Why the Government Must Push Ahead on Free Trade Agreements
- After initially criticising the advantages gained from the free trade agreements India has ratified over the years, the Narendra Modi government appears to have revised its position on trade agreements.
Free Trade Agreements:
- A free trade agreement (FTA) is a treaty created between two or more countries to lessen trade restrictions on import and export.
- It covers a wide range of topics, including investments, services, goods, intellectual property, market competition, and government contracts.
- The opposite of economic isolationism and trade protectionism is free trade.
- With little to no constraints from the government in the form of tariffs, quotas, or subsidies, FTA permits the cross-border exchange of products and services.
- A free-trade policy can be as simple as not putting any impediments to trade in place.
India and FTA:
- 13 Free Trade Agreements (FTAs) have been signed by India to date with its trading partners, including the three agreements that were signed over the previous five years: the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius, the Comprehensive Partnership Agreement (CEPA) between India and the United Arab Emirates, and the Economic Cooperation and Trade Agreement (Ind Aus ECTA) between India and Australia. The list of FTAs that India has ratified is as follows:
- South Asian Free Trade Area Agreement (SAFTA) (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, the Maldives and Afghanistan).
- India and Nepal have signed a trade treaty.
- Early Harvest Program under the India-Thailand Free Trade Agreement: Agreement on Trade, Commerce, and Transit between India and Bhutan (EHS).
- India and Singapore’s Comprehensive Economic Cooperation Agreement (CECA).
- India and ASEAN Trade in Goods, Services, and Investment Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam).
- Comprehensive Economic Partnership between South Korea and India (CEPA).
- CEPA for India and Japan.
- India and Malaysia CECA.
- Comprehensive Economic Partnership between Mauritius and India (CECPA).
- India and Australia Economic Co-operation and Trade Agreement (ECTA).
FTA-related recent occurrences:
- Over the past year or two, the government has been aggressively seeking accords with a range of countries. While negotiations with the UK and the EU are still going on, trade agreements have already been concluded with Australia and the United Arab Emirates.
Current problems:
- Non-tariff issues, including as labour and gender balance norms and standards for carbon emission reduction, are, however, receiving increased attention as these negotiations enter a vital phase.
- Indian negotiators are concerned that include them may provide allies the means to enact non-tariff protectionist policies, which would prevent India from fully benefiting from trade accords.
- Think about how crucial the issue of carbon emissions is becoming. A system for regulating carbon borders was recently agreed upon by the European Union, and it is designed to target products with a high carbon content, such as iron and steel, cement, aluminium, and fertilisers. Indian exporters will face a financial hardship and barrier as a result.
- Similar to this, steel companies in India will have a competitive disadvantage compared to those in the US because of the latter’s lower carbon emission levels during manufacturing.
- This publication has noted that similar concerns have been raised by policy leaders in Delhi who have underlined the need to “seriously” address these issues.
How to Proceed:
- Despite the fact that negotiations must proceed cautiously, these worries cannot force them to stall. The government claims that these trade agreements must proceed. The domestic reform agenda needs to be in line with these trade pacts in order to maximise the benefits.
- India must actively endeavour to join global value chains and remove trade barriers at a time when companies are trying to diversify away from China by adopting a “China plus one” approach.
