For India, a new template for trade

The old trading arrangements are collapsing. India will need to embrace FTAS; an early deal with the EU could serve as a template

The Government of India recently announced that the existing foreign trade policy valid for the period 2015-20 has been further extended till March 31, 2022. The extension was necessitated by factors such as the Covid-19 pandemic. But this provides an excellent opportunity to the government to overhaul its foreign trade policy and reorient it in ways that are both necessary and timely.

The multilateral trading system faces an existential crisis. The era of most favoured nation (Mfn)-based, dispute settlement-regulated international trade governed by the World Trade Organization (WTO) may be drawing to a close. It is hard to tell what shape a future WTO will take. But it is a fair guess that international trade will henceforth be largely strategic, resilient and preferential. Accordingly, India’s trade policy will need major adjustments to operate effectively in such an environment.

The biggest change required will be in our attitude towards Free Trade Agreements (FTAS). It is true that our FTAS have been to the east of India. It is also undeniable that, on balance, India has not been able to take full advantage of FTAS signed by it with a variety of partners such as the Association of South East Asian Nations (Asean), Singapore, South Korea and Japan. Some of those FTAS are under review, and, hopefully, India will be able to have its legitimate concerns addressed in those negotiations.

It is, however, clear that India will need to enter into FTAS with more trading partners if it is to achieve its goal of a $5-trillion economy by 2025.

In this context, the India-european Union (EU) Summit meeting in May was noteworthy. Both sides agreed to “resume negotiations for a balanced, ambitious, comprehensive and mutually beneficial trade agreement which would respond to the current challenges”. The history of Indo-eu trade negotiations is a chequered one, and, after extensive back and forth between 2007 to 2013, talks had to be suspended out of sheer frustration by both sides. Resumption of talks may be easy but concluding it will require both negotiating dexterity and political will on both sides.

For India, the stakes are high, and having walked out of the Regional Comprehensive Economic Partnership (RCEP), success with the EU will help us regain credibility as an open and outward-looking economy. In addition to the usual issues of autos and auto components, wines, and services, India must also be fully prepared to deal with new issues such as sustainable development, digital trade and labour standards. In the realm of both sustainable development and digital trade, India must be bold and imaginative, since these are in our abiding national interest.

At the insistence of the EU, we have also agreed to the “launch of negotiations on a standalone investment protection agreement”. This is vital for India, since there are no takers for the model bilateral investment treaty (BIT) floated by us in 2015. The stumbling block here is the investor-state dispute settlement (ISDS), which is sought to be included in these negotiations. But there has been some rethinking on the subject even in Europe and it must be hoped that a via media can be found in the talks.

In both the FTA and the investment protection agreement, the potential outcome with the EU can serve as a template for India in other FTAS, which will inevitably follow. The EU is a major trading partner and India must prioritise its negotiations with the bloc. This is necessary since we do not have unlimited human resources and only a handful of people are available to negotiate FTAS in the commerce ministry.

The government has also announced FTAS of one kind or the other with the United Kingdom (UK), Australia and the United Arab Emirates (UAE). I believe that once India finalises the deal with the EU, it will be easier to conclude FTAS with our other trading partners.

The deal with UAE should be relatively straightforward. India has concerns with regard to rules of origin and if these are met, then, it should not take too long to seal a pact. With Australia, the goal seems to be to have an early harvest agreement by December, leaving the finalisation of an FTA for next year. Agriculture and dairy are sensitive sectors for us, but where there is a will, there is a way.

The India-uk relationship is one for the future. In May, at a virtual summit meeting between the two prime ministers (PMS), a Roadmap 2030 was announced that, in turn, launched an “Enhanced Trade Partnership” with the expression of intent to negotiate a Comprehensive Free Trade Agreement.

Again, an ambitious deadline of end-2021 has been fixed for finalising the pre-negotiation scoping phase for FTA.

That leaves out, arguably, the most important strategic partner of India, namely, the United States (US). It is no secret that the US is currently in no mood to contemplate FTAS for a variety of domestic reasons, both political and economic. Respecting this reality, it would be advisable for India to focus on talks aimed at enhanced mutual market access for a select group of goods and services, leaving open the possibility of an Indo-american FTA for the future.

The ministry of commerce has its work cut out for it.

Mohan Kumar is a retired diplomat. He is currently chairman, RIS and dean/ professor at Jindal Global University The views expressed are personal