Reaping The Early Harvest
Context: Rethinking on Free Trade Agreement is a welcome step but India needs to be cautious.
Changing trends in India’s trade policy:From protectionism to free trade
• Phase of reversal in trade liberalisation: Between 2014 and 2020, India increased tariff rates on a wide category of products and shied away from signing FTAs in last seven years despite the Economic Survey 2019-20 concluding that FTA’s have been beneficial for India.
• Re-welcoming FTAs: A departure from protectionist approach was observed in 2021 as India is seen to actively engage in fast-tracking its FTA negotiations with several countries like UK, Australia, EU and Canada.
Concerns associated with India’s liberal FTA policy: Scope for infringement of international laws
• India’s “early harvest” deal with Australia which cover half of the goods trade, could be incompatible with WTO principles.
• As any trade deal between WTO member countries that does not cover substantive trade between them will be vulnerable to a legal challenge at the WTO’s dispute settlement mechanism.
Way forward: Redesign “early harvest” trade deals as “interim agreements” leading to formation of an FTA
• India shall substantiate necessity of ‘early harvest’ deals as ‘interim agreements’, before signing FTA.
• Thus, interim agreement shall include a plan or schedule for formation of an FTA within a reasonable period of time.
• It shall be notified to WTO members, who, in turn, can make recommendations if they believe that the interim agreement is not likely to lead to the formation of an FTA.
Changing trends in India’s trade policy:From protectionism to free trade
• Phase of reversal in trade liberalisation: Between 2014 and 2020, India increased tariff rates on a wide category of products and shied away from signing FTAs in last seven years despite the Economic Survey 2019-20 concluding that FTA’s have been beneficial for India.
• Re-welcoming FTAs: A departure from protectionist approach was observed in 2021 as India is seen to actively engage in fast-tracking its FTA negotiations with several countries like UK, Australia, EU and Canada.
Concerns associated with India’s liberal FTA policy: Scope for infringement of international laws
• India’s “early harvest” deal with Australia which cover half of the goods trade, could be incompatible with WTO principles.
• As any trade deal between WTO member countries that does not cover substantive trade between them will be vulnerable to a legal challenge at the WTO’s dispute settlement mechanism.
Way forward: Redesign “early harvest” trade deals as “interim agreements” leading to formation of an FTA
• India shall substantiate necessity of ‘early harvest’ deals as ‘interim agreements’, before signing FTA.
• Thus, interim agreement shall include a plan or schedule for formation of an FTA within a reasonable period of time.
• It shall be notified to WTO members, who, in turn, can make recommendations if they believe that the interim agreement is not likely to lead to the formation of an FTA.
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