India’s FTA Challenges and Strategic Trade Solutions

Source: The post India’s FTA Challenges and Strategic Trade Solutions has been created, based on the article “Standards on trade: India must aim to adapt” published in “Business Standard” on 28th November 2024

UPSC Syllabus Topic: GS Paper 2– International Relations

Context:  The article discusses India’s ongoing FTA negotiations with the UK and EU, challenges like environmental and labour standards, and global trade barriers. It suggests India improve domestic policies, lower tariffs, and adapt to global norms for better integration and benefits.

For detailed information on India-UK FTA and India’s FTA 2.0 approach read this article here

Why are the FTAs important for India?

1. India is not a part of major regional trade agreements. FTAs can unlock opportunities for market access and global integration.
2. About 70% of global trade happens through value chains.
3. India’s share in global exports is just 2%.

What are the key demands in the India-UK FTA?

1. India’s demands: Increased mobility for its skilled labour force.
2. UK’s demands: Better access to Indian markets and lower tariffs on goods.

What challenges do environmental, and labor standards pose?

1. Non-Tariff Barriers: Developed countries use environmental and labor standards as non-tariff barriers, restricting imports from developing countries.
2. EU’s Carbon Border Adjustment Mechanism (CBAM): Aims to reduce “carbon leakage” by imposing higher costs on carbon-intensive products like cement, steel, aluminum, and fertilizers.
3. Impact on India: Higher tariffs could reduce competitiveness for Indian exports.
4. Contradicts Climate Principles: CBAM undermines “common but differentiated responsibilities” by imposing stringent standards on developing nations despite historical emissions by developed countries.

What is the WTO’s role in these issues?

1. There is debate on whether mechanisms like CBAM comply with WTO rules.
2. However, WTO’s dispute-resolution mechanism is currently dysfunctional. This leaves concerns about trade fairness unresolved.

What should India do to address these challenges?

1. Lower tariffs: A review of Customs duty rates, announced in the Budget, should involve domain experts.
2. Enhance standards: Improve labour conditions and reduce carbon intensity to align with global norms.
3. Focus on integration: Better alignment with global value chains can improve India’s trade share.
4. Strategic negotiations: Protect India’s interests without resorting to retaliatory tariffs.

Question for practice:

Examine the challenges posed by environmental and labour standards in India’s FTA negotiations with developed countries and suggest measures to address them.