The report said that these pacts often come with stricter commitments which require policymakers to forsake the use of instruments that have proved effective in supporting industrialisation.
Developing countries like India should take into account the loss of policy space when engaging in bilateral and regional trade and investment agreements, it has cautioned.
"Multilateral agreements should not encourage or push developing countries to relinquish policies that support economic development," the report, which was released today, said.
"Even though existing multilateral agreements have maintained some flexibilities for all World Trade Organisation members and incorporated some special and differential treatment for least developed countries, they have also come with restrictions on the conduct of a widening array of trade and industrial policies," it pointed out.
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It further suggested that while these commitments may provide short-term trade and employment benefits, in the longer run they can trap producers into commodity enclaves or low-value niches of manufacturing.
The developmental effects of export-led growth strategies appear to be "running out of steam" owing to the growth slowdown in developed countries, the report said.
"Pursuing proactive trade and industrial policies could help to make the necessary adjustments to developing countries' productive capacity," it said.
Efforts to ensure adequate policy space within the global trading system will deliver the desired outcomes only if accompanied by effective reform of the global financial architecture to ensure more stable and long-term financing, public and private, for poor economies, it said.