Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
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– As the agreement is currently constituted, the member countries are either obliged to
liberalise 7% of tariff lines, or could choose to liberalise at least 70% (under Fast Track). There
appears to be no interim level of liberalisation possible between 7% and more than 75%. On
the one hand this could encourage countries to choose the Fast Track option. On the other
hand the incentive could be the reverse and make it less likely that the Fast Track option
would be chosen.
– Regarding the obligatory commitments the agreement is not very ambitious in
terms of both its scope regarding number of product lines to be included; and in terms of its
depth. Focussing on the obligatory requirements, it is therefore unlikely that one could expect
significant effects on trade and welfare from the TPS-OIC.
– There is, however, the possibility of greater liberalisation via the Fast Track route, but
this very much depends on countries choosing to do so unilaterally. At this stage it is not
possible to assess the extent to which the Fast Track route will be employed.
– For those countries (both current and possible future members), where tariffs cur-
rently remain medium to hight there is clearly the scope for a much greater impact of the TPS-
OIC on trade and economic welfare via Fast Track liberalisation.
– However, a number of existing Contracting Countries of TPS-OIC, notably the GCC
countries, have already liberalised trade significantly between themselves. For such countries
even the Fast Track option is unlikely to have a significant impact on welfare, and the principal
route for gains from the TPS-OIC would be via increased productivity and competitiveness
which might occur via any improved access to partner country export markets.
7.2. RECOMMENDATIONS
It is worth remembering that preferential trade liberalisation and RTA formation is per- haps
best seen as a tool rather than an objective in and of itself of economic and trade policy.
Depending on how this tool is designed - i.e in terms of its provision - RTA formation can help
promote a range of objectives. It could help to promote growth and employment by increasing
exports, investment and technology transfer. It could help to increase efficiency in the
domestic economy; and bring discipline to the domestic markets by increasing competition
and, consequently, increase welfare for domestic consumers. A preferential trade agreement is
unlikely to achieve all these objectives without other policy interventions. Indeed the Tin-
Bergen principle suggests that at least one "tool" or policy instrument is needed per policy
objective.
Regardless of the objectives of a given (trade policy), it is clear that if the tool chosen to
address them is not powerful enough, its effectiveness will be seriously compromised. This