Economy / Foreign Trade / Free Trade Agreements (FTAs): Pros and Cons
Free Trade Agreements (FTAs): Pros and Cons
Pros:
- Easier Market Access:
- Elimination of tariffs and some non-tariff barriers facilitates easier market access for FTA partners in each other's markets.
- Exporters' Preferential Treatment:
- Exporters in FTA member countries receive preferential treatment over non-FTA member country competitors.
- Example: ASEAN's duty on leather shoes reduced to zero under the FTA with India, providing Indian exporters a competitive advantage.
- Increased Foreign Investment:
- Possibility of attracting increased foreign investment as FTA member countries gain advantages as exporters.
- Mutual Recognition Agreement (MRA):
- Non-tariff measures are addressed, especially with the establishment of Mutual Recognition Agreements, enhancing cooperation on regulatory standards.
- Multilateral Negotiation Challenges:
- Slow progress in multilateral negotiations (Doha Round) may have driven countries toward FTAs, providing a more manageable and focused approach.
- Enhanced Competitiveness:
- FTAs contribute to making the economy more competitive in the global market.
- Access to Cheaper Imports:
- FTAs provide access to cheaper imports, supporting value addition and export-oriented industries.
- Global Value Chain Participation:
- FTAs enable member countries to become part of the global value chain, fostering international collaboration.
Cons:
- Domestic Industry Competition:
- Domestic industries may struggle to withstand competition from imports, potentially leading to de-industrialization.
- Crowding Out Domestic Industries:
- Foreign Multinational Corporations (MNCs) may dominate and crowd out domestic industries.
- Revenue Foregone:
- Abolishing tariffs results in significant revenue foregone for the government.
- Environmental Damage:
- Pursuing 'growth at any cost' may lead to irreversible environmental damage, affecting health and well-being.
- Impact on Food Security:
- Compromising agriculture under FTAs may negatively impact food security.
- Scale Limitations:
- Domestic economies may lack the scale needed to fully leverage the inherent advantages of FTAs.
- Trade Diversion:
- Instead of creating new trade opportunities, FTAs may lead to trade diversion, shifting trade from more efficient to less efficient partners.
