In the case of India, preferential access to its protected market, which is large and growing rapidly, has become an additional attraction to the potential PTA partners.

If we want to maximize the benefits of trade liberalization, the ideal course is to stick to non-discriminatory liberalization, both unilaterally and multilaterally, under the auspices of the Doha Round. Whereas such liberalization is a part of virtually all growth miracles, PTAs are yet to produce a single major success story. Fifteen years ago, the devotees of PTAs had promised the miracle of Mexico rising out of the North American Free Trade Agreement (NAFTA) but that has not happened.

Unfortunately, given the political compulsions, a course change is unlikely. The important question therefore is what measures can we take to minimize the damage.

First, in the future WTO negotiations, India can propose amending GATT Article XXIV to include the requirement that the PTA preferences be automatically extended to non-members within a period of, say, five years.

Second, India should continue to liberalize externally by bringing all tariffs down to five per cent or less, thereby reducing the scope for trade diversion.

Third, even though we do not advise that India conclude more PTAs, if it does, it should ensure that the rules of origin in the agreements are liberal.

Finally, in choosing our PTA partners, we should look for the most efficient suppliers of our imports. This ensures that we continue to buy our imports from the most efficient suppliers. This criterion points to China as the most attractive PTA partner. Paradoxically, it is the one country we have ruled out in our PTA game plan in part on the specious argument that China is a non-market economy.

... contd.