An important task confronting the new government in New Delhi is the need to review India’s approach to negotiations for free trade agreements (FTAs), particularly those with the developed countries. Why is this important? What are some of the key questions that should be addressed in this review?

Over the past 2-3 years India has finalised FTAs with Mauritius, the UAE, Australia and the four nation EFTA (European Free Trade Association) group. Further, considerable progress appears to have been made in the FTA negotiations with the UK and Oman. India is also negotiating FTAs with the European Union, Peru and a few other countries. It would thus appear that FTAs are being viewed as an important instrument for boosting India’s exports.

Can FTAs be the primary driver of India’s exports? FTAs can open new commercial opportunities for enhancing India’s exports of goods and services. However, the incremental gain in exports on account of FTAs would be rather limited. To illustrate, a study by UK’s Department of International Trade predicts that the India-UK FTA could increase India’s bilateral exports of goods and services to the UK by £10.6 billion by 2035. This translates into an annual increase of around $1 billion — a drop in the ocean compared to India’s exports of $776 billion today.

With the exception of the EU, the contribution of FTAs with most of the other countries with whom India is presently negotiating, is likely to be even more modest in giving a fillip to its exports. However, enhanced prospects of exports arising from the FTAs with the UK and the EU could remain a pipe dream, as they would get largely curtailed on account of measures such as carbon border tax. Overall, the premise that FTAs would be a significant contributor to India’s export growth appears somewhat misplaced. A review of the performance of India’s past FTAs would also bear out this point.

India’s FTA strategy needs to recognise that FTAs are no longer mainly about trade flows. On account of inclusion of provisions on a large number of non-trade issues at the insistence of the developed countries — labour, environment, gender, corruption, regulatory coherence, to name a few — FTAs of the developed countries are increasingly becoming ‘free from trade’, or even ‘far from trade’, agreements. How would India be impacted, if the final provisions in its FTAs with the UK and the EU are similar to those in the recent FTAs of these two developed country partners?

The likely impact

First, some of the provisions, particularly those on environment, labour and gender, would raise the cost of production in India, thereby eroding its cost competitiveness. Further, rules on these issues mark a clear trend towards norm-setting allowing countries to impose barriers on exports. These barriers would dent India’s exports.

Second, many of the FTA provisions on sustainability are likely to be extremely pernicious for India, but would do little for protecting the environment. A cluster of commitments would prevent India from implementing policies to spur the domestic manufacture of goods required for de-carbonisation, thereby making the country overwhelmingly import dependent.

These include the following: eliminating customs duties on environmental goods; according non-discriminatory treatment to domestic and foreign suppliers in government procurement of equipment required for renewable energy production and storage; and adopting high standards of environmental protection, or harmonising standards with those prevalent in the FTA partner country. The last-mentioned obligation would prevent most Indian producers, particularly those in the MSME segment, from selling even in the domestic market as they would not be able to comply with the stringent environmental norms. This would open the Indian market for sellers who can comply with high environmental standards — mainly exporters from the developed countries.

Third, an array of provisions in the existing FTAs of the developed countries are aimed at facilitating the grab of natural resources in developing countries. Prohibiting the imposition of export taxes on natural resources would prevent India from creating a value-added downstream industry based on some critical minerals required for de-carbonisation. It should also be noted that the following provisions could result in the developed countries acquiring de facto control over India’s mining sector: treating mining entities from FTA partners at par with Indian entities; establishing high standards of environmental protection for offshore oil and gas operations; promoting the values of responsible sourcing and mining; and undertaking an environmental impact assessment prior to granting authorisation for mining projects. Resource grab could also extend to grab for government data through provisions on digital trade, and grab for pathogen data through provisions on ‘One Health Initiative’.

Fourth, even if many of the provisions on non-trade issues might not be legally enforceable, these should continue to ring alarm bells. India’s FTA partners would not fail to use multiple avenues available in many FTAs, particularly public participation and submissions, consultations, cooperation, dialogue, and exchange of information, to ensure compliance with the provisions on non-trade issues.

In the 1990s and 2000s international investment treaties were promoted as being the magic wand for attracting foreign investment. This proved to be a mirage. It is apprehended that the fate of the so-called 21st century FTAs being negotiated by India would be no different when it comes to significantly boosting the country’s exports. The real increase in India’s exports will come from domestic initiatives that enhance price competitiveness — infrastructural improvement; reducing the cost of capital and export finance; and bringing down transaction costs.

On account of the economy-wide implications of the non-trade issues, in the long-term, the FTA embrace could smother India’s aspirations and prospects in many sectors. An urgent rethink of India’s FTA strategy is called for, before it is too late to make course correction.

The writer is an international trade expert. Views expressed are personal