Economics, Governance
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
