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Source: The post is based on an article “Why the government must push ahead on free trade agreements” published in The Indian Express on 27th December 2022.
Syllabus: GS 2 – International Relations
Relevance: Concerns associated with free trade agreements
News: The Indian government is increasing its free trade agreement with many countries like Australia, the UAE, etc. FTA will ensure trade benefits to India, but there are also concerns associated with it.
What are the concerns associated with trade agreements?
There are non-tariff issues ranging from carbon emission norms, climate action, etc. coming up.
Therefore, India is concerned that partner countries might impose non-tariff protectionist measures and not allow India to fully take advantage of the trade pacts.
For example, the Carbon Border Adjustment Mechanism (CABM) of the European Union. It is meant to target carbon-intensive products such as iron and steel, cement, aluminium and fertilisers.
CABM will impose tariffs on imported goods on the basis of emissions during their production process. This will ensure that the EU’s climate objectives are not threatened by the production of other countries with less ambitious policies.
However, this will act as a barrier and burden on Indian exporters. Manufacturers of steel in India will be at a disadvantage when compared to those in the US where lower carbon is emitted.
What is the way ahead?
India needs to examine these issues with care and then proceed with negotiations. India’s domestic reform agenda must be aligned with these trade pacts to ensure that the benefits from these trade pacts can be maximised.
Moreover, India also needs to change its domestic decision such as recently it has decided to raise import duties on non-essential items. It impacts India’s image globally and acts as a counter to trade agreements being made.
Therefore, India must lower barriers to trade, and seek actively to be a part of global value chains while adopting China plus one strategy.
