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Asia-Pacific Trade Agreement

June 19, 2022

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This article has been written by Naveen Talawar, a law student at Karnataka State Law University’s law school. The article deals with the Asia – Pacific Trade Agreement, its historical background, objectives, features, and its constraints in detail.

It has been published by Rachit Garg.

Introduction

The economic development of the Asia-Pacific region has been made possible through active involvement in international trade. Trade allows countries to broaden their markets and get access to a wider range of products and services, especially intermediate commodities, at lower prices. One of the earliest regional trade treaties on trade negotiations among developing member countries was the Asia-Pacific Trade Agreement (APTA).

It is a preferential trade agreement aimed at gradually liberalising and expanding product trade, with a particular emphasis on boosting intra-regional trade through the exchange of mutually agreed-upon concessions among its member countries. Member nations of the Asia Pacific Trade Agreement have laid the foundation for an agreement on trade facilitation, trade in services, and investment promotion and liberalisation. India, Bangladesh, China, the Republic of Korea, the Lao People’s Democratic Republic, Sri Lanka, and Mongolia are currently members of the APTA. With the additions of China and Magnolia, it has developed into an integrated regional trade centre in the Asia-Pacific. Since its inception, APTA has gone through four rounds of tariff liberalisation, expanding the variety of commodities that benefit from tariff rate reductions. The Agreement’s aim is to increase bilateral trade through maximising trade potential, improving productive capacity, and stimulating economic growth.

Historical Background of Asia Pacific Trade Agreement

The United Nations Economic Commission for Asia and the Far East, 1963

The 1st Meeting of the Council of Ministers on Asian Economic Cooperation was held in 1963 by the United Nations Economic Commission for Asia and the Far East (ECAFE). The purpose of the Conference was for the countries to exchange ideas with the ECAFE Secretariat on strategies to generate regional cooperation. Following that, the 4th Meeting of the Council of Ministers on Economic Cooperation in December 1970 adopted the Kabul Declaration, which requested ECAFE (now ESCAP, for United Nations Economic and Social Commission for Asia and the Pacific) to develop measures for intra-regional trade expansion and other economic cooperation.

The United Nations Conference on Trade and Development, 1972

ESCAP’s International Trade Division began looking into alternative regional trade liberalisation programmes. An Intergovernmental Committee on Trade Expansion Program was established in 1971 and recommended the development of a Trade Negotiations Group (TNG), which met for the first time in February 1972 with the assistance of the United Nations Conference on Trade and Development (UNCTAD). During the 2nd TNG Session, the TNG’s core principles were accepted. The Third TNG Session, held in August 1973, brought together thirteen nations to discuss tariff reduction among member countries. In 1974, three TNG meetings looked at lists of requests submitted by member countries.

The signing of the Bangkok Agreement, 1975

In Bangkok in July 1975, Bangladesh, India, the Lao People’s Democratic Republic, the Republic of Korea, Sri Lanka, the Philippines, and Thailand met to agree on a list of goods for reciprocal tariff reductions. As a result, the Bangkok Agreement was signed, also known as the “ESCAP” was the First Agreement on Trade Negotiations among developing member countries. The Agreement was approved by five of the seven nations, excluding the Philippines and Thailand.

China joined the Agreement in 2001

China formally joined the Bangkok Agreement in April 2001. Its approval has far-reaching repercussions for both the Bangkok Agreement and Asian and Pacific commerce. The agreement is open to all developing ESCAP member countries.

First Ministerial Council, 2005

On November 2, 2005, the Ministerial Council convened for the first time, and the Bangkok Agreement was renamed the Asia-Pacific Trade Agreement (APTA).

Second Ministerial Council, 2007

The Second Ministerial Council was held in Goa. The following important decisions were made at the Second Session of the Ministerial Council:

To initiate the fourth round of negotiations;
Adopting methods for expanding discussions to include non-tariff measures, trade facilitation, services, and investment;
It was decided to establish a standard set of APTA Operational Procedures for the Certificate and Verification of the Origin of Goods on January 1, 2008; and
To investigate the possibilities of expanding the Agreement’s membership.

Third Ministerial Council, 2009

The Ministerial Council held its third session in Seoul, Republic of Korea, in December. Mongolia, which has expressed interest in joining APTA, has been invited to attend the Session. The following observations were made during the third session:

The signing of Framework Agreements on Trade Facilitation and Investment Promotion, Protection, and Liberalization.
Sectoral agreements on origin regulations are now being negotiated.
Mongolian accession discussions were facilitated in expediting the country’s membership.

Fourth Ministerial Council in 2017

In January 2017, the Fourth Ministerial Council was held in Bangkok. The important decisions of the Fourth Ministerial Council are as follows:

to Launch the APTA Non-Tariff Measures/Preference Margin/Rules of Origin Database
To adopt an APTA future road map, which includes conversion from a PTA to an FTA.
Mongolia has been accepted by APTA as an official member and a new Participating State.

Mongolia joined the Agreement in 2020

In September 2020 Mongolia officially joined the agreement.

Objectives of the Asia-Pacific Trade Agreement

The Asia-Pacific Trade Agreement established a number of objectives to assist them in maintaining their position in all countries. The following are the objectives:

The primary objective of the Asia-Pacific Trade Agreement is to boost economic growth in the nations that have signed it.
It also helps nations grow their economies through inter-regional commerce by liberalising trade and investment.
The most important aspect of the Asia Pacific Trade Agreement’s objective is the interconnection of economies. Apart from that, trade in the multinational system is being increased in order to strengthen each country’s influence. This is beneficial not only to both parties but also to the political and social development of each of the countries included in the agreement.
It also has a central objective of reducing tariff commissions and covering items like goods, commodities, investments, and technology.

Features of the Asia-Pacific Trade Agreement

The following are some of the features of the Agreement:

APTA is a truly regional trade agreement that includes East and South Asia and has the potential to expand to other sub-regions such as Central Asia and the Pacific. It is open to all developing ESCAP member countries. As a result, it provides a once-in-a-lifetime opportunity to promote South-South trade and investment, especially given the size of the economies of some of its participating states.
APTA has been one of the longest-running trade agreements in the Asia-Pacific region since its establishment in 1975. Because it is the only working trade agreement connecting China and India, two of the world’s fastest-growing markets with billions of consumers, as well as other significant nations like the Republic of Korea, it has enormous potential to promote regional commerce.
The APTA is the first preferential plurilateral agreement between Asian and Pacific developing countries to adopt equivalent operational techniques for certifying and verifying commodity origin. For least developed countries (LDCs), the APTA allows for a 10-percentage-point reduction in the minimum local value addition (or 10 percentage points for use of higher non-originating inputs). With the longest effective implementation period, the Asia-Pacific Agreement is the most comprehensive one.
The first plurilateral agreement in the field to create standard operational techniques for certifying and verifying the origin of commodities among developing countries.
Due to the significant economic dimension of emerging participating states, there are extra opportunities to encourage South, South-East, and East Asian trade.
APTA is perhaps Asia’s most diverse organization, with members from all across Asia, including the South, South-East, and East Asian areas. Bangladesh, India, and Sri Lanka represent the South Asian area; the Lao People’s Democratic Republic represents the South-East Asian region, and Korea and China represent the East Asian region.
It is the only Asian organization that includes three of the world’s most dynamic economies, namely China, India, and the Republic of Korea; its broad field of cooperation includes product and service trade, investment, and a range of other sectors.

Asia-Pacific Trade Agreement as a mechanism for regional integration

The Fourth Round of negotiations included non-tariff measures, trade facilitation, trade in services, and investment for the first time in the Agreement’s history, with the objective of totally increasing trade cooperation and integration. This change permits the APTA to become an FTA (Free Trade Agreement).

Extending APTA to include provisions in additional sectors such as energy, science and technology, information sharing, customs cooperation, and capacity development, among others, will allow the agreement to get closer to functioning as a Pan-Asian-Pacific Trade Agreement. APTA acknowledges this potential and plans to examine the economic ramifications of these interconnections. Deepening trade cooperation and integration among the participating states would bring APTA one step closer to becoming a Comprehensive Economic Partnership Agreement (CEPA) or Comprehensive Economic Cooperation Agreement (CECA).

Institutional arrangements under the Asia-Pacific Trade Agreement

The Ministerial Council, Standing Committee, and four Working Groups on Trade Facilitation, Trade in Services, Investment, and Rules of Origin, as well as the APTA Secretariat, are the institutional bodies that make up APTA.

Ministerial Council

A Ministerial Council has been formed by APTA members. The Ministerial Council is in charge of overseeing and coordinating the Agreement’s implementation. The Ministerial Council will make the final decision. It is responsible for the supervision and formulation of future negotiations, membership development, and the execution of the Agreement.

The Council’s first meeting was conducted in Beijing, China, on November 2, 2005; the second meeting was held in Goa, India, on October 26, 2007, and the third meeting was held in Seoul, the Republic of Korea, on December 15, 2009, and the Council’s fourth session was held in Bangkok on January 13, 2017.

Standing Committee

The APTA is governed by the Standing Committee. To undertake this responsibility, each participating state appoints a national focal point and an alternate focal point. The APTA’s overall administration is administered by the Standing Committee, which meets at least once a year to negotiate deals. Its tasks include reviewing implementation, holding discussions, making recommendations and decisions as needed, and taking any other actions necessary to ensure that the APTA’s objectives and criteria are accomplished.

APTA Secretariat

The Trade and Investment Division (TIID) of ESCAP functions as an interim secretariat for the Agreement because it lacks a permanent secretariat. TIID is dedicated to assisting in the depth and broadening of the Agreement, and it provides the necessary support to back up its actions. ESCAP is the most comprehensive multilateral platform for stimulating collaboration among member nations in order to achieve equitable and sustainable economic and social development in Asia and the Pacific. It is the United Nations’ regional development arm for Asia and the Pacific.

Working Group

The three Working Groups on Trade Facilitation, Investment, and Trade in Services were established by the 4th Ministerial Council’s decision. They negotiate agreements in Framework Agreements on Trade Facilitation, Investment Promotion, Protection, and Liberalization, and Trade in Services Promotion and Liberalization.

Asia-Pacific Trade Agreement as a comprehensive trade agreement

APTA covers a broad range of areas, including goods and services trade, trade facilitation, investment, and non-tariff measures (NTMs). However, progress in these areas must be accelerated by implementing the APTA Framework Agreements signed and ratified during the Fourth Round of negotiations, as well as transforming APTA into a truly effective Pan-Asian-Pacific comprehensive economic cooperation agreement connected to the Regional Comprehensive Economic Partnership (RCEP)

Trade Facilitation

The Framework Agreement on Trade Facilitation covers advanced information exchange, collaboration, and adopting commitments through future work programmes. The Framework Agreement specifies:

Use of the ESCAP secretariat to provide information on new trade laws and regulations;
Rationalization and reduction of fees associated with exports and imports.
Working to establish a Single Point of Contact that will allow export and import data and documentation to be submitted just once;
Harmonization and standardization of individual trading regimes in accordance with the Harmonized Commodity Description and Coding System (HS), the Kyoto Convention, and the World Trade Organization (WTO).

Framework Agreement on Promotion, Protection and Liberalization of Investment

Through publication and information exchange, the Framework Agreement on Promotion, Protection, and Liberalization of Investment focuses on cooperation, facilitation, promotion, and awareness among the APTA Participating States and prescribes the undertaking of commitments to liberalise APTA Participating States’ investment regimes in order to promote intra-APTA investment flows through future negotiations. The Agreement calls for the approval and implementation of intra-APTA investment projects as quickly as possible, as well as the exchange and harmonisation of investment data; the creation of a collective database of APTA supporting industries and technology suppliers; and the facilitation of public-private sector linkages to improve intra-APTA investments.

The Agreement also contains the APTA Participating States’ commitment to establishing a full-fledged agreement on investment promotion and protection among them, stating the minimum features that such an agreement should have.

Framework Agreement on Trade in Services

Framework Agreement on Trade in Services comprises agreements on infrastructure enhancement, cooperative manufacturing, marketing and buying arrangements, and research and development in the services sector. It also necessitates the identification of future areas of service cooperation and the initiation of negotiations for preferential market access in service sectors beyond the commitments made by nations under the WTO’s General Agreement on Trade in Services (GATS) and accompanying schedules. The Agreement also paves the way for the APTA Participating States to recognise one another’s standards, education/training qualifications, and other criteria through mutual recognition agreements.

Rules of origin

The rules of origin are the factors that are used to determine where a product was manufactured. Rules of Origin are used:

To implement commercial policy measures and instruments such as anti-dumping duties, safeguard measures, and so on.
To determine whether imported products should receive MFN or preferential treatment,
To apply labelling and manufacturing requirements;
To compile trade statistics, and
To procure goods from the government.

The Rules are important in ensuring that there is a considerable shift in the APTA country of export and that the risk of third-party product diversion is limited.

Items must fulfill the following criteria to be considered for preference:

Satisfy the definition of products eligible for preferential treatment in the concessions list of an Asia-Pacific Trade Agreement country of destination;
Follow the Asia-Pacific Trade Agreement’s origin rules. Follow the consignment conditions outlined in the origin regulations of the Asia-Pacific Trade Agreement.

Originating products

The most important elements for ensuring that products originate in a specific country are

Wholly obtained: It occurs when all products and their inputs originate in the exporting country.
Substantial transformation: These standards apply to products that have not been completely transformed and may include a variety of elements such as a change in tariff classification (CTC), value addition, technical specifications, and so on.

Wholly obtained

Products produced or received wholly in the exporting participant state under APTA are:

Raw or mineral products obtained from the soil, water, or seabeds of the country.
Agricultural harvested products.
Animals that have been born and raised.
Products derived from animals that have been born and reared.
Products obtained by hunting or fishing.
Commodities from sea fishing and other marine stuff obtained by its vessels on the high seas.
Recovered components or raw materials from old objects that can no longer perform their original function.
A lot of used objects are accumulating there that can’t serve their original purpose and can’t be restored.
Waste and junk generated during manufacturing operations.

Substantial Transformation

Substantial transformation, according to the APTA, is defined as items that are not wholly created or obtained.

The entire value of materials, components, or produce originating from the Non-Participating States or of unknown origin utilised must not exceed 55 per cent of the free onboard value of the items produced or received, and must not exceed 65 per cent in the case of Least Developed Participating States.

Cumulative rules of origin

Products that meet the origin requirements and are used as inputs for a finished product that is eligible for preferential treatment by another participating state are considered to have originated in the participating state’s territory. Where the finished product was manufactured, as long as the total content originating in the participating nations’ territory is not less than 60% of the free on-board value or 50% in the case of least developed countries.

Exchange of Tariff Concessions

First Round

There were 104 products for which tariff benefits were granted as a result of the first round of negotiations, plus 15 commodities for which the Lao PDR gained special concessions. However, in 1979, tariff preferences were renegotiated and adjusted since some countries believed that the First Round did not establish a balance of benefits among participating states, with some participating governments making bigger concessions than others.

During the renegotiations, tariff preferences were extended for 93 different products. Ad valorem duties were reduced by an average of 23% on 80 of the 93 items, while tariffs on 9 products were frozen at existing levels. The tariffs on the four remaining commodities were reduced by 10 per cent to 67 per cent. Furthermore, the two least developed nations received special tariff discounts: Bangladesh on three product items and Lao PDR on sixteen.

Second Round

During its thirteenth session in 1984, the APTA Standing Committee decided to begin the Second Round of negotiations to enable the region’s developing countries to gain more benefits from mutual economic cooperation. The Second Round of negotiations aimed to improve tariff and non-tariff advantages, as well as establish new types of trade cooperation such as long- and medium-term contracts, joint ventures, and industrial cooperation agreements.

During the second round of negotiations, tariff reductions were exchanged on 438 products, plus 63 items for which Bangladesh gained special concessions. The percentage of tariff reductions varied amongst participating states, ranging from 13% to 30%.

Third Round

Following the Second Round, member countries’ national lists of concessions were updated regularly. Members have expanded their offerings, with China’s offer list resulting in a large increase in the number of goods eligible for preferential treatment. China’s list of concessions upon entry contained 739 items, plus 18 items for which particular concessions were granted to the least developed member nations.

Fourth Round

During the Fourth Round, tariff concessions were traded on approximately 11,000 products, compared to 4,270 items in the Third Round. This round expands each Member State’s total tariff line coverage and deepens tariff reductions by at least 31–34 per cent of total intra-regional trade under APTA.

Accession procedure under Asia-Pacific Trade Agreement

The following five steps comprise the accession method, which is extremely simple and uncomplicated and needs no application or membership fees.

The applicant nation notifies ESCAP’s Executive Secretary of its desire to join the Agreement;
The APTA Participating States are notified of the applicant country’s desire to join the Agreement by the Executive Secretary, and the APTA Participating States are notified by the APTA Participating States.
The applicant country informs ESCAP’s Executive Secretary of its desire to join the Agreement; bilateral negotiations between the prospective member country and each APTA Participating State take effect.
The agreed-upon tariff concessions are subsequently multi-lateralized among all participating states.
The Agreement comes into force for a newly acquired country on the date the corresponding instrument of accession is deposited with the Executive Secretary of ESCAP, along with the National List of Concessions and the related administrative notification (e.g., a government notification, such as a customs notification).

Constraints to the Asia-Pacific Trade Agreement

With China, India, and the Republic of Korea as the participating states, APTA has progressed slowly in relation to its potential. APTA, despite its potential, has been hampered by a variety of problems that have prevented it from becoming a really dynamic regional economic organization.

As a PTA, APTA has been unable to capitalize on the presence of some of the world’s most dynamic and developing economies, such as China, India, and the Republic of Korea, as seen by intra-APTA goods trade flows. However, the fact that intra-APTA product trade has demonstrated enormous vitality evokes hope that it may be enhanced.

In order to widen the scope of economic complementarities, APTA has not been able to generate enough enthusiasm for newer members, who have enormous potential to catalyse the APTA process. Mongolia is the final nation to join following years of negotiations, after China’s entrance.

APTA’s effectiveness has been greatly constrained because it has so far functioned through ministerial-level exchanges rather than summit-level interactions. This is essential because if the discourse and enthusiasm do not come from the top, it is unlikely that they would result in specific benefits, such as stronger economic relations. This would be a significant step because other regional economic bodies, such as SAARC in South Asia and ASEAN in Southeast Asia, are directed by summit-level pronouncements by Heads of Government/States.

Due to a lack of attention dedicated to improving the Secretariat, the fact that APTA maintains a Secretariat in a worldwide organization has remained a restriction. A lack of information, a lack of awareness among companies, and APTA’s existing structure as a PTA all contribute to the RTA’s slower productivity.

Other Asia-Pacific trade agreements and organisations

ASEAN Free Trade Area (AFTA)

The Bangkok Declaration, signed by Indonesia, Malaysia, Singapore, Thailand, and the Philippines on August 8, 1967, formed the Association of Southeast Asian Nations (ASEAN). ASEAN’s goals and objectives include promoting regional peace and stability, encouraging active engagement and mutual aid on issues of mutual concern, and so on. The ASEAN Free Trade Area (AFTA) Agreement was established by ASEAN to improve trade and economic activity among ASEAN nations while collaboratively facing international economic concerns.

AFTA aims to boost ASEAN’s competitiveness as a global industrial base by removing tariffs and non-tariff barriers within the ASEAN region, as well as attracting more foreign direct investment into ASEAN member countries. AFTA is projected to provide trade benefits by removing tariffs and non-tariff barriers, leading ASEAN member countries to enhance bilateral trade as well as exports to non-ASEAN member countries.

South Asian Free Trade Area (SAFTA)

The South Asian Free Trade Area (SAFTA) is a free trade agreement between members of the South Asian Association of Regional Cooperation (SAARC) that was signed in January 2004. The agreement was signed by SAARC members in order to strengthen and protect regional trade and economic cooperation. The agreement’s main purpose is to boost regional competitiveness while providing sufficient benefits to the countries involved. By eliminating tariffs and trade barriers, the agreement benefits South Asians by boosting transparency and honesty among governments. Finally, it establishes a solid foundation for regional cooperation.

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is a regional organization of seven-member nations dedicated to establishing continuous regional unity along the Bay of Bengal’s coastline and neighbouring territories. The Bangkok Declaration established this sub-regional organization on June 6, 1997. It has seven members, five from South Asia (Bangladesh, Bhutan, India, Nepal, and Sri Lanka) and two from Southeast Asia (Myanmar and Thailand).

The regional organization connects South and Southeast Asia, improving relations between the countries. BIMSTEC has also established a forum for intra-regional cooperation between SAARC and ASEAN nations. The purpose of building such an alliance was to promote shared and accelerated growth by reciprocal engagement in a variety of sectors of mutual interest while minimising the impact of globalisation and exploiting regional resources and geographic advantages. BIMSTEC is a sector-driven cooperative organization, unlike many other regional organizations.

Conclusion

The Asia Pacific trade agreement is preferential as well as regional. It took much too long for the APTA to attain its current level of liberalisation. However, with its revitalization and China’s admission to the agreement, chances for broader trade liberalisation have increased. While APTA has been modified to some extent in light of global trends, as reflected in the modified agreement, its scope and objectives are still governed by traditional regional integration approaches, which emphasise primarily the lowering of customs charges.

Even in this small field, non-tariff obstacles and the slow and lengthy nature of negotiations based on the positive list approach are still to be effectively resolved. And also, APTA must widen its scope and goals to align with regional trade agreements between the South and the North.

Frequently Asked Questions [FAQs]

What is the Asia- Pacific Trade Agreement?

2. Which countries are the current members of the Asia Pacific trade agreement?

India, Bangladesh, China, the Republic of Korea, the Lao People’s Democratic Republic, Sri Lanka, and Mongolia are currently members of the APTA.

3. What is the objective of the APTA?

The most important aspect of the Asia Pacific trade agreement’s objective is the interconnection of economies. Apart from that, trade in the multinational system is being increased to strengthen each country’s influence. This is beneficial not only to both parties but also to the political and social development of each of the countries included in the agreement.