India recalibrates FTA strategy amid past challenges and rising imports

Standard operating procedure will take into account strategy towards modern FTA issues such as environment, labour, and digital trade

Underscoring the need for a ‘careful’ assessment of guidelines to negotiate Free Trade Agreements (FTAs), India is ‘taking it slow’ and recalibrating its strategy to ensure it is able to maximise trade and investment gains from such pacts, two people aware of the matter said.
 

The department of commerce plans to seek the Union Cabinet’s approval to implement fresh guidelines for negotiating FTAs, one of the persons cited above said.

It is also learnt that a high-level meeting between top commerce department officials and the Prime Minister’s Office took place over the weekend to discuss the standard operating procedure (SOP) for FTAs.

The need for drafting SOP for FTAs comes against the backdrop not only of its past FTA experience, but also of the growing importance of sustainability and issues such as government procurement, labour and digital trade being a part of modern trade deals.

There’s also a realisation that creating an institutional memory for future negotiations is critical and should be part of the new SOP.

“There's a need for a careful assessment of our FTA (negotiating) strategy; deeper study is required to understand what will be India’s gains from an FTA with a particular country. Our past experience with FTAs, including the recently signed ones, haven't resulted in large gains for India. It has been seen that the trade partner has made larger gains (as compared to India),” the person told Business Standard.

That apart, India also needs to be wary of the rising imports from China and whether FTAs signed by India are being used to route goods to India, the person said.

Barring proposed FTAs with large and strategically important nations – UK (United Kingdom), the European Union (EU), Maldives – India, for the time being has slowed down the pace of FTA negotiations with other countries such as Peru and Oman. The idea is to get back to the negotiations once India firms up its guidelines on FTAs.

India forged three major trade deals since 2022, with the United Arab Emirates (UAE), Australia and European Free Trade Association (EFTA). It had also launched negotiations with at least four more nations – Peru, Oman, United Kingdom (UK) and the European Union (EU). Over close to three years, India was also in discussion with Canada, Israel, and the Gulf Cooperation Council (GCC), although they were not able to launch negotiations due to a lack of common ground or even political issues.

After walking out of the China-backed Asian trade bloc Regional Comprehensive Economic Partnership (RCEP) in 2019, there was a rush to sign trade deals, mainly stemmed from the realisation that the world has moved into bilateral or regional arrangements and there is a need for India to engage with the rest of the world.

This is despite India’s not so pleasant experience in the case of trade deals with Japan, South Korea and the 10-member ASEAN grouping. In the case of all these FTAs, the imports from these South East Asian countries grew at a much faster pace as compared to exports, resulting in a high trade deficit for India. India continues to face non-tariff barriers in these regions that it is still trying to sort out.

More recently, the trade deal with the UAE has also seen some challenges, related to the sudden massive surge in the import of precious metals and even food items such as dates.
 

New plan of action

–SOP will take into account India’s strategy towards modern trade FTA issues such as environment, labour, digital trade

–SOP awaiting Union Cabinet’s approval

–Creating an institutional memory for future negotiations will also be in focus

–India has slowed down pace of FTA negotiations with other countries such as Peru, Oman

–Till date, India has signed 14 FTAs with its trading partners

–Since 2022, India signed three major trade deals, with the UAE, Australia and EFTA