Free trade agreements being negotiated by India with developed country partners such as the UK, the EU, and Canada may not bring in substantial benefits as no significant additional market access is expected for Indian exporters because of already low normal import tariffs in these countries, per a research report by a Delhi-based think tank.
Things are likely to move exactly along the lines of India’s existing FTAs with Japan, South Korea, and the ASEAN, where India’s exports grew at a rate much lower than its imports after implementation of the pact, resulting in its goods trade deficit with the three FTA partners increasing at a much higher rate than India’s global trade deficit, according to the report titled “FTAs: Fabulous, Futile, or Flawed?” An evaluation of India’s FTAs with ASEAN, Japan, and South Korea, brought out by former Indian Trade Services officer Ajay Srivastava, co-founder of the Global Trade Research Initiative, pointed out.
India’s FTA partners benefited more from the pacts, as the lowering of India’s high normal tariffs resulted in greater market access for their businesses.
In the new FTAs being negotiated, there could be an additional disadvantage for Indian exporters, as the introduction of new issues, such as labour, environment, digital trade, and gender, could empower these countries to impose many non-tariff barriers to discourage exports from India, the report added.
On expectations that an FTA with a developed nation may result in a rise in India’s labour-intensive goods exports, the report pointed out that it may not be always true, as was evident from India’s unsubstantial increase in apparel exports to Japan despite the country bringing down import duties from the normal level of 10 per cent as part of the India-Japan free trade pact signed in 2011.
“India’s textiles and apparel gained little from the FTA with Japan. India’s exports to Japan grew from $257.7 million in 2007–09 to $368.6 million in 2019–21, a cumulative growth of 43.1 per cent. India’s global exports grew by 67.9 per cent during this time. So, even the modest increase in exports to Japan may be due to natural growth factors and not the FTA,” the report said.
“Due to the noise created by FTAs, we forget that less than 20 per cent of world trade is preferential. Eighty per cent of world trade happens at non preferential MFN duties (import duties applicable to all countries). Hence, India needs additional strategies to promote trade happening outside of the FTAs’ preferential route,” the report suggested.
Proposing alternatives, the report pointed out that most large trading powers have grown by enhancing product‐firm‐country level competitiveness and reducing MFN import duties. India must focus on these, it said.