Introduction:

Free trade agreements are a key to creating seamless trading, but there are genuine concerns when India signs up new such pacts because of past experience. However, a growing wave of protectionism has dominated global trade of late. While it is difficult to assess whether this will lead to a significant shift in the global trade paradigm, a review of India’s existing free trade agreements (FTAs) before negotiating new ones is necessary.

Body:

So far, India has signed 14 FTAs. The impact of all these FTAs on the economy, and especially on the agriculture sector has been disastrous. Among these, the India-Sri Lanka and ASEAN-India FTAs had the greatest negative impact on the Indian agriculture sector. India decided against joining RCEP at the eleventh hour. The official version is that India runs a large trade deficit with RCEP countries, and was expecting specific protection for its industry and farmers from a surge in imports, especially from China.

Factors that ail India’s Free Trade Agreements:

• The poor negotiations of FTAs under previous governments have harmed Indian industry, and led to a distorted trade balance.
• In general, an FTA, by changing the rule of the existing trade regime, may increase the transaction cost of trading turns out to be inefficient due to additional complexity.
• The concerned officials for enforcing the rules are not well-versed with their intricacies. Further, policymakers hardly pay attention to this.
• Another shortcoming in the architecture of India’s FTAs is the avenue of discretionary power of officials in judging tariff concession claims. Both these add to transaction costs.
• Packaging and labelling issues are also not well-defined under FTAs, raising the compliance cost of availing concessions under the agreement
• High cost of packaging affects competitiveness of exports in the international market.
• shortage of proper storage facilities at ports, especially for items requiring cold storage, the possibility exists that traders suffer loss due to damage of goods.
• Certification is an issue that needs attention at the time of signing of FTA if the interests of traders/manufacturers are to be protected.

Case study: India-Sri Lanka FTA (ISFTA), one of the earliest FTAs India singed, and for which more evidence is available from our recent in-depth study. In 2005, 98% of Sri Lankan exports availed the FTA route. This has declined to about 50% in recent years. On the other hand, only 13% of India’s exports are routed through FTA. Surely, no one expects this trend to be exhibited after signing an FTA. Some argue that this fall in the share of utilization of the FTA route is due to the implementation of the SAARC Free Trade Agreement (SAFTA) post 2006, and most Indian exporters are using the SAFTA route. This logic falls apart since the rate of tariff concession is higher under ISFTA (up to 100%) than under SAFTA (up to 20%). The question, then, is why exporters on either side are reluctant to avail benefits of ISFTA.

Measures needed for efficient functioning of FTA’s:

• policymakers must pay enough attention to creating a complementary ecosystem, in terms of trade facilitation measures for efficient functioning of the trade regime, at the time of signing of FTA.
• labelling regulations should be clearly defined and made available to traders, it makes compliance easy, and would not cause problems in clearing shipments
• Since government authorities function at their own pace, there is a need for a system of third-party certification from private entities in partner countries.
• The FTAs can ensure market access to only the right quality products made at competitive prices.
• Improvement in firm-level competitiveness is a must.
• Negotiating bilateral FTAs with countries where trade complementarities and margin of preference is high may benefit India in the long run.
• Also, higher compliance costs nullify the benefits of margin of preference. Thus reducing compliance cost and administrative delays is extremely critical to increase utilization rate of FTAs.
• Proper safety and quality standards should be set to avoid dumping of lower quality hazardous goods into the Indian market.
• Circumvention of rules of origin should be strictly dealt with by the authorities.
• Well-balanced FTA deals addressing the concerns of all the stakeholders are the need of the hour.

Conclusion:

There is a need to revisit all FTAs, and introduce an autonomic decision-making process to strengthen principle-based economic judgments, thereby reducing transaction costs of trading.