View: Tackling FTA attractions

Since India withdrew from Regional Comprehensive Economic Partnership (RCEP) negotiations in 2019, it took New Delhi almost two years to restart free trade negotiations with trading partners. The process resumed with the signing of India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) in March 2021, followed by India-UAE Comprehensive Economic Partnership Agreement (CEPA), India-Australia Economic Cooperation and Trade Agreement (ECTA) in 2022, and India-European Free Trade Association (EFTA) pact in February this year. Negotiations on trade pacts are on with Britain, the EU, Oman and Peru.

Instead of entering into agreements with large trading blocs like RCEP - where the level of ambition may be too high, and finding a common denominator with several partners challenging - India's plan seems to focus on bilateral arrangements where reciprocity may be easier. Although such a diversification strategy can't be faulted in a multipolar world where WTO negotiations are almost at a standstill, we must contend with challenges if these future arrangements are to yield robust and meaningful gains.

Diverse basket: Most trade negotiations have graduated from trade in goods (such as customs tariffs and rules of origin) to comprehensive agreements for economic cooperation, straddling market access for services, investment, safeguard measures, trade facilitation, and technical barriers to trade and sanitary and phytosanitary measures. This means that instead of reckoning pluses and minuses in one negotiating track - namely, market access for goods - an evaluation is necessary across tracks to assess the overall balance.

Multiple stakeholders: Number of domestic constituencies that are impacted and need to be consulted has multiplied. This calls for more agile institutional mechanisms. Further, new concepts and standards are constantly emerging in each track, and ambition is growing. For instance, with their greater integration into global value chains, many trading partners expect that rules of origin need to loosen up both for naturally produced goods and those manufactured by industry.

While each bilateral negotiation is unique, it is natural for a trading partner to demand what has been conceded to another recently. For example, any new concessions to Australia, the UAE or EFTA will likely have a precedent value for other ongoing or future negotiations.

Tariff asymmetry: Indian tariff levels for industrial goods are higher than those of trading partners with whom negotiations are being made. Given the WTO compulsions law - which recognises an FTA only if it has substantial trade coverage and predominantly envisages tariff elimination, and not just reduction - it is evident that we need to concede greater ground compared to our negotiating partners.

Prima facie, this appears to be a challenge as we have historically engendered a diverse industrial basket, a large segment comprising MSMEs. But with a clever negotiating strategy, this could be converted into a strength where we can leverage concessions made in this to extract gains in other areas of our interest.

An example is the case of ECTA, where India negotiated a definitive investment commitment from Switzerland in exchange for tariff concessions. This is an untested idea. Creating inverted duty rates vis-a-vis general or MFN tariffs is another challenge, given our tariff structure.

These challenges are manageable. We need a coherent strategy to convert them into opportunities.

Be proactive: Identify, articulate and become demandeurs of offensive trade interests, rather than merely being reactive and defensive in containing the perceived damage from concessions. This presupposes broad-based and meaningful consultations with trade, industry and other stakeholders, so that it's possible to come to a shared understanding about real and significant threats, and delineate the most promising opportunities around which a well-thought-out negotiating strategy can be crafted.

Onboard domain experts: A permanent, right-sized institutional mechanism in GoI that brings together domain expertise and diverse skill sets, such as trade data analytics with varying granularity, mapping of export capacity with demand in other markets and domestic supply gaps where it would be prudent to ease market access; likely impact assessment of tariff and non-tariff measures; negotiating strategy; legal drafting, etc, is imperative.

GoI is reportedly preparing a detailed operating procedure defining the roles and responsibilities of different agencies. This is a right and timely step.

The writer is former chairman,Central Board of Indirect Taxes and Customs.