Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
194
negotiations between the EU and India; regulatory and investment issues between the EU and
the US; and various issues to do with the movement of labour, services and investment
liberalisation in the negotiation of the Economic Partnership agreements. Central to achieving
an agreement is for both sides to have sufficiently strong offensive interests (ie where they are
seeking concessions from the other side) but also the political strength and will domestically in
order to be able to offer concessions in return. It is not within the scope of this report to assess
the strength of such political commitment in the Contracting Countries of TPS-OIC. Currently
the TPS-OIC does not really cover deeper integration and hence there is little in the agreement
itself to suggest benefits arising from such a process. Of course, to the extent that the
agreement is a stepping stone to further / deeper liberalisation in the future then of course
there is the future potential for the realisation of such gains; but at this stage this remains
speculative.
• Related to the preceding is the issue of engagement in value chains. As production
process become more fragmented, competitiveness and success in exporting is increasingly
associated with the ability to engage in value chains internationally. This entails either
sourcing from abroad or supplying to firms abroad. In that context, tariffs on imports are
increasingly a cost for exporters and therefore may hinder the development of domestic
competitiveness. To the extent that there is scope for greater supply chain integration between
OIC countries, the limited obligatory coverage in the TPS-OIC agreement is likely to mitigate
against the development of such value chains.
• The evidence also suggests that where there is deeper integration then it is more likely
that countries can successfully integrate into emerging value chains, and therefore more likely
that the growth effects arising from RTAs could be positive. Relating this to the TPS-OIC, the
same conclusion emerges as in the earlier points - the limited ambition of the agreement
makes it less likely that such gains will be realised.
• Agreements which are limited in scope, have long transition periods and have plenty of
scope for opt-out clauses or exceptions are less likely to have much of a positive impact. This is
because domestic political economy considerations make it much more difficult to achieve
meaningful liberalisation. To a certain degree, signing an agreement can help to lock-in reform
such that the desired liberalisation is achieved and cannot subsequently be overturned by
domestic interest groups. If we consider existing agreements involving OIC members we see
considerable variety. There is evidence that some agreements have positively impacted on
intra-regional trade flows (e.g. Agadir). Such effects are much more likely the greater the
coverage of the agreement in terms of the tariff lines covered and the greater the tariff
reductions. Note however, that if the external tariffs remain high then welfare reducing trade
diversion is more likely.
• If we consider the actual TPS-OIC agreement then several key messages emerge: