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Regional Trade Agreements and Improved Market Access in Developed Countries

A Reality Check and Possible Policy Alternatives

By Parthapratim Pal

November 20, 2007

Since the failure of the Seattle Ministerial of WTO in 1999, developed countries like the USA and the European Union have initiated negotiations on a large number of bilateral and Regional Trade Agreements. Traditionally developed countries have remained a big market for exports from developing countries and the prospect of preferential access to such markets induced many developing countries to seek Preferential or Free Trade Agreements (PTA/FTA) with developed countries. The motivation to go for an FTA with a developed country will be particularly strong for a developing country if other countries, with which it is competing to supply goods to the developed market, are part of a preferential trade agreement with the developed country. In such cases the motivation to seek participation in Free Trade Agreements with developed countries comes from a defensive necessity against a possible exclusion from these markets. However, increased access to market does not necessarily mean increased market share. In many cases preferential access to a developed country market may not translate into increased market share. However, this preferential access to a market does not come free of cost. Developing countries have to accept some stringent commitments to make the deal attractive to the developed country partner.

This paper investigates these aspects of RTAs, primarily focusing on North-South RTAs, and tries to understand whether there is any clear pattern between signing of RTAs and increase in Market share in developed countries. It also analyzes the possible costs a developing country will have to bear to gain the preferential market access.

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