Trade Policy Note Final-rev08 - Development

The Proliferation of FTAs
Over recent years developing countries have been involved in an ever intensifying
process involving the negotiation of Free Trade Agreements (FTAs), with a multitude
of partners (only one WTO member has not entered into an FTA). These have
included:
(a)
(b)
(c)
a more positive and ambitious approach to traditional efforts at sub-regional
and regional integration between developing countries,
extra-regional FTAs with major developed countries (North/South FTAs,)
extra-regional FTAs with other developing countries.
Each of these involves different policy considerations, both economic and political.
Access to Northern markets, once extended on an autonomous, preferential and nonreciprocal
basis, is now increasingly subject to reciprocal concessions by developing
countries within the framework of FTAs. This has created a chain reaction based on
the “fear of exclusion”, which has been exacerbated by the real or anticipated fear of
the withdrawal of existing non-contractual preferences, even though a large
percentage of exports often enter MFN duty free. 100 . The exclusion of key products,
such as clothing, from certain GSP schemes has also contributed to this pressure. 101
The negotiation of an FTA between one developing country and a major trading
country creates pressure on competing developing countries to seek to enter into a
similar agreement for fear of losing out to its competitors in terms of exports and
incoming FDI. 102
Developing countries are making broad concessions in a variety of areas, often
adversely affecting human development prospects, in order to obtain the elimination
of tariff rates that should be obtainable in the multilateral negotiations at much less
cost in terms of reciprocal concessions. FTA negotiations are less transparent and
more political than WTO multilateral rounds. They are thus more vulnerable to
“capture” by those vitally interested sectors that can gain immediate benefits from
concessions granted in return for broader reciprocal concessions which can adversely
affect a wide range of less informed stakeholders and seriously restrict development
policy options. This creates a bias towards inequitable results. FTA negotiations
should, therefore, be subject to at least the same degree of transparency as WTO
negotiating proposals and should be accessible and subject to public discussion.
Development Implications of FTAs
It is difficult for developing countries to achieve symmetry in North-South FTAs.
They start from a situation where many of their industrial goods exports enter duty
free under the GSP, albeit unbound. Bound MFN tariff rates in the OECD countries
are quite low, and have been eliminated in many sectors of interest to developing
countries, although tariff peaks remain in key sectors such as T&C and agriculture.
Bound MFN rates in developing countrie s are often considerably higher. Thus, the
100 For example, the expiry of the USA Andean Trade Preference Scheme on 31 December 2006 has
placed the beneficiary countries under considerable pressure to conclude FTAs with the United States.
101 Se discussion in Annex 3A
102 See UNDP Asia Trade and Investment Initiat ive, The Great Maze, Regional and Bilateral Free
Trade Agreements in Asia, Colombo, December 2005 www.undpprcc.lk.
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