Don?t rush into north-south FTAs: UNCTAD to developing nations

New Delhi, Sept 05: A UN body today warned developing countries such as India against rushing into bilateral or regional free trade pacts with rich nations, and advised them to retain options of implementing alternative growth plans.

Developing nations have already ceded their space in WTO framework to decide on their integration with global markets. This space is even more reduced by FTAs with developed countries, the UN Conference on Trade and Development (UNCTAD) said in its trade and development report, 2007.

The warning comes at a time when India is negotiating a free trade pact or economic cooperation agreements with the European Union and rich nations such as Japan and South Korea.

UNCTAD asked developing countries not to look at these FTAs only from the angle of potential impact on exports and imports arising from market opening and possible increases in foreign direct investments.

"They (developing countries) should also look at the impact of these agreements on their ability to use alternative policy options and instruments in the pursuit of a longer term development strategy," the report said.

A developing country may be tempted to conclude a bilateral agreement with a developed country partner because it expects some concessions that are not granted to other countries, particularly better market access for its products.

However, there are also several potential disadvantages resulting from the fact that certain issues on which developing countries could not agree in multilateral trade negotiations have become elements of bilateral FTAs, it said.

These include relaxing foreign investment and government procurement policies, new rules on some aspects of competition policy, stricter rules on intellectual property rights and incorporation of labour and environment norms.

Moreover, most FTAs oblige developing countries to undertake much broader and deeper liberalisation of trade goods, the UNCTAD report said.

Some also involve liberalising services that differs from what is envisaged in the context of WTO agreements and implies greater pressure on developing countries to make liberalisation commitments in this area.

While commitments in the WTO have already reduced the policy space for developing countries, many of the elements of such FTAs reduce that space even further, in some cases very significantly, UNCTAD said. Most bilateral north-south FTAs also reduce options to design development-oriented FDI policies, it added.

Bureau Report