Free trade agreements (FTAs) are an effective way for a country to increase its exports and step up engagement in global value chains. Free trade agreements of India with other countries and with its regional partners are many, and today, FTA negotiations have commenced with many more trade partners.
The ASEAN Free Trade Area and the European Union set an example in regional trade agreements, while hundreds of bilateral and plurilateral trade agreements have been concluded over the years. In the recent past, several mega-regional agreements have been finalised, including the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), Africa Continental Free Trade Agreement (AfCTA), US Mexico Canada Agreement (USMCA) and the Regional Comprehensive Economic Partnership (RCEP).
World Trade Organization’s (WTO) regional trade agreements database lists 568 cumulative notifications of regional trade agreements (RTAs) since 1948, with 350 agreements actually in force up to 2020. More than one-fourth of the RTAs came into force since 2015 and more than 38% since 2010.
FTAs today have expanded in size and scope. Some of the issues that are included in recently negotiated agreements include investments, digital trade, competition policy, government procurement, dispute settlement, etc. Norms on labour and environmental protection are often added as well. The trade agreements of the future are likely to be more ambitious in including such areas which are in synch with the emerging requirements for better corporate governance and the need to ensure sustainability.
It is estimated that more than half of global trade is already taking place in the framework of FTAs. Many more FTAs are being signed as economies seek global opportunities, particularly as Covid-19 has restricted economic growth. As these take shape, a high proportion of global trade would be conducted within the new frameworks of non-trade related issues.
India’s first FTA was signed with Sri Lanka in 1998 and it went on to negotiate more comprehensive agreements covering trade in goods and services and investments with many other countries or with regions, including Singapore, Japan, South Korea, Malaysia, ASEAN, Chile, MERCOSUR countries and others.
Its most recent agreement is the Comprehensive Economic Cooperation and Partnership Agreement with Mauritius which came into effect on 1 April 2021. Until now, India has 43 economic agreements already in force or in the pipeline, according to the Asian Development Bank.
The Indian government has proactively been stepping up its efforts to revitalize India’s international trade relations with a renewed FTA strategy. This comprises reviews and re-negotiations of the existing FTAs with the South Asian Free Trade Area (SAFTA), Association of Southeast Asian Nations (ASEAN), Japan and Korea.
Bilateral negotiations are ongoing with Bangladesh, United Arab Emirates (UAE), the Gulf Cooperation Council and Eurasian Economic Union. The government is in various stages of considering talks with Indonesia, Mexico, Philippines, and SACU (Southern African Customs Union).
Signaling its intention to enter into a new phase of trade and investment deals, India has now embarked on a fresh spate of trade discussions. During the India-UK Virtual Summit meeting in May 2021, the two sides agreed on an Enhanced Trade Partnership, including a possible early harvest through an interim trade agreement. India and EU have decided to restart talks on a comprehensive free trade agreement to be pursued parallelly with an investment agreement. With the UAE, India is set to commence talks for a forward looking FTA.
Most FTAs take some time to negotiate and are implemented over a period of time. This gives sufficient time for industry to adapt to lower tariffs and for government to ensure that the overall climate for exporters is competitive.
With exports as a key driver of India’s growth in coming days, FTAs can help exporters leverage new opportunities. As most countries are keen to enter into FTAs, India as a key player in global trade can further progress on trade agreements to create more growth areas.