Regional Trade Agreements: Indonesia vs. Pakistan Analysis

This presentation provides a comprehensive overview of Regional Trade Agreements (RTAs), beginning with background information and defining key terms. It explores various types of RTAs, including Free Trade Areas, Common Markets, and Economic Unions, while highlighting their acceptance and distribution across different income levels. A detailed literature review analyzes RTA features, benefits (such as increased foreign direct investment and improved bargaining power), and effects, including both static (trade creation/diversion) and dynamic effects (economies of scale, competition, and investment stimulus). The presentation then analyzes RTAs in developing countries, discussing challenges and recommending strategies like broad-based liberalization and infrastructure improvement. A specific analysis compares the RTA between Indonesia and Pakistan, examining its nature, results, and impacts. The presentation concludes by summarizing key findings, recommending strategies like eliminating barriers to foreign businesses, and answering questions about RTA's role in global competitiveness and the importance of bilateral agreements between developed and developing economies. References from journals and books are provided to support the analysis.

Regional Trading
Arrangement
Name
Institution

Scope of the Presentation
The presentation will focus on the following;
 Background information on Regional Trade
Agreements
 Literature review and analysis
 Comparison between Indonesia and Pakistan
 Conclusion
 Recommendations

Background Information
What is Regional Trade Agreement (RTA)?
 It is the reciprocal agreement on trade
between two or more parties (Rasiah & Thangiah,
2017)
 It covers sovereign states of geographical
proximity
 Aim: promoting economy and trade between
the members

Types of RTAs
There are several types of regional trade agreements.
They include;
 Free trade Area- trade among members
 Common markets- expands to the common external
commercial agreements and trade policies (Rasiah &
Thangiah, 2017)
 Custom agreements- promotes free factor mobility within
the common markers

Cont.…..
 Economic Community that focuses on
 Free trade among members, external commercial policies,
free factor mobility, and harmonized economic policy
 Economic Union- also covers the above in additional to
supranational organizational culture

Acceptance and Regional Distribution
Since adoption as a
principle of WTO, many
countries have increased
their partnership and trade
commitments
It covers high-, middle-,
and low- income countries
RTAs are vital features
adopted to promote
international trade relations

Literature Review
RTAs are the different forms of economic
integration across continents and between
countries (Wei, 2017)
In the different succeeding stages, members
surrender greater measure of their national
sovereignty
 It is promoted by globalization leading to
regionalization of different states

Cont.…
Features of RTAs;
 Members show inherent dynamist to achieve open
markets and greater liberation (Rasiah & Thangiah, 2017).
 Regionalization increases the size of the regional
groupings
 Brings changes in social, environmental, and competition
policy
 Globally follows strategies combining internal liberation
and external trade agreements (Wei, 2011)

Benefits of RTAs
Brings non-economic benefits like effective management of
migration blocks and strengthened political ties
Proficient economic benefits with increased economies of scale
Expands foreign direct investments as well as research &
development (Ghai, 2013).
Improves the bargaining power in multilateral trade
negotiations.
Improves unilateral policy reforms within the domestic
boundaries.
Promotes open regionalism

Cont.….
Effects of RTAs include;
Static Effects;
- trade diversion effect
- trade creation effect (Ghai, 2013)
Dynamic Effects;
 Economies of scale
 Greater Competition
 Investments stimulus (Philippidis & Sanjuan, 2017)

Analysis of RTA in Developing Countries
Reasons:
RTAs in developing countries have not been successful in
promoting foreign direct investment and trade (Philippidis
& Sanjuan, 2017)
 Low commentary of resources between members
 High external trade barriers
 Small market size
 Poor infrastructure

Recommended Strategy for Developing
Countries
Increasing regional trade and
investment requires broad-
based liberalization and
streamlining of available
RTAs.
Strengthening domestic
revenue
Improving infrastructure
(Wei, 2011)
Best Strategy is the adoption
of Bilateral Trade agreement

Bilateral Trade Agreement
Definition: is the exchange agreement between two
trading groups or nations with party forward trade status
as the benefits (Wei, 2011)
Benefits:
 Improve trade boundaries
 Improves competition
 Promotion of industries that cannot be effective without
protected regional markets .

Summary of Economic Comparison
between the two Countries

RTA between Indonesia and Pakistan
The agreement was signed in 3rd, Feb 2012 with the aim
of improving their trade relations
Nature of Trade- Bilateral Trade Agreement
Results;
 positive growth from $0.7 million in 2015 to 1.6 billion in
2016 (Rasiah & Thangiah, 2017)
 232 tariff lines to access market from Indonesia and 313
from Pakistan

Cont.…

Cont.…

Top Imports from Pakistan to Indonesia

Conclusion
Regional Trade Agreements opens
regionalism among member states resulting
into;
low barriers to external trade
service markets reduces transaction costs at
borders
Helps in reducing the international trading
system complexity.

Recommendation
Gradually eliminating barriers to foreign businesses in
developing countries will promote foreign firms to operate
in the regions normally than in the recent years
Recommended Strategies;
 Contract manufacturing agreements
 Joint R& D
 Countertrade
 Co-production Agreements

Questions
1. With the stiff competition in the global
business environment, how can RTA ensure an
economy remains competitive?
- It helps in product diversification in the market, an
aspect that ensures it remains competitive in the
market.
2. What is the importance of Bilateral Agreement
between a developed and developing economy?
- Bilateral agreements promotes positive working
relationship between the parties involved hence
making any business process involved an easy process.

References
Economic aspects of regional trading arrangements. (1991). Journal
of Economic Literature, 29(4), 1815.
Ghai. K. (2013). Regional Trading Arrangements: Different Levels, Features and
Benefits, Retrieved from
http://www.yourarticlelibrary.com/essay/economics-essay/regional-trading-arrangemen
ts-different-levels-features-and-benefits/40413
Mills, J. C. (2013). Development Policy and Regional Trading Arrangements: The
Case of Latin America. Economic Development & Cultural Change, 13(1), 56.
Philippidis, G., & Sanjuán, A. I. (2017). An Analysis of Mercosur’s Regional Trading
Arrangements. World Economy, 30(3), 504–531.
Rasiah, R., & Thangiah, G. (2017). Government Policies, Regional Trading
Agreements and the Economic Performance of Local Electronics Component
Producing SMEs in Malaysia. Journal of Southeast Asian Economies, 34(2), 302–321.
Wei, S.. (2011). Regional trading arrangements: Natural or supernatural? American
Economic Review, 86(2), 52.