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Protectionism: In an economically interconnected and technologically inseparable world

  • IASbaba
  • February 8, 2020
  • 0
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Indian Foreign (Trade) Policy

Topic: General Studies 2:

  • Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests. 


Topic: General Studies 3

  • Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Protectionism: In an economically interconnected and technologically inseparable world

Context 

India’s international trade posture has appeared to turn protectionist with recent actions by the Indian government

What events has led to the perception for rising Protectionism in India?

  • During the presentation of Union Budget 2020-21, Finance Minister made several references to the problems with free trade and preferential trade agreements (FTAs and PTAs) that pose undue risk to domestic industry
  • Government raised tariffs on the import of more than 50 items.
  • Changes in Customs Act provisions to penalise imports suspected to originate from third countries, which try to misuse FTA & PTAs
  • India declined to attend a meeting of trade negotiators in Bali (February 3-4) that was discussing the next step in the ASEAN led RCEP trade agreement.
  • Government’s decision to scrap all bilateral investment treaties with 57 countries and bringing in a new Bilateral Investment treaty (BIT) model in 2015.

Reasons given by India for taking above measures:

  • Rise in trade deficits with FTA partner thus the need to revisit the treaties
  • The primary motive of rising trade barriers is to protect Indian markets from dumping — primarily by Chinese goods
  • Countries (EX: RCEP) unwilling to consider the agreement in Services, that involves migration of professionals, which is India’s strong area

India’s unfinished agenda with regard to Trade treaties

  • Comprehensive Economic Cooperation Agreement (CECA) being negotiated with Australia since 2011. However, talks hit a dead end in September 2015. With Australia’s focus on RCEP, no progress has been made since then.
  • India-UK trade agreement will not able to see the light of the day until UK finalises its Brexit deal with EU
  • India- EU Bilateral Trade and Investment Agreement (BTIA) has not made any progress since 2013. India coming up with new BIT model in 2015 by scrapping earlier BITS had made the negotiations harder than before thus delaying the inking of agreement
  • India-US FTA- At present there have only been some “non-paper” talks on the issue, and possible take years to fructify given the rising protectionism in US and India alike
  • Bilateral trade agreements – India wished to renegotiate its FTA with ASEAN, South Korea and Japan given that these agreements have increased India’s trade deficit with these countries. However, all these Nations will be ready to negotiate only after finalising their RCEP deal which would take couple of years more.

India moving in a direction opposite to that of world

India is currently focusing on inking bilateral trade agreements rather than go for multi-lateral trade treaties (not signing RCEP). However, world is now divided into multilateral regional FTAs which include:

  • North American Free Trade Agreement (NAFTA) for North America, 
  • Southern Common Market (MERCOSUR for its Spanish initials) for South America
  • The European Union
  • Eurasian Economic Union (Russia and neighbours)
  • African Continental Free Trade Agreement (AfCFTA)
  • Gulf Cooperation Council (GCC) FTA
  • RCEP

India is not a member of any of these regional trade agreements. India has also virtually abandoned SAARC. Additionally, world does not favour trade in services the way it does in goods, as most countries have turned migration-averse.

Conclusion

India’s cannot rise in Asia without closer trade links with the East or the backing of South Asia.

Historically, the decline of colonial powers and more ancient empires can be traced to times when they turned inward and disengaged from foreign trade

India thus needs to adopt a more open approach towards global trade.

Did you know?

  • Only three countries: Kyrgyzstan, Belarus and most recently Brazil have agreed to sign a new investment treaty based on that model.
  • India has trade surpluses with smaller economies, particularly in the neighbourhood, where Indian exports form more than 80% of total trade with Nepal, Bangladesh, Bhutan and Sri Lanka, respectively.

Connecting the dots!

  • WTO settlement body decline – India’s avenue to resolve any bilateral disputes reduces
  • Impact on rupee value and investment flow due to protectionist measures

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