Reaping benefits from new trade agreements

International trade is becoming more complex with the emergence of digitization, sustainability standards, supply chain realignment and mega trade agreements. India is responding to the emerging world trade order by negotiating more deep and meaningful trade agreements than shallow agreements limited to the traditional elements of rules of origin and tariff liberalization. India’s ongoing trade negotiation with UK includes 27 chapters, while the proposed India-EU agreement has 32 chapters. These new agreements have provisions to deal with sustainable development, clean economy, digitization, investment protection and so on. For instance, the India-Australia free trade agreement, which was recently implemented, has provision to exempt Indian IT companies operating in Australia from double taxation in both the jurisdictions. There are also dedicated provisions to promote trade in pharmaceuticals, automobiles and other sectors in the Annexures.??

Benefits of recent trade agreements?

India’s recent trade agreements with Australia and UAE have promoted merchandise exports, especially in labour intensive sectors such as textiles and this has cushioned the adverse impact of Red Sea crisis on our overall export performance. While the India-Japan FTA, signed in 2011 did not have any positive effect on India’s textile exports, the agreement with South Korea, signed in 2009, gave preferential market access for Indian cotton yarn in South Korea. Similarly, the India-ASEAN agreement supported our exports of cotton textile to Vietnam, Malaysia and Indonesia.??

On the other hand, our recent trade agreements with Australia and UAE have boosted India’s home textile export with 5% tariff concession. According to industry sources, India has registered positive gains in exports of home textile to Australia, despite the latter’s proximity to China, which is our major competitor. Similarly, the textile industry is optimistic about the India-UAE trade agreement’s potential to boost our exports of textile to Africa via UAE.??

Way Forward?

Exports can be the new driver of India’s economic growth if we carefully design our upcoming trade agreements to play to our unique strengths, while also implementing domestic reforms in special economic zones, labor laws, ease of doing business and pending tax reforms. Indian industry seeks various provisions to make our forthcoming trade agreements more effective.???

In this context, Government of India may include the following agenda in the negotiations of upcoming trade deals:?

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1. Indian steel exporters are facing non tariff barriers in the form of tariff rate quota in the European market. This needs to be addressed at the India-EU FTA?
2. India’s engineering goods manufacturers are insisting the inclusion of stringent regional or local value addition condition, in addition to change in tariff heading (CTH) criteria while offering preferential market access for European industry under our proposed India-EU FTA. This will prevent routing of goods to India from non-EU member countries through EU under the FTA (once it is implemented).?
3. India may also include ESG (Environment, Social and Governance) norms and a reasonable transition period for Indian industry to adhere to these norms under the proposed FTA with UK?
4. As outbound investments from India increases, our future FTAs should include clauses on protecting Indian investments abroad. Indian investors need treaty protection against adverse impact of abrupt policy changes, tax and other regulatory changes in the foreign country on their investment.??
5. In the services sector, India has huge potential for exporting creative services such as animation, gaming, VFX, audio-visual, dubbing, special effects etc. to entertainment sector. India is said to be the preferred country for western country entertainment industry to outsource labour intensive creative services. On the other hand, South Korea and USA are prominent destinations for high-end audio-visual services. So, our future trade agreements may include provisions to promote our strengths in these services.?
6. Government may establish a dedicated FTA desk in the customs department to guide and handhold small scale exporters to use benefits of these agreements. This will improve utilization of these FTAs by small scale exporters.??