Prime Minister Manmohan Singhs statement to take a re-look at the free trade agreements could lead to a better understanding of the important role that FTAs could play in pursuing the trade reform agenda. The first issue is the complementarities that exist between the FTAs and the multilateral trading system governed by the WTO. The founders of the multilateral trading system provided scope for FTAs between the member countries with the expectation that FTAs would motivate countries to undertake trade reforms, which would in turn facilitate the widening and deepening of the global trade reform agenda. It may be argued that India needs to look at this logic of entering into FTAs more seriously. The countrys engagement with the multilateral trading system could get more focused if the FTAs could be used to better prepare the domestic constituencies for the changes that the WTO Agreements bring with them.
The second, and a related issue, is the need to prioritise the setting up of FTAs. This issue assumes significance in light of the fact that FTAs can increase the complexity of the international trading system and can raise transaction costs for business. For example, complex rules of origin are required to prevent third country products from taking advantage of the preferential tariffs arising out of the FTAs. Furthermore, with different rules negotiated under different agreements, enforcement of these and compliance with them can be a complicated task. Finally, the different dispute settlement mechanisms as well as different standards regimes and other harmonisation arrangements would also have to be taken into account for taking full advantage of the FTAs.
The author heads the centre for WTO at IIFT. These are his personal views