Bilateral Free Trade Agreements

Bilateral free trade agreements (BFTAs) are agreements generally made between two countries or two regions, or one country and one region; it is widely accepted that they lead to economic growth by reducing poverty and increasing standards of living and generating employment opportunity. While some BFTAs can be narrow-range in their dealing of traded goods for a certain time period, some BFTAs can be much more comprehensive and cover other issues including services and investment, and can generally take existing World Trade Organization (WTO) agreements as their benchmark. The free trade agreements are like stepping stones toward international integration into a global free market economy, and they are seen as the manifestation of globalization, which requires governments to implement the liberalization, privatization, and deregulation measures.

The first important general factor for the popularity of BFTAs is the apparent disenchantment with the pace of liberalization at the multilateral level. Another general factor driving the growth of BFTAs can be the snowballing or domino effect. The number of BFTAs thus continued to grow, almost doubling to 109 between 2002 and 2004. By 2007, this number has more than doubled again as countries did not want to be left behind. Finally, it is often claimed that some, if not most, BFTAs are politically motivated. There is no doubt that political economic considerations, political parties, or even individual politicians have played a major role in driving the formation of BFTAs.

Negotiating a BFTA is a serious exercise as the outcome can have major implications for development policy and for social, economic, and development outcomes for many countries. While it can result in some export gains, it can also result in increases in [Page 147]imports, affect the local industries and farms, reduce tariff revenue, and restrict the options and instruments available to a country to institute certain social, economic, and development policies.

Therefore, before negotiating or even contemplating any BFTA, countries should concentrate on three important issues. First, when a proposal is put forward by the BFTA partner or potential partner, it should be evaluated in the context of national development policy framework (plans on local and sectoral levels and issue-based plans like intellectual property). In the absence of such a framework, it would be difficult to determine the objectives of entering any negotiation, or of the advantages/disadvantages of the proposed BFTA.

Second, this framework should also assess the benefits and costs of the BFTAs for the whole nation. By doing that, the gains and losses in terms of trade and jobs, effects of the agreement on the policy space and the degree of flexibility on national plans, effects on social issues such as health, and finally key effects on technology transfers would be examined in detail before the negotiations. The costs and benefits can be applied to the various aspects of the BFTAs, including market access (to the other country, and the partner country's access to one's own market) in goods; services; intellectual property; investment, competition and government procurement; and labor and environment standards.

Third, the country should establish or organize the resources and institutional base for assessing whether or not to enter negotiations for the BFTA. As part of the process, different agencies of the government should be consulted and should be part of the process of the formulation of policy and positions. It is equally important to involve stakeholders, such as local firms, trade unions, farmers, consumers, and groups representing patients and involved in health provision and environmental protection.

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