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.
