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The UN Conference on Trade and Development (UNCTAD) has cautioned developing countries about entering into Preferential Trade Agreements (PTAs).
Its ‘Trade and Development Report 2007’, released on September 5, 2007, says that although PTAs may offer transitory gains in terms of market access and higher foreign direct investment, it may limit government action that could play an important role for the medium- and long-term growth of competitive industries.
North-South bilateral and regional trade agreements, the report says, could weaken the multilateral trading system and reduce the scope for national policies that support development and structural change in developing countries.
‘These deals often present tough choices for the governments of developing countries and countries with economies in transition, and may be more costly than expected,’ says the report.
Developing countries that have been witnessing a spectacular growth rate recently -- and even industrialised nations -- began by protecting their nascent industries until such time as they could face up to international competition. However, PTAs between developed and developing countries often require sharply reduced tariffs on industrial goods which expose domestic manufacturers to overwhelming foreign competition. This, the report says, ‘can keep poorer nations from developing their industrial sectors. Such agreements also tend to reduce developing countries’ control over foreign direct investment’.
Since the trend for North-South PTAs is largely a result of frustration at the slow progress of the WTO multilateral negotiations, the report recommends that the negotiations advance but with a strong development dimension built into them.
The report identifies East and South Asia as being the fastest growing regions in the world. It projected India’s economy as growing at 8.5% in the current fiscal, and China’s at 10.5%.
September 13, 2007
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