Accelerated free trade agreements: More detailed agreements require inter-ministerial coordination

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At a time when global trade is facing negative headwinds – with huge monthly trade deficits due to rising imports – India has revised its strategy towards Free Trade Agreements (FTAs) to boost exports as a growth engine. It is currently negotiating/planning several free trade agreements – including with the UK, the EU, Canada, Israel and the Gulf Cooperation Council. In order to speed up this process, it is to be welcomed that the government is considering a proposal to set up an inter-ministerial body. The rationale for such a body is to ensure better coordination, as disagreements on crucial and sensitive issues within the departments overseeing different sectors tend to delay FTA negotiations.

As this newspaper reports, stakeholders with conflicting interests across sectors complicate negotiations. For example, the domestic dairy industry’s fears of stiff competition in dairy products from Australia and New Zealand were in large part responsible for India’s exit from the regional comprehensive economic partnership, although some other sectors were less reluctant to join the grouping. Similarly, opposition from the auto and electronics industries effectively prevented an early harvest deal with Thailand 18 years ago from moving into a full-fledged free trade agreement.

The new push towards FTAs ​​resulted in a comprehensive Economic Partnership Agreement with the United Arab Emirates in March, followed by an Economic Cooperation and Trade Agreement with Australia. Discussions are ongoing for an agreement with UK by Diwali. India and the EU have resumed negotiations on a free trade agreement after a pause of around nine years and plan to start the next round of talks in September. However, the ambitions in the deals with Australia and the UK are only for early harvest deals or mini free trade deals for trade in a limited range of goods and services. They could be a precursor to a full-fledged free trade agreement, but much later. A higher level of ambition was signaled by BVR Subrahmanyam, Trade Minister, when he warned Indian industry to brace for competition as the country set to sign “very deep” free trade deals.

“In order to make free trade agreements realistic and compliant with World Trade Organization standards, we need to cover at least 90% of trade through comprehensive liberalization. We can’t pick raisins. There will be deep integration of economies. There will of course be some delicate lines,” he said at the Confederation of Indian Industry Partnership Summit in December 2021.

The proposed inter-ministerial body is clearly intended to facilitate such free trade agreements, since they are higher-level agreements that also entail regulatory reform. For example, the free trade agreement recently signed between the EU and New Zealand included provisions on sustainability and labor rights. The proposed FTA talks with Israel must address its concerns about violations of intellectual property rights standards. India has also joined the US-led Indo-Pacific Economic Framework, which will define common goals in areas such as trade facilitation, digital economy and technology standards, supply chain resilience, decarbonization and clean energy, infrastructure and labor norms, among others. For example, India may not be on the same page as the US when it comes to digital trade and labor standards. Clearly, such new generation agreements require greater coordination of stakeholders within the government, spanning different departments and departments, as they involve more than just the liberalization of preferential tariffs.

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