The Unctad Trade and Development Report 2007 has warned developing countries against entering into bilateral Free Trade Agreements (FTAs) with developed countries, such as the ones being considered by India with Canada and Australia. There has been a proliferation of regional and bilateral free and preferential trade agreements (FTAs and PTAs), in the background of slow WTO negotiations. Which though beneficial to developing countries in the short term, in terms of market access and foreign investment inflows, may prove costly as they limit government action, which is necessary to promote medium and long term growth of competitive industries, the report states.

It warns developing countries to carefully weigh the costs and benefits of such agreements before entering into them. There is a need for developing countries to use policy instruments, the use of which FTAs restrict, to “help maximise the impact of trade integration on the development of their domestic productive capacities.”

There is also favour for agreements between countries that enjoy geographical proximity and similar economic status rather than between developed and developing countries as such agreements allow for “considerable long term gains for developing countries”. Arguing against FTAs between developed and developing countries, the report notes “preferences negotiated by one developing country with a developed partner may quickly be eroded if the same developed country also concludes FTAs with other developing countries.” Moreover, “FTAs will most likely lead to an increase in imports, with implications for the trade balance and, in some cases, the external debt position,” the benefits of which are uncertain, it states.

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