. The first and foremost issue is defining the ‘sensitive list’, or a negative list which would not be open to trade, those product lines on whom tariffs would not be reduced. This is also referred as trading to a negative list, which means trading in goods, other than those in the negative list. Very often it is not possible to arrive at a consensus by the member countries.
The second is the ‘early harvest’ which is that any agreement will require dropping of tariff lines on certain product lines immediately on signing of the agreement.
The third, it is difficult to establish tangible welfare gains under regional trading. Any trading has two aspects, trade creation and trade diversion. Trade creation happens if a high cost domestic input is replaced by globally the ‘lowest’ cost input. Trade diversion happens when a high cost domestic input is replaced by a lower cost input from a member country, which may not be the lowest in the world.
In regional trading it is difficult to establish whether trade creation or diversion is taking place. Regional trading does allowr for expansion of trade but whether this expansion is better than trading with the ROW is not conclusively established.
The fourth is the contentious issue of establishing what is known as ‘Rules of Origin’ (ROO), which is how to establish that a good being traded with a member country has originated in the member country. This is becoming increasingly complex to resolve with emergence of global companies operating out of multiple locations, many of them housed in members of various trading blocs. The ROOs may well dilute the entire concept of regional trading.
The experience of various trading blocs in the world has been mixed and difficult to quantify other than that the trade has increased. The other aspect also established has been that countries with large intra-regional trade have also seen increased multilateral trade at the same time. It has also been established that regional trading is only better than no trading.
