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| Introduction: Contextual introduction. Body: Explain how a well-crafted trade agreement could help India enhance its share in global trade. Conclusion: Write a way forward. |
A trade agreement is a wide-ranging tax, tariff, and trade treaty that often includes investment guarantees. It exists when two or more countries agree on terms that help them trade with each other. These agreements do provide momentum to cross-border trade flows by dismantling various tariff and non-tariff barriers.
Before entering into trade agreements, India needs to take care of a few key concerns:
- Ensure that the domestic industry is not made to compete on unequal terms with the partner countries. E.g. India’s trade with South Korea.
- Rules of origin: Under this provision, a country that has trade agreement with India cannot dump goods from some third country in the Indian market by just putting a label on it. The India-UAE Comprehensive Economic Partnership Agreement sets a good example.
- Offset clauses: Under this clause, the exporter is obliged to undertake activities that directly benefit the importing country’s economy. It should be built into trade agreements, especially for technology intensive sectors.
- Contingency plan: In 2020, the US Trade Representative’s Office deemed India as a developed country and suspended beneficial treatment under the GSP. A contingency plan should be in place to tackle such situations.
- Sunset clause: India should also learn from the US-Mexico-Canada Agreement, to incorporate a “sunset” clause in trade agreements. It provides for periodic reviews and the agreement is slated to end automatically in 16 years unless the countries renegotiate it.
- Parity between services and merchandise: India’s trade in services is low, and its overall score in the OECD’s Services Trade Restrictiveness Index (STRI) exceeds the world average. It is especially high in legal and accounting services due to the licensing requirements.
- There is also significant room for expansion of trade in the banking and financial services
A well drafted trade agreement further strengthens the relations between the countries. It significantly enhances the trade in goods and services, create new employment opportunities, raise living standards, and improve the general welfare of the peoples and hence help to make India a $5-trillion economy.
