After India’s disenchantment with free trade agreements (FTAs) signed in and around 2009-2011, there was a long hiatus in fresh FTA negotiations. Agreements entered into during this period didn’t yield the desired results leading to severe criticism from various quarters. Nothing seemed to go right — the increasing trade deficit with these FTA partners, being one.

The Indian industry demanded review of some of these FTAs, particularly Indo-ASEAN, Indo-Korea and Indo-Japan FTAs.

After almost a decade or so, there is renewed faith and enthusiasm in the government about FTAs. The possibility of getting priced out due to India’s non-participation in mega agreements like Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has led to a rethink by policymakers. Not joining FTAs definitely invites the risk of getting isolated and losing tariff and other advantages that our competitor countries enjoy. FTAs with developed economies can also help facilitate India’s entry into MNC supply chains.

There is now a growing realisation that not joining the FTA game will not only deprive India of some obvious advantages but also put it at serious disadvantage vis-à-vis competitor countries. Prudence thus demands that India enters into deeper bilateral agreements with at least major trading partners. Viewed in that context, the government’s recent move to proactively engage with all advanced economies — Australia, the EU and UK — is more than a welcome move.

However, India’s approach in such FTAs should be to seek concessions in other areas in lieu of the substantial tariff cuts that India will be asked to offer on most of the products since MFN (Most Favoured Nation) tariff in these advanced economies is way too less compared to India’s and no substantial gain can be expected in terms of tariff cut.

The chances of growth of exports post-FTA, however, depends largely on the MFN duty rates prevailing in the trading partner countries. Higher the MFN duty of trading partner country, greater the chances of increase in exports to the partner country after duty elimination post-FTA. Let’s examine the relevance of FTAs on India’s apparel exports. Exports of ready-made garments (RMG) in last few years have plateaued. India’s share in the global trade of knitted garments has declined by 19.5 per cent in last seven years from a share of 3.85 per cent in 2015 to 3.10 per cent in 2022 and in woven garments by 19.6 per cent from a share of 4.60 per cent in 2015 to 3.70 per cent in 2022.

India’s competitors

The countries doing well in apparel exports have the obvious tariff advantage in market access. Bangladesh on account of being least developed country (LDC) enjoys duty-free access to EU due to EU GSP scheme. Vietnam has a free trade pact with EU. Turkey being part of European custom union is also not liable to payment of customs duty in EU market. All this puts Indian apparel exports at a distinct disadvantage.

Average duty for Indian exports in EU & UK for Indian RMG is 9.6 per cent. The EU accounts for 28.1 per cent of India’s apparel exports and UK 8.8 per cent. Hence, tariff elimination through FTA with these countries is likely to hugely benefit Indian apparel exports to these destinations. However, there is a word of caution. While we focus primarily on tariff negotiation, the trickier issue of non-tariff barrier negotiation does not get the kind of attention it actually deserves. Therefore, duty elimination alone may not help unless these non-tariff barriers are negotiated during FTA negotiations. The fact that tariff elimination is not the panacea has been amply demonstrated by our Japanese experience. China, despite not enjoying duty concession with the EU, UK, UAE, Japan, Korea and Canada, continues to be the top exporter of textiles and apparels. So, it is equally important that the product profile of Indian apparel exports is strengthened and aligned to the global demand pattern, product diversification be taken up with all earnestness and cotton-centric bias be removed by restoring balance in favour of MMF (manmade fibre) based apparel.

So, while apparel exporters are quite gung-ho about FTA with the UK and EU, the spoilers could be product mismatch, low share of MMF garments in the export basket, growing protectionism among major countries, non-tariff barriers, sustainability requirements, labour issues, etc.

The report ‘UK-India FTA: UK’s strategic approach’, published by the Department of International Trade, UK, has stated that the Indian garment industry is one of the main drivers of water stress and water pollution.

This report suggests a preparatory exercise for justifying imposition of sustainability related restrictions. Barring a few sectors like textiles and apparels, there won’t be any significant gain to India in terms of tariff concession as majority of Indian goods already have duty-free access to the UK market, and most of other items attract a low tariff of 5 per cent.

In comparison, only 3 per cent of product lines on UK exports to India can enter tariff free and UK’s exports to India on the other hand face a simple average tariff of 14.6 per cent.

The UK, given its strong manufacturing base, will skew the trade talks towards products. India should however, besides putting services negotiation on the top of its priorities, also seek relaxation/ concession in sustainability compliances.

While tariff elimination is almost certain to provide a real window of opportunity for the Indian apparel sector by offering a level-playing field in major markets, Indian negotiators should bargain hard to minimise burdensome compliance requirements. India must follow a cautious approach in negotiating a less travelled path of new and novel issues of sustainability.

A good beginning has been made in negotiation with the UK, which is preparing to roll out carbon levy for goods entering the country. India is negotiating hard to include provisions that may offer relief to its exporters. .

The writer is the Secretary General, Apparel Export Promotion Council. Views expressed are personal

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