ties with the GCC and developing economies such as Chile, Peru and Oman.
The common focal points in the South-South trade policy efforts of China and India are hence the regional blocs of ASEAN as well as the GCC and ongoing work by the two largest BRICS economies to upgrade their trade relations with these regional integration arrangements could provide a basis for bringing closer the frameworks of trade agreements emerging in the BRICS+ space.
In terms of trade policy, BRICS core members could be divided into three groups – those that have significantly delegated trade policy to their respective regional integration arrangements (Brazil with Mercosur, Russia with the Eurasian Economic Union, South Africa with the South African Customs Union); those with partial delegation: UAE (via GCC) and Indonesia (via ASEAN); and economies that have full autonomy and no significant delegation to their respective regional arrangements: India, China, Ethiopia, Egypt, Iran. If Saudi Arabia were to join the bloc as a full-fledged core member, it would join its GCC counterpart UAE in the category of partial delegation of trade policy. This in turn implies that half or more than half (with Saudi’s possible membership) of BRICS core members have a varying degree of delegation of their trade policy to the respective regional integration arrangement.
What this means is that for the trade policy agenda within BRICS+ to advance meaningfully, the regional arrangements of the Global South need to form cooperative platforms to discuss the possible modalities of “RTA-to-RTA” trade accords as well as the possibilities for harmonizing trade deals within the BRICS+ circle, facilitating thus the multilateralization of trade accords across the Global South.
Such a path to greater prominence of RTAs in BRICS+ could be pursued via several tracks. One is for the regional arrangements with significant trade policy delegation from the national to regional level (Mercosur, EAEU and SACU) to lead the “integration of integrations” effort – the respective BRICS core members represented by Brazil, Russia and South Africa could form a troika focusing on building working groups (possibly within the framework of the BRICS Business Council) to sustain the momentum of such policy discussions.
A complementary track could bring together India and China (as the largest and some of the most active BRICS members in building FTA accords with developing economies) together with the UAE (GCC) and Indonesia (ASEAN). The accords currently negotiated by China and India with the GCC and ASEAN could form a basis for harmonizing South-South trade deals with the view to replicating such accords across other members of the BRICS+ circle.
The harmonization and greater coordination of such accords does make sense and the discussions between ASEAN and India show why – the ASEAN-India Trade in Goods Agreement (AITIGA) allows 35% value addition in terms of rules of origin, leaving it vulnerable to influxes of Chinese components. In this context, aligning rules of origin across the China-ASEAN and India-ASEAN FTAs and coordinating anti-circumvention measures would serve to keep a lid on tariff arbitrage.
These steps could be further complemented by discussions on a coordinated approach to lowering non-tariff barriers (NTBs), including via employing mutual recognition agreements (MRAs) for product standards and technical regulations. Greater coordination of tariff levels and the scope of coverage of FTA accords (including the share of goods covered by lower tariffs) would also serve to reduce the tensions and frictions between such trade accords. Since ASEAN and the GCC are among the most active participants in the widening cob-web of trade deals across the BRICS+ space, their representatives from the BRICS core could work together with India and China to breathe life into the regional/RTA agenda as well as trade policy coordination more broadly. This in turn could result in regional blocs such as ASEAN and the GCC delivering an important contribution to the amelioration of the economic/trade dialogue across BRICS core members, including between China and India.
In the end, trade policy coordination within BRICS+ is yet to evolve and the most straightforward path in my view lies via the creation of a common BRICS+ platform within the WTO as well as a BEAMS (BIMSTEC, Eurasian Economic Union, ASEAN-China FTA, Mercosur, SACU/SADC) horizontal platform for regional integration arrangements that would provide the possibility for discussions on common FTA frameworks and approaches to the harmonization of South-South trade agreements.
If the latter BEAMS/BEAMS+ platform remains out of reach, incremental and plurilateral efforts undertaken by some of the leading regional blocs in the BRICS+ space such as the GCC and ASEAN could serve to build a momentum for the regional integration arrangements of the Global South to play an increasingly prominent role in the BRICS+ economic policy agenda.
Yaroslav Lissovolik is the Founder of BRICS+ Analytics.