Easy to Apply Analytical Frameworks for FTAs: Facilitating Evidence Based Stakeholders Discussions

All major economies over the years have transitioned from trade restrictive policies to actively engaging in Free Trade Agreements. While the Uruguay round of the WTO played its part in trade liberalization for goods, most of the subsequent progress in countries making binding commitments on tariff elimination or reduction have come through Free Trade Agreements. The literature has shown that such binding commitments have played a major role in deepening of global value-chains (GVCs) and fostering trade and investment linkages that lead to such deepening of GVCs. But trade liberalization through tariff reduction has consequences. It can lead to trade diversion away from the most efficient import sources, provide a sudden demand shock to a domestic sector of industry leaving thousands without jobs. If such an industry is concentrated in a specific sub-region of a country, it can have longterm impact on poverty and development outcomes in that region extending to two or more generations. It might lead to a demise of specific industries providing key intermediates that leave national supplychain vulnerable in the longer-run due to dependence on imports. For developing countries trying to move-up the value-chain, such decisions are even more complicated, requiring strategic foresight to balance short-term protection needs in key sectors that would lead to economies of scale and longerterm competitiveness. Thus, modern-day FTAs requires well-considered inputs from both industries and policy makers that minimize short-term negative consequences and optimize longer-term gains. The paper introduces simple analytical methods that are easy to understand and use by concerned stakeholders that help look at a wide range of possible factors that influence trade liberalization choices to enable evidence based objective decision making. These analytical methods are intuitive and are customizable to specific sectoral or regional contexts. While standard analysis of trade based on partial or general equilibrium, or gravity models can provide critical insights, a less technical and more intuitive approach would be useful for a wider range of stakeholders. The paper provides such simple analytical approaches for both Pre and Post Facto Analysis of FTAs. The Pre Facto analysis includes a Vulnerability Index to identify major sensitive products, categorizing them as vulnerable or non-vulnerable for specific trading partners. The Post Facto Analysis section evaluates the agreement’s performance after implementing using trend analysis.