Commerce and Industries Minister Kamal Nath staunchly defended India's ongoing negotiations towards bilateral trade agreements with a number of countries in Asia and Europe on Wednesday, saying they were perfectly compatible with the norms mandated by the World Trade Organisation (WTO).
"Regional trade agreements (RTAs) are a fact of life. In no way do they replace, displace or contradict a rule based multilateral trading system. RTAs and comprehensive economic cooperation agreements (CECAs) are all WTO compatible and WTO provides for bilateral trade agreements," he stated at the Partnership Summit organised by the Confederation of Indian Industry (CII).
India has signed a CECA with Singapore and is discussing a free trade agreement (FTA) with the Association of South East Asian Nations (ASEAN). A framework agreement between Bangladesh, India, Myanmar, Sri Lanka and Thailand (BIMSTEC) is being pursued as a link between the two major regional groupings – ASEAN and South Asian Association of Regional Cooperation (SAARC).
India also has a functioning FTA with Sri Lanka. An "early harvest programme" was signed with Thailand as a precursor towards free trade, while joint study groups for drafting roadmaps to free trade have been established with Pakistan, Israel and Gulf countries.
Nath, however, made it clear that India's commitment to the Doha round and the WTO remained unchanged. "In India's view, the bilateral route that we have chosen is complementary to the multilateral process and will not derail the Doha round of multi-lateral trade negotiations", said Nath.
WTO Director General Pascal Lamy, however, said that these trade agreements contradict the non-discrimination principle of the WTO. "If so, why are so many countries ready to accept rules and disciplines at the bilateral level that they are not prepared to accept at the multilateral level", asked Lamy.
By 2010, about 400 preferential trade agreements are expected to be active among WTO member nations.
Lamy said that while WTO authorises regional trade agreements, "the operations of these should not lead to a situation where the non-party would pay-the-price of internal preferences. In order to ensure coherence, regional agreements are to be promptly notified to the WTO and reviewed by peers before the RTA is implemented."
The WTO Director General also said that many of the recent FTAs contain political or geopolitical considerations. "For developing countries negotiating with more powerful developed countries, there is usually the expectation of exclusive preferential benefits, as well as expectations of development assistance and other non-trade rewards. They are also viewed as an instrument to get 'brownie points' and gain an advantage over other WTO members", said Lamy.
Nath underlined the need for working out a strong long-term economic rationale before getting into the nitty-gritties of any FTA between two countries.
"It is critical to ensure that the RTAs and FTAs do not lead to diversion of investment or trade and there is a need to have a strong economic justification for the bilateral trade treaty", said the minister.
Eminent trade economist, Professor Jagdish Bhagwati, who is credited with offering the first theoretical conceptualisation of WTO, cautioned that countries such as India would have to tread carefully before entering into bilateral trade treaties with "hegemonic powers" such as the United States of America and the European Union (EU).
Bhagawati, who teaches at the University of Columbia, USA, said that FTAs lead to diversion of trade and consequently might result in distortions and loss of income for any of the trading partners.