Panapress - Addis Ababa - 05/09/2007
UNCTAD warns poor countries on free trade deals
Addis Ababa, Ethiopia — Though preferential trade agreements (PTAs) may offer transitory gains in terms of market access and higher foreign direct investment, the UN Conference on Trade and Development (UNCTAD) has cautioned developing countries to be careful before entering into such deals.
According to UNCTAD, the agreements may limit government action that could play an important role for the medium- and long-term growth of competitive industries.
In its Trade and Development Report 2007 released Wednesday, the agency warns that North-South bilateral and regional trade agreements 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.
UNCTAD noted that today’s industrialized countries and developing nations that have recorded spectacular economic growth in recent years began by protecting nascent industries, allowing them to develop their abilities to face international competition.
"By contrast," the report says, "PTAs between developed and developing countries often require sharply reduced tariffs on industrial goods, exposing domestic manufacturers to overwhelming foreign competition.
"That can keep poorer nations from developing their industrial sectors. Such agreements also tend to reduce developing countries’ control over foreign direct investment (FDI)."
According to the report, the trend towards North-South bilateral or regional trade agreements partly results from a sense of frustration of some governments with the slow progress in multilateral trade negotiations in the framework of the World Trade Organisation (WTO).
UNCTAD economists conclude that it is in the interest of developing countries that the multilateral trade negotiations advance, but with a stronger development dimension built into international trade rules.
Speaking at the official launch of the report in Addis Ababa, Hakim Ben Hammouda, Director of Trade, Finance and Economic Development Division of the UN Economic Commission for Africa (UNECA), said trade agreements based on regional integration were the most favourable for African countries.
He said free trade partnerships put in place along regional integration arrangements between countries of the same level of development were more beneficial for African countries than trade deals with developed economies of Europe.
"The regional cooperation agreements, such as in the East African Community countries of Kenya, Tanzania and Uganda, were more effective in the manufacturing of goods and more proactive than free trade agreements with European countries which are more intensive in the supply of raw materials," Ben Hammouda explained.
He said most free trade pacts between developing countries and their developed partners do not move to customs union or common markets, aspects that would have more benefits to offer than simple trade.