• UGI USER
  • May 31, 2024
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TACKLING FTA ATTRACTIONS

Relevance: GS 2 – Bilateral, regional and global groupings and agreements involving India and/or affecting, India’s interests

Why in the news?

  • India withdrew from the Regional Comprehensive Economic Partnership (RCEP) negotiations in 2019.
  • It took nearly two years for India to restart free trade negotiations with trading partners.

Agreements with India and other countries

  • The process resumed with the signing of the India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) in March 2021.
  • This was followed by the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
  • In 2022, the India-Australia Economic Cooperation and Trade Agreement (ECTA) was signed.
  • The India-European Free Trade Association (EFTA) pact was signed in February this year.
  • Negotiations are ongoing for trade pacts with Britain, the EU, Oman, and Peru.

India’s Trade Strategy

  • Shift from Large Trading Blocs: Avoiding agreements with large trading blocs like RCEP due to high ambition levels and difficulty in finding common ground with multiple partners.
  • Focus on Bilateral Arrangements: Emphasis on bilateral agreements where reciprocity is more manageable.
  • Diversification Strategy:
    • Adopting a diversified approach in a multipolar world.
    • Recognizing the stagnation of WTO negotiations.

Expanded Scope in FTAs

  • Trade negotiations have evolved from focusing solely on trade in goods to comprehensive agreements covering economic cooperation.
  • Includes market access for services, investment, safeguard measures, trade facilitation, technical barriers to trade, and sanitary and phytosanitary measures.
  • Comprehensive Evaluation:
    • Requires assessing overall balance across multiple negotiating tracks rather than just market access for goods.
  • Increased Impact:
    • More domestic constituencies are affected and need to be consulted.
    • Necessitates more agile institutional mechanisms.
  • Emerging Standards:
    • New concepts and standards are constantly emerging in each negotiation track.
    • Greater ambition with the integration into global value chains.
  • Rules of Origin: Trading partners expect rules of origin to be more flexible for both naturally produced goods and manufactured goods.
  • Unique Bilateral Negotiations: Each negotiation is unique, but trading partners often demand similar concessions granted to others.
    • New concessions to Australia, the UAE, or EFTA may set precedents for other negotiations.
  • Higher Tariff Levels: Indian tariffs for industrial goods are higher than those of negotiating partners.
  • WTO Compliance:
    • FTAs must have substantial trade coverage and predominantly envisage tariff elimination, not just reduction.
    • India may need to concede more ground compared to negotiating partners.

Challenges associated with FTAs

  • Diverse Industrial Basket:
    • India’s diverse industrial base, including a significant MSME segment, presents a challenge in trade negotiations.
    • A clever negotiating strategy can leverage this diversity to secure gains in other areas of interest.
  • ECTA Example:
    • India secured a definitive investment commitment from Switzerland in exchange for tariff concessions in the
    • This innovative approach can serve as a model for future negotiations.
  • Inverted Duty Rates:
    • Creating inverted duty rates compared to general or MFN tariffs is challenging due to India’s tariff structure.
    • These challenges are manageable with a coherent strategy.

Strategic Recommendations

  • Proactive Approach:
    • Identify and articulate offensive trade interests, moving beyond a reactive and defensive stance.
    • Engage in broad and meaningful consultations with trade, industry, and other stakeholders to understand real threats and opportunities.
    • Craft a well-thought-out negotiating strategy based on shared understanding.
  • Onboard Domain Experts:
    • Establish a permanent, right-sized institutional mechanism within GoI.
    • Bring together domain expertise and diverse skill sets, including:
      • Trade data analytics with varying granularity.
      • Mapping of export capacity with demand in other markets.
      • Identifying domestic supply gaps where easing market access would be beneficial.
      • Assessing the likely impact of tariff and non-tariff measures.
      • Developing negotiating strategies and legal drafting.
    • Institutional Mechanisms:
      • GoI is preparing a detailed operating procedure defining the roles and responsibilities of different agencies.
      • This step is timely and essential for effective trade negotiation and strategy implementation.

Alternative articles:

https://universalinstitutions.com/challenges-in-india-uk-fta/

https://universalinstitutions.com/united-kingdoms-free-trade-regime/ 

Source: https://m.economictimes.com/opinion/et-commentary/view-tackling-fta-attractions/articleshow/110572474.cms

Mains question

Discuss India’s shift from multilateral trade agreements to bilateral trade negotiations post-RCEP withdrawal, highlighting the challenges and opportunities this strategy presents for India’s diverse industrial and MSME sectors. (250 words)