CUTS Blog on Regional Economic Cooperation

In US every trade agreement, be it multilateral or bilateral has to pass the test of the US Congress. The only exception to this provision is Presidential Fast Track Negotiating Authority under which the Congress can approve or disapprove but cannot amend. This (Presidential special power) is an adhoc arrangement granted to its President by the US Congress. With growing importance of FTAs (free trade agreements) and their impact on livelihood, the demand of a similar domestic legislation is being made in some developing countries as well.

Recently a lawmaker in Malaysia demanded from the government to table in Parliament the results of the FTA negotiations with the US. In India too quite a few Members of the Parliament feel that the Parliament should have a greater oversight over the international trade agreements. This is not exactly putting the agreement for voting in the Parliament.

Parliamentary approval will have its pluses and minuses. Given the vast range of issues being covered in a trade agreement, which may severely constrain domestic policy making, a debate in Parliament would generate greater awareness and help prepare a country in a better way in countering the possible threats and exploiting the opportunities emanating from an FTA. Such approvala by the highest policy and law making body of a country would symbolise the people’s consent to a deal. The negatives include greater politicisation of trade agreements resulting in delay in signing such deals.

Pranav Kumar, Policy Analyst, CUTS (July 3, 2008)

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In recent past, we witnessed some violent protests in Seattle in 1999, Cancun in 2003 and Hong Kong in 2005. These protests were largely intended to prevent the world to push the liberal trade and economic agenda through the WTO (World Trade Organisation). Now, it seems that FTA (free trade agreements) negotiations have occupied the centre stage. This is not only in developing countries but in developed countries as well. Recent protests in South Korea over the import of US beef and the US Presidential hopeful Obama’s threat to renegotiate NAFTA if he gets elected are pointers to this. In India too concerns are being raised more on ongoing negotiations of the EU-India FTA as compared to the Doha Round of trade negotiations by the WTO Members.

Today, FTAs do not necessarily mean reduction in tariffs; issues relating to deep and comprehensive economic cooperation between and among countries are being discussed and agreed upon. All FTAs are WTO plus. Any shallow agreement focusing only on cross border reduction of tariffs hardly makes any sense when tariffs are being reduced on MFN (Most Favoured Nation) basis as per the WTO rules. Secondly, the US and now the EU are on FTA signing spree with developing countries. It is because of these reasons countries are more concerned about analyzing the impact of FTAs on their domestic economy rather than focusing more on the implications of the Doha agreement in future. Continued deadlock in the Doha Round of negotiations by the WTO Membrs has resulted in a significant dilution of ambitious trade liberalisation agenda as originally envisaged in 2001. In contrast, countries’ expectations from FTAs are increasing continuously.

Pranav Kumar, Policy Analyst, CUTS (June 20, 2008)

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India has been pushing hard to sign bilateral and regional free trade agreements with many countries and regional blocks spanning almost all over the world. However, India’s record has been poor in terms of inking a final deal. While, a final breakthrough still eludes India in FTA with ASEAN, the free trade negotiations with EU is fast losing its pace and December 2008 deadline does not seem feasible any more.

If one look at the impact of India’s existing signed FTAs such as with Mercosur, Singapore, South Asian countries - they have not done any wonder in terms of increase in bilateral trade. The US and China continues to be India’s major trading partner though without any bilateral preferential trade agreement. Domestically there is a strong opposition from many quarters to launch any FTAs with USA and China in the near future. This defies economic logic.

Now the question arises – are FTAs necessarily to increase bilateral trade or they are mainly required for some political reasons? Looking at the global trend of proliferation of FTAs, we may refer that of late it has become an integral part of countries’ political diplomacy. Sometimes even political leader don’t realise whether an FTA is feasible under the given circumstances. For instance, once the present Brazilian President proposed to convert the IBSA (India-Brazil-South Africa) initiative into a free trade agreement without realiaing that both Brazil and South Africa are part of a customs union in their respective region.

Political diplomacy is a major reason for why FTAs are going to happen even if there is a successful conclusion of the Doha Round of multilateralo trade negotiations by the WTO Members. An oft-repeated argument is that the current proliferation of FTAs is because of poor progress of the Doha Round. Will countries stop negotiating/signing FTAs even if the Doha Round is successfully concluded?

Pranav Kumar, Policy Analyst, CUTS (June 13, 2008)

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