Date: 22/09/2022

Relevance: GS-2: India and its neighborhood- relations; bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Key Phrases: Free Trade Agreements (FTAs), Types of Trade Agreements, history of Free Trade Agreements in India, bilateral and multilateral trade agreements,

Context:

• India and the United Kingdom are in the final phase of negotiations for the India-UK free trade agreement and India aims to complete the signing by October 2022 as per government sources.

Evolving free trade agreements

• The free trade agreements (FTAs) as a trade policy tool are evolving to keep pace with new-age requirements.
• In the old times the trade agreements meant merely exchanges of Customs duty concessions between partners.
• The new age FTAs are considering the strategic requirements of the country and go beyond the exchange of trade concessions.
• They are designed to enable a stronger position for India in the Global Value Chains (GVCs) and include several new components.

India’s FTA journey

• India’s FTA journey started in 1975 with the Bangkok Agreement but duties were eliminated on substantial tariff lines for the first time in 1998, when India-Sri Lanka FTA was signed.
• The ‘Look East Policy’ led to the signing of several agreements with East Asian countries.
• By 2019, it was argued that India’s FTAs were more economically beneficial to its trading partners vis-a-vis India because these FTAs were unable to tackle non-tariff barriers.
• India exited the 16-country Regional Comprehensive Economic Partnership (RCEP)
  • It claimed that the scope of the group had been widened beyond the original mandate and there were inadequate safeguards for Indian industries
• Post Covid-19, India has been pushing for FTAs aggressively as it seeks investment, technology, IP, and a potential market for its goods and services, in exchange for access to its markets.
  • It has resulted in the signing of FTAs in quick succession with Mauritius, the UAE, and Australia.

The significance of new age free trade agreements

• India is expected to conclude the UK agreement by Diwali and that with Canada by the end of this year.
• These countries offer many of the factors that India needs to establish a dependable production capability serving both global and domestic markets.
  • With these FTAs, sectors such as gems and jewellery, engineering goods, agro-processed foods, textiles, technology, and financial services are likely to gain.
• To achieve the $2-trillion export target by 2030, India’s active participation in global value chains (GVCs) is essential.
  • Today, 70 per cent of the global goods and services exports come from GVCs.
  • GVCs require close trade cooperation, lower duties, and efficient customs administration, which can be ensured by an FTA.
• The inclusion of new-age areas like digital trade in FTAs will enhance cooperation and transform GVCs by lowering entry barriers, increasing transparency, and facilitating collaborative networks.

India-UK FTA: opportunities are plenty

• Regional balance
  • Britain is tilting to the Indo-Pacific, where India is a natural ally.
  • India, whose neighborhood is transformed by the rise of China, needs as wide a coalition as possible to restore a semblance of regional balance.
• Trade, Investment & Jobs
  • India-UK trade was worth £23 billion in 2019, and both countries want to double the figure by 2030.
  • Almost half a million jobs are supported across India and the UK through investments in each other’s economies.
• Market for British goods
  • A free trade deal between the UK with India - the world’s largest democracy, fifth biggest economy, a nation of 1.4 billion people will create a huge market for British goods like whisky, cars and services.
• Benefits for Businesses
  • A trade deal with India will break down barriers and make it easier for British businesses to secure more investments, higher wages and lower prices in Britain.
• Skilled Labour Access
  • India will be looking for concessions on Indian skilled labour accessing UK markets.
• Defense Strengths:
  • Britain could also contribute to the strengthening of India’s domestic defense industrial base.
  • The two sides could also expand India’s regional reach through sharing of logistical facilities.

Trade facilitation is the way forward

• The new age free trade agreements are based on reciprocal economic benefits and enhanced trade facilitation ,India can resort to ways which will facilitate smoother trade
  • India needs to improve the efficiency of ports, shipping, Customs, etc., via automation which would be a big boost for participation by MSMEs.
  • Developing alternative sources of supply in which all the components are available in the vicinity and locally.
  • India must look at a hybrid model to source from the most efficient suppliers, including domestic players.
  • The new-age FTAs demand more holistic and diversified trade opportunities with trade in services, e-commerce, labour, climate/environment, digital trade, public procurement, supply chains etc.

Conclusion

• The new agreements with the UK and the EU have more modern elements of trade facilitation.
• India is expressing its understanding of these changes and adopting the elements that drive the modern economic trade order.
• Therefore the success of these FTAs will largely depend on the way domestic rules and regulations are tweaked to facilitate the implications of these FTAs.

Source:  The Hindu BL

Mains Question:

Q. An India-UK free trade agreement has the potential to give a major thrust to Indian exports in labour intensive sectors, Comment. How could India leverage the FTA for its growth and economic development especially in the aftermath of Covid-19 and Brexit? (250 words).