India in the era of Deep Trade Agreements

Until the early 1990s, trade agreements largely covered tariffs and a limited set of nontariff measures such as safeguard measures, anti-dumping duty, import restrictions, export restrictions, quality standards, food safety standards, etc. In the course of time, it was realized that countries that adopt less stringent regulations on intellectual property rights, environment protection, and labor rights have unfair competitive advantages over countries with stringent regulations on these policy areas. Similarly, countries can restrict or disallow market access for foreign companies through stringent rules on data localization, government procurement, e-commerce, and small and medium enterprises.

Negotiating countries of trade agreements felt the need to harmonize regulations on the above policy areas in their respective countries by bringing them under the scope of the agreement so that there is a level playing field for companies of all the signatory countries. Consequently, these agreements which include provisions on environment, labor, intellectual property, e-commerce, and other policy areas are known as Deep Trade Agreements.

World Bank, in its Handbook on Deep Trade Agreements, defined such an agreement as one which covers three sets of policy areas, viz. 1) those policies that promote economic integration among countries, 2) those policies that regulate government discretionary measures that inhibit such economic integration, and 3) those policies that promote consumer or social welfare by regulating the behavior of exporters.

Provisions covered in the first set of policy areas are import tariffs and export taxes, regulation on trade in services, foreign direct investment, visa regime, and intellectual property rights. The second set of policy areas covers discretionary government measures such as anti-dumping duties, countervailing duties, public procurement policy, quality standards, sanitary and phytosanitary measures, and other technical barriers to trade, subsidies, etc. These discretionary policy measures limit market access or economic integration among the signatory countries of FTA. Under the third policy area, trade agreements regulate environment and labor regulations for the welfare of society. The third policy area also includes competition policy, regulation of state-owned enterprises, and subsidies that have a direct impact on consumer or social welfare.

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Provisions in India’s trade agreements

The World Bank Database provides detailed information on coverage of provisions such as labour, environment, public procurement, competition policy, intellectual property rights, investments, and others in India’s trade agreements. The database provides information on coverage of these provisions across 11 trade agreements signed by India with partners such as Sri Lanka, Singapore, Bhutan, Chile, MERCOSUR, Afghanistan, Nepal, ASEAN, Malaysia, Japan, and South Korea.

Among these 11 agreements, the ones with Japan and South Korea are deeper agreements with provisions on environment protection, investment, and competition policy.?For instance, in our agreement with Japan, there is 75% coverage of enforcement mechanisms for environmental laws. While in many other trade agreements (viz. with ASEAN, Malaysia, South Korea, Sri Lanka, etc., the coverage ratio is 25% for enforcement provisions related to environmental laws.?In the case of obligations related to competition policy, India’s trade agreements with South Korea and Japan have 50% coverage, while such obligations are missing in trade agreements signed with other countries.

Existence of detailed provisions on government procurement is a feature of a deep trade agreement. Most of the agreements signed by India, especially with ASEAN, South Korea, Malaysia, Sri Lanka, Singapore, Chile, Nepal, and Bhutan have no provision for government procurement. On the other hand, India’s trade agreement with Japan has shallow provisions on government procurement.

The following table provides a snapshot of the overall provisions covered in India’s trade agreements with 10 countries or regions, along with the coverage of substantive provisions.?

The way forward

As countries prefer to broaden the coverage of trade agreements by including more and more policy areas, India should also prepare its negotiation stance on these emerging policy areas of environment and labour, which are not substantially covered in any of our trade agreements labours so far. India’s upcoming trade agreements with European Union is expected to be deeper that will include labour and environment policy areas. Among the developing countries, Vietnam has shown the way by becoming part of the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which has a coverage ratio of 61%.

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