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.