Free Trade Agreements (FTAs)

Context: Concerns of Indian players should be taken care of while crafting FTAs

• In recent months, India has signed trade agreements with Australia and the UAE.
• In the last week of June, New Delhi began talks for a similar agreement with the EU.
• Before entering into trade agreements, India needs to take care of a few key concerns.

To ensure that the domestic industry is not made to compete on unequal terms with the partner countries

• It has been observed that when India is an importer, the preferential tariffs that accrue as a result of trade agreements are significantly lower than the rates charged from countries given Most Favoured Nation (MFN) status by New Delhi.
• But when the partner country is the importer, preferential tariffs on Indian goods, in most cases, are closer to the MFN tariffs.
• As a result, Indian exporters do not get the same returns as their counterparts in the partner countries.

Offset clauses

• Offset clauses— where the exporter is obliged to undertake activities that directly benefit the importing country’s economy — should be built into trade agreements, especially for technology intensive sectors.

An emergency action plan

• In February 2020, the US made India ineligible for claims under GSP, America’s oldest preferential trade scheme.
• A contingency plan should be in place to tackle such situations.

Sunset clause

• India should also take a cue from the US-Mexico-Canada Agreement, to incorporate a “sunset” clause in trade agreements.
• The pact should include periodic reviews and should end on agreed year.

Parity between services and merchandise

• India should negotiate for parity between services and merchandise.
• India’s trade in services is low.
• There is significant room for expansion of trade in the banking, financial services industry, legal and accounting services.

A well-crafted trade agreement could help India enhance its share in global trade and help attain the government’s target of making the country a $5-trillion economy.

Source: Indian Express