Context & The Gist
India has signed 20 regional or free trade agreements (FTAs), with recent additions including pacts with the UK and EFTA, and ongoing negotiations with the US, EU, and others.
The article argues that while FTAs are crucial, India must learn from past experiences – where trade deficits widened with ASEAN, Japan, and South Korea – and prioritize supporting its exporters through standards, infrastructure, and robust negotiations to ensure these agreements deliver sustained gains.
Key Arguments & Nuances
- Past FTA Performance: Earlier FTAs with ASEAN, Japan, and South Korea have resulted in widening trade deficits for India, indicating structural issues in leveraging these agreements. The trade deficit with ASEAN increased significantly from $10 billion in 2017 to $44 billion in 2023.
- Negotiation Deficiencies: A lack of adequate negotiation on non-tariff barriers (quality standards, rules of origin) and insufficient consultation with domestic industry hampered the effectiveness of previous FTAs. The agreements weren't tailored to India’s sectoral strengths.
- Domestic Implementation Gap: The government failed to adequately promote awareness and utilization of FTAs among Indian businesses, while partner countries fully exploited the preferential margins.
- Course Correction & Recent Success: The India-UAE Comprehensive Economic Partnership Agreement demonstrates a more balanced outcome, with non-oil trade reaching $100 billion in FY25.
- Future Negotiation Focus: Negotiations with the US should prioritize services, seafood, engineering goods, and textiles, while talks with the EU must address carbon-intensive sectors in light of the Carbon Border Adjustment Mechanism (CBAM).
- Beyond Agreements: A trade agreement is merely a starting point; sustained support for Indian exporters – through infrastructure, technology, and market intelligence – is essential for realizing lasting benefits.
UPSC Syllabus Relevance
- GS Paper II: International Relations – Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests.
- GS Paper III: Economy – Indian Economy and Planning, issues relating to planning, mobilization of resources, growth, development and employment. Also, Trade and related issues.
- GS Paper III: Economy – Infrastructure: Development, issues and challenges.
Prelims Data Bank
- World Trade Organization (WTO): A global organization dealing with the rules of trade between nations.
- Regional Comprehensive Economic Partnership (RCEP): A free trade agreement among the ASEAN member states plus five partners (Australia, China, Japan, New Zealand, and South Korea). India opted out in 2019.
- Carbon Border Adjustment Mechanism (CBAM): An EU policy that imposes a carbon price on imports of certain goods, aiming to prevent 'carbon leakage'.
- ASEAN: Association of Southeast Asian Nations.
- EFTA: European Free Trade Association.
Mains Critical Analysis
India’s FTA strategy faces a complex interplay of economic, political, and technological factors. The widening trade deficits with some FTA partners highlight a structural weakness in India’s export competitiveness. This isn’t simply about tariff reductions; it’s about India’s ability to meet quality standards, integrate into global value chains, and leverage the preferential access offered by these agreements.
The PESTLE analysis reveals:
- Political: Geopolitical considerations (like balancing relations with the US, EU, and Russia) influence negotiation strategies.
- Economic: Trade deficits, fluctuating exchange rates, and global economic slowdowns pose challenges.
- Social: Domestic industry concerns and the need for inclusive growth are crucial.
- Technological: Adopting advanced technologies to enhance export competitiveness is vital.
- Legal: Compliance with international trade laws and dispute resolution mechanisms is essential.
- Environmental: Addressing environmental concerns, particularly regarding carbon emissions, is increasingly important (CBAM).
A critical gap lies in the lack of a comprehensive export promotion strategy that goes beyond simply signing FTAs. This strategy must focus on infrastructure development, skill enhancement, and technology upgradation to enable Indian exporters to compete effectively in the global market.
Value Addition
- Expert Committee on Trade Policy (2023): Recommended a shift towards deeper economic integration with select countries, focusing on quality and standards.
- SC Judgment on Trade Agreements (2019): Upheld the constitutional validity of FTAs, but emphasized the need for transparency and stakeholder consultation.
- Best Practice: Vietnam’s FTA Strategy: Vietnam has successfully leveraged FTAs to attract foreign investment and boost exports by focusing on specific sectors and streamlining regulations.
- Quote: “Trade is not just about tariffs; it’s about rules, standards, and the ability to compete.” – Jagdish Bhagwati
The Way Forward
- Immediate Measure: Conduct a thorough review of existing FTAs to identify areas for improvement and renegotiate terms where necessary.
- Long-term Reform: Develop a national export promotion strategy that focuses on enhancing competitiveness, improving infrastructure, and fostering innovation. Prioritize skill development and technology adoption in key export sectors.