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UN Agency Warns Developing Countries against Bilateral FTAs

published 31 October 2007 updated 31 October 2007

The United Nations Conference on Trade and Development (UNCTAD) says that developing nations need to "think carefully" before signing bilateral and regional free trade agreements with the developed world.

In its annual Trade and Development Report issued in September, UNCTAD warns that such agreements have often failed to produce any long-term benefits and can in fact disadvantage development objectives by placing restrictions on the ability of governments to promote long-term growth.

"The gains for developing countries from improved market access are far from guaranteed, whereas the loss of policy space is certain," the report concluded.

As an example, the UNCTAD report notes that the North American Free Trade Agreement (NAFTA) has resulted in a significant expansion in trade and investment for Mexico, but has produced “disappointing” results in terms of overall Mexican economic growth and development.

"In spite of its privileged access to the largest and most dynamic market in the industrialized world and large FDI [foreign direct investment] inflows, the Mexican economy has so far not been able to establish a dynamic process of industrialization and structural change," the report noted.

UNCTAD Director-General Supachai Panitchpakdi said that the main reason for these disappointing results is that free trade agreements between developed and developing countries agreements "tend to bind the hands of governments and limit the use of certain policies" to promote development.

The UNCTAD report notes that the number of bilateral and regional trade agreements has expanded rapidly since the early 1990s, jumping from 20 agreements in 1990 to an estimated 230 in 2005. An increasing number of these deals are between developed and developing countries, including recent deals negotiated by the United States with Peru, Panama, and Colombia.

According to the UNCTAD report, developing countries face a number of disadvantages in negotiating bilateral agreements with the North, not least of which is that they have less bargaining power. In addition, developed countries often limit market access for goods where developing countries have export advantages, such as textiles. In other cases, as with the preferential tariff agreements between the EU and African and Caribbean, products in which developing countries are competitive are often considered “sensitive” and excluded from preferential tariff treatment.

On the other hand, developing countries are routinely asked to substantially improve market access for developed country goods, often resulting in import surges and deteriorating trade balances.

In addition, the UNCTAD report states, developing countries are put at a disadvantage in trade agreements by the inclusion of strict protection for intellectual property that can undermine access to technology and information. For instance, recent trade agreements involving the United States have required developing countries to extend copyright protection to 70 years compared to a requirement of 50 years under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).