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Assessing India’s free trade agreements

Madhyam | 9 December 2022

Assessing India’s free trade agreements

By Biswajit Dhar

Almost two decades back, India began its serious engagements with bilateral and regional free trade agreements (FTAs) with the adoption of the Framework Agreement on Comprehensive Economic Cooperation with the Association of Southeast Asian Nations (ASEAN) in 2003. This agreement was the articulation of the decision taken by the Trade Ministers of India and ASEAN in 2002 to work towards a Bilateral Regional Trade and Investment Agreement (RTIA). India and ASEAN entered into negotiations for establishing the RTIA that would include a free trade area in goods, services and investment, to be achieved through, inter alia progressive elimination of tariffs and non-tariff barriers in substantially all trade in goods; progressive liberalisation of trade in services with substantial sectoral coverage; and establishment of a liberal and competitive investment regime that facilitates and promotes investment within the India-ASEAN RTIA (emphasis added) (ASEAN 2003).

The two parties had initially decided to conduct the negotiations in two phases: negotiations for liberalising trade in goods were planned between January 2004 and end of June 2005, while negotiations opening up trade in services and investments would be conducted between 2005 and 2007. However, the ASEAN-India FTA in goods were signed only in 2009, while the services and investment agreements were endorsed in 2014.

The ASEAN-India Framework Agreement was a watershed moment in India’s trade policy making as the Government of India made a turnaround from its earlier stance on FTAs, which can best be described as one of hesitancy, bordering on suspicion. Prior to the agreement with the ASEAN, India had entered into only two preferential trade agreements (PTAs) and a solitary free trade agreement (FTA) covering the goods sector. The first of the PTAs was the Bangkok Agreement (now known as the Asia Pacific Trade Agreement) in 1975[1] and the second was the SAARC Preferential Trade Agreement (SAPTA) between the seven founding members of the grouping in 1995. India concluded its first free trade agreement (FTA) with Sri Lanka in 1998 (Ministry of Commerce and Industry 2022a). These agreements were relatively shallow, implying trade liberalisation undertaken through these agreements were modest.

India, traditionally a supporter of the multilateral trading system, seemed wary of FTAs until the early 2000s. This was reflected in its Discussion Paper on Regional Trading Agreements tabled at the World Trade Organization (WTO) in 2003, which stated thus: “Though RTAs are an alternative window of trade liberalisation as well as an alternative framework of development between more limited sets of countries or economies, it is important that they complement multilateral trade liberalisation and not create complications for that goal or occur at the cost of trade or development of countries not members of particular RTAs” (WTO 2003: paragraph 2).

However, with the commencement of negotiations for the ASEAN-India FTA (AIFTA) in 2004 India quickly changed its earlier stance. Decisions were soon taken to negotiate FTAs[2] with Singapore, the Republic of Korea (RoK), the European Union (EU), Japan and Malaysia. Besides, an expedited deal with Thailand, an “Early Harvest Programme”, was also concluded in 2004. This was the first substantive phase of India’s engagements with FTAs, which concluded in 2011. During this phase, five FTAs, with Singapore, the ASEAN, RoK, Japan, and Malaysia were adopted. However, one important FTA, with the EU member states could not be finalised “due to a gap in ambition” (European Commission 2022).

The second phase of India’s global economic integration via FTAs overlaps the first, and it begins with the launch of trade negotiations with Canada and New Zealand in 2010, followed by Australia. In this phase, the most significant decision was to join the negotiations for adopting the Regional Comprehensive Economic Partnership (RCEP), a grouping of the ASEAN and its six countries FTA partners[3]. However, India’s engagement with RCEP ended abruptly in 2019 when Prime Minister, Modi announced India’s decision to withdraw from negotiations (Laskar 2019). By withdrawing from RCEP, the Government had explicitly signalled that India was stepping back from the bilateral trade and investment agreements. The Atmanirbhar Bharat Abhiyan announced in 2020 seemed to confirm that India was agnostic about FTAs.

By the second half of 2021, the government had shrugged off its scepticism regarding FTAs, triggering the third phase of India’s FTA-engagements. The Commerce Minister announced that there was a “very positive momentum in terms of FTAs, with the United Kingdom (UK), EU, Australia, Canada, United Arab Emirates (UAE), Israel and the Gulf Cooperation Countries (GCC) countries” and that “Early Harvest Agreements with UK and Australia” would be concluded (Ministry of Commerce 2021a). By end-2021, the Government announced that India was negotiating FTAs with 7 countries/groupings, namely, the UAE, Israel, the UK, the EU, Canada, Australia, and the Eurasian Economic Union, which includes the Russian Federation, Armenia, Belarus, Kazakhstan, and Kyrgyzstan (Ministry of Commerce 2021b). In the first half of 2022, the India-UAE CEPA was finalised as was the Australia-India Economic Cooperation and Trade Agreement (ECTA), which is the first phase the Australia-India CEPA.

This paper discusses India’s participation in FTAs during the three phases described above and assesses the outcomes of these agreements in respect of trade in goods. A similar exercise should have been undertaken for services trade as well, but this was not possible in the absence of comparable bilateral data on services trade.

The first section of the paper discusses the FTAs with the ASEAN members, the RoK, and Japan. These agreements were endorsed with the expectations that the Indian businesses would improve their presence in the partners’ markets that they would increase their participation in the production networks spawning in India’s eastern neighbourhood. The outcome of these FTAs would be evaluated in this section. The second section deals with India’s participation in the negotiations for adopting the RECP and analyses the reasons contributing to its withdrawal. The third section discusses the trade liberalisation initiatives undertaken in the FTAs with UAE and Australia, and their likely outcomes.

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 source: Madhyam