• The free trade agreements (FTAs) that India negotiated with the UK and the EU (European Union) shows how the trade policy tool is evolving to keep pace with new-age requirements.
• Experts are considering this as an opportunity for introspecting India’s approach to FTAs, particularly with the developed countries such as UK, European Union (EU) and Canada.
• India’s FTA strategy is premised on using these agreements to secure markets for its goods and services.
• However, some of the FTA provisions could actually erode access to these markets.

Old .vs. New

• The old FTA agreements were merely exchanges of Customs duty concessions between partners, while the new FTAs are considering the strategic requirements of the country.
• In fact, over the decades, India’s FTAs have changed quite dramatically.
• The recent agreements go beyond the exchange of trade concessions as they are designed to enable a stronger position for India in the Global Value Chains (GVCs).

India’s FTA Journey

• India’s FTA journey started in 1975 with the Bangkok Agreement.
• However, duties were eliminated on substantial tariff lines for the first time in 1998, with the signing of the India-Sri Lanka FTA.
• After the ‘Look East Policy’ was announced, several agreements were signed with East Asian countries.
• However, by 2019, questions were being raised about these FTAs’ economic benefits for India.
• That these agreements did not in any meaningful way tackle non-tariff barriers, the benefit to India’s FTA trading partners was seen to be more.
• India in 2019 exited the 16-country RCEP (Regional Comprehensive Economic Partnerships.
• Indian believed that the agreement included inadequate safeguards for Indian industries
• Post the withdrawal from RCEP, India has started looking at countries from where it can seek Investment, Technology and a potential market for its goods in exchange for access to its markets.
• Therefore, FTAs were signed in quick succession with Mauritius, the UAE, and Australia; partners that offer Indian products and services scope for enhanced market access.
• The countries like UK and Canada offer many of the factors that India needs to establish a dependable production capability.
• With these FTAs, sectors such as gems and jewelry, engineering goods, agro-processed foods, textiles, technology, and financial services are likely to gain.

Major Concerns for India while signing FTAs with developed countries

1. Undermine domestic manufacturing in India

• The provisions in the FTAs with the developed countries like with the UK and Canada are likely to shut the doors on Atmanirbhar Bharat.
• This is specifically concerning in the two sectors that are likely to become drivers of economic growth in the near future: Digital economy and Climate-friendly products.
• Mandating almost unrestricted cross-border data flows and prohibition on localization of servers might prevent India from leveraging its huge data.
• This would act as hindrance to the advantage for creating a vibrant domestic digital economy for India.
• The provisions in the existing FTAs of UK, EU and Canada are likely to undermine domestic manufacturing in India.
• Reduction in customs duties for facilitating trade in climate-friendly products is likely to threaten the commercial viability of our domestic producers in this sector.

2. High standards of environmental protection

• Another risk to domestic manufacturing arises from the likely commitment to adopt high standards of environmental protection, or a move towards harmonization of environmental standards.
• India has already committed to implementing high standards of environmental protection in its FTA with the UAE on a non-binding basis.
• If the domestic producers are unable to adhere to high environmental standards, then they may not be able to sell even in the domestic market.
• Provisions in the FTAs are likely to create windows for our FTA partners to impose non-tariff barriers on India’s exports.
• This will substantially nullify the prospects for enhancing our exports, which might otherwise be available through tariff reductions by our FTA partners.
• In a nutshell, the overall impact of the provisions on environment is likely to be that India’s path towards a low carbon economy is likely to be driven not by domestic manufacturers, but by imports.
• After joining the WTO’s (World Trade Organization) Information Technology Agreement in 1997, India brought the customs duty to zero which resulted in a severe setback to domestic IT hardware manufacturers.
• This affected substantially to the country’s burgeoning trade deficit.

3. Access to medicines at affordable prices

• FTAs with the developed countries are likely to create another area of concern – access to medicines at affordable prices.
• The past FTAs of the developed countries have many provisions that can extend the period of patent protection
• It further bump-up the windfall profits of these giant patent-based firms.
• If India agrees to similar provisions in the ongoing FTA negotiations, then it would be a huge disservice to the producers of generic medicines.
• This will also completely undermine Atmanirbhar Bharat in this sector.

4. Changed nature of FTAs from economic objective to geo-political

• These agreements are no longer about trade and economic issues.
• Instead, they are about creating partnerships with other countries keeping India’s difficult geo-political imperatives in mind.
• If an FTA curtails India’s economic prospects, it will definitely diminish the country’s political weight and stature at the global level.
• This is likely to further deepen India’s strategic problems, and not be an answer to them.

5. No commercial interest

• The provisions on environment and labor in the FTAs are about promoting societal values of the developed countries and may not have an underlying commercial interest.
• Any provision in a trade agreement almost always seeks to pursue economic interests today, or opens windows for them tomorrow.

In the quest for enhancing its exports of goods and services by a few billion dollars through FTAs with the UK, EU and Canada, India faces the risk of compromising its economic prospects, especially in emerging and buoyant sectors of the future. The ‘give and take’ in these negotiations are likely to see the adverse impacts of the FTAs being stacked much higher than possible gains.  The time for an objective introspection is now, keeping the aims of Atmanirbhar Bharat at the forefront. This should be followed by a careful recalibration of India’s FTA strategy.