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India’s Revamped FTA Strategy
Context:
India is set to develop a comprehensive standard operating procedure (SOP) for negotiating free trade agreements (FTAs), a move aimed at improving the country’s trade strategy and maximising gains from such deals.
More on News:
- This initiative comes after a series of FTAs signed between 2021 and 2024 and lessons learned from earlier agreements that resulted in widening trade deficits.
A Long-Standing Goal:
- The concept of an SOP for FTAs was first proposed over a decade ago to provide a structured framework for negotiations and create institutional memory.
- However, despite extensive discussions within the Department of Commerce, a lack of consensus delayed its implementation.
- The push to finalise the SOP has been revived in light of recent FTAs signed with Mauritius, the United Arab Emirates (UAE), Australia, and the European Free Trade Association (EFTA).
- India is also negotiating trade and investment deals with several other countries, including the UK, EU, and Israel.
The Need for a Robust Framework:
- Earlier Experience: Government officials argue that a well-defined SOP is critical, especially given India’s mixed experiences with past FTAs.
- Agreements with South Korea, ASEAN, and the UAE, for instance, have been criticised for leading to trade deficits and exposing India to non-tariff barriers.
- Chinese Goods: Concerns have also been raised about the potential misuse of FTAs to route Chinese goods into India.
- Best Practices: The proposed SOP aims to consolidate best practices from global models, such as those employed by the European Union and Australia.
- It will guide negotiators through the entire FTA process, from launch to conclusion, and include strategies for regional agreements like the US-led Indo-Pacific Economic Framework for Prosperity (IPEF).
Challenges in Negotiation:
- Unlike many other countries, India does not have a dedicated body of trade and legal experts for FTA negotiations.
- Instead, bureaucrats—often transferred to other departments after a few years—lead the negotiations.
- This lack of continuity poses significant challenges, particularly given the complexity and duration of FTA discussions.
- While the SOP will serve as a guiding document for new negotiators, trade experts emphasise the importance of on-the-job training and real-time experience.
- Transparency in the negotiation process also remains a concern, with calls for greater stakeholder involvement to ensure agreements align with national interests.
Learning from Past Agreements:
- India’s experience with recent FTAs highlights the importance of regular reviews and prompt responses to trade imbalances.
- For example, the India-UAE Comprehensive Economic Partnership Agreement (CEPA) led to a surge in imports of items like silver, platinum, and dates, impacting domestic markets.
- Experts suggest that the SOP should include mechanisms for addressing such issues quickly.
- Periodic reviews of FTA commitments are also essential.
- For instance, the FTA with EFTA countries is projected to bring $100 billion in foreign direct investment (FDI) over 15 years and create one million jobs.
- Monitoring these commitments through dedicated committees could ensure their successful implementation and provide a model for future agreements.
The Road Ahead:
- The SOP for FTA negotiations, which is nearly finalised, is expected to act as a cornerstone for India’s trade strategy.
- Once approved, it will provide much-needed structure and clarity to the negotiation process, helping India secure agreements that drive economic growth and protect national interests.
