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News: Recently, India’s commerce secretary, stated that trade will find a specific focus in the forthcoming Budget and that India’s FTAs will be “very deep”.
The statement appears to be in line with recent global developments. For example, The US-Mexico-Canada Agreement (USMCA), the EU-Vietnam FTA, and the 15-member Regional Comprehensive Economic Partnership (RCEP).
China and Taiwan, request for membership to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The UK has initiated its negotiations for membership to the CPTPP earlier this year.
However, to make FTA negotiations successful, India needs to address some of the following issues that are hampering India’s FTA with other regional trade blocs.
What are the issues hampering India’s FTA with other regional trade blocs?
Firstly, issues related to labor laws and investor protection provisions impact India’s ability to negotiate deep-trade agreements.
Deep trade agreements have been designed over the last two decades to facilitate complex global value chains and the underlying trade-investment-services linkages.
The predominant focus in these agreements is linked to investor protection, intellectual property rights (IPRs) and labour standards.
India has found it difficult to negotiate these issues in its earlier free trade agreements. For instance, issues related to labour laws led to the suspension of the FTA negotiations with the EU in 2013 and pushed these negotiations to 2023.
Furthermore, India’s 2016 template for a model investment treaty, may make it difficult for India to negotiate the investor protection provisions. Because it is more state-friendly and includes some burdensome provisions for the foreign investor.
Secondly, a protectionist tariff structure, if not corrected, could remain a hurdle at the preliminary stage of FTA negotiations.
India’s tariff structure has been relatively higher than the average MFN tariffs in the manufacturing sector. For example,
As per World Bank data, the applied, weighted mean tariff rate for manufactured products in India increased from 5.5 percent in 2008 to 6.6 percent in 2019. Whereas it decreased in the case of Vietnam from 5.6 percent to 1.4 percent over the same period.
Thirdly, India’s proposed FTAs with Israel, the UAE, Australia, and the UK will not be effective. India should aspire to participate in any of the three major regional hubs. (North America (NA), Europe, and East Asia).
Because FTAs with these hubs will facilitate deeper integration and value chain consolidation. For instance,
The EU, whose evolution has resulted in progressively deeper economic integration, has shown the highest levels of intra-regional GVC (Global Value Chain) activity. Later accession of the Central and Eastern European economies to the EU, resulted in their integration in the EU production networks.
Similarly, the China-ASEAN FTA helped intensify regional value chain trade in the sector.
Further, India’s inability to participate in any regional GVC hub through a regional FTA is hampering India’s investment flows.
Source: This post is based on the article “India’s FTA ambitions in perspective” published in Business Standard on 21st Dec 2021.
