India pivot from Look east to trade West

Relevance: To understand India’s Free Trade Agreements (FTA)

Synopsis: India has signed numerous FTA’s, but they have not yielded expected results. As India embarks on a new spree to sign new trade deals, India needs to do its homework very well.

Introduction

India recently backed from Regional Comprehensive Economic partnership (RCEP). Probable causes include:

• Widening trade balance with China
• Chinese goods might make a two-way entry via some other countries
• Border conflict with China

Why did India face setbacks in the East?

India’s Look East was followed by ASEAN (2009), South Korea (2009) and Japan(2011). India’s Act East policy was to cement this further, with RCEP at the fulcrum. But all this faced

• India has sought a review of FTA’s with S Korea and Japan, which have been refused by the respective countries.
• Some experts claim that is because India’s major export items like Pharma etc. are subject to regulatory norms and thus face Non-Trade Barriers.
• This has led to the belief that India’s FTA is not working, or their utilization is low.
• According to a Deloitte study, FTA utilization is about 70-80% for developed countries, but 3-4% for developing countries.

Why India is turning towards the west for FTAs?

• There is a compulsion as many of India’s trade partners in Asia are unhappy with India not joining RCEP.
• Moreover, India’s exports have been stuck at $300 billion for over a decade now. So India needs market access.

This is visible as India is negotiating trade deals (FTA) with the UK, EU. Similarly, India is also working to close a PTA with Canada and maybe with the UAE.

• EU and UK, post-Brexit have emerged as hopeful candidates for FTA’s.
  • While the UK is keen to expand its trade basket post-Brexit, EU and India are keen to start again after the failure of the Bilateral Trade and Investment Agreement.

What are the stumbling blocks to sign FTA’s with the west?

Challenges in Europe:

• EU insistence on labour and environmental standards, access to Government procurement and stricter IP norms will not be easy for India to meet.
• While India seeks zero duty access to garments, textiles and leather, the EU is keen for market access to automobiles, wines etc.
• Also, the EU wants to split talks into 3 compartments – trade, GI tagged goods and services and investment. While India favours parallel talks and simultaneous agreements.
• Data access is another sticky point with the EU not granting India the ‘data adequacy’ status. As per experts, this requires India to legislate similar law like EU’s GDPR (General data protection regulation) guidelines.

Challenges in the US:

• Though India was hopeful of FTA under the Trump administration, the recent US government has signalled that they are not in a hurry to sign FTA.

Way Forward:

Despite difficulties, India will find it easier to settle with the West than with the East.

Terms to know

• Free Trade Agreement (FTA)
• Act East policy
• Regional Comprehensive Economic partnership
• Bilateral Trade and Investment Agreement