Mains2

• Why do countries favour FTAs? Why are rule based multilateral frameworks not able to take off that well?
• Today's op-ed that appeared in ET analyses and gives very good answers for these questions. Take a look.
• For those of you that are hard pressed for time, we attempt an excerpt:
• As of 2008, 421 RTAs had been notified to the WTO mostly under article XXIV of GATT. If one includes RTAs not yet notified, being negotiated or at proposal stage, about 400 FTAs would come up for implementation in 2010. Again, about 90% of RTAs are proposals for free trade among members but do not extend to customs unions (CUs). The difference is that in CUs at least some country would have to lower its existing global (MFN) tariff levels.
• So why FTAs? The failure of the trade negotiations after 1995 to promote labour-intensive exports can be traced to technical details which very few developing countries were qualified to understand. This has led to a ‘trust deficit’ which must first be overcome if multilateral negotiations are to come back on track. FTAs seem to be a defensive response to this.
• One more reason is need to firm up international political alliances. This is probably most important for developing countries who feel particularly vulnerable in global fora like the WTO. In this context small developing economies have the greatest fears and are normally quickest to get off the block in negotiating FTAs.
• It is important to note that these alliances (FTAs) will become even more important as other multilateral fora (like for climate change) emerge in future. To this extent, the FTAs are an insurance for future negotiations.