PM Modi Reaffirms Farmer Welfare Amidst FTA Concerns

The Prime Minister addressed farmer welfare concerns amid FTA talks with the U.S., during the inauguration of the M.S. Swaminathan Centenary International Conference.

Definition and Scope of FTAs

• FTAs are bilateral or multilateral arrangements between countries to reduce or eliminate tariffs and non-tariff barriers on substantial trade between them.
• These agreements cover:
  • Trade in goods: Agricultural, industrial, and consumer products
  • Trade in services: Banking, education, construction, IT, etc.
  • Other sectors: Intellectual property rights (IPRs), investment protection, e-commerce, government procurement, etc.

Early Harvest Scheme (EHS)

• An EHS is a precursor to a full FTA, where countries agree to reduce tariffs on a limited list of items while negotiations for a full-fledged FTA continue.
• It acts as a confidence-building measure between the trading partners.

FTAs and WTO: Exception to MFN Principle

• The Most Favoured Nation (MFN) principle under WTO mandates non-discrimination in trade.
• FTAs are legal exceptions to the MFN rule under Article XXIV of GATT, Article V of GATS, allowing countries to give preferential treatment to FTA partners.

India’s Recent FTAs (as per SBI Report)

• India has signed 13 FTAs in the last five years, including:
  • Mauritius (CECPA – 2021)
  • UAE (CEPA – 2022)
  • Australia (ECTA – 2022)
  • India – UK (FTA)
• Negotiations are underway with the EU, Canada, and Gulf Cooperation Council (GCC).

Challenges Faced by India in FTAs

• Trade Imbalance
  • Between 2017 and 2022:
    • India’s exports to FTA partners grew by 31%
    • Imports rose by 82%
  • Resulted in widening trade deficits, especially with ASEAN, South Korea, and Japan.
• Low FTA Utilisation
  • India’s FTA utilisation rate is only ~25%, due to:
    • Lack of awareness among MSMEs
    • Complex documentation and Rules of Origin compliance
  • In contrast, developed nationsutilise FTAs at 70–80%
• Non-Tariff Barriers (NTBs)
  • NTBs include sanitary and phytosanitary restrictions, quality standards, quotas, etc.
  • According to Global Trade Alert, over 26,000 new trade restrictions were imposed globally between 2020 and 2024.
• Unequal Competition
  • Indian firms face competition from advanced FTA partners:
    • g., South Korea and ASEAN outperform India in electronics, auto parts, and machinery.
  • Indian MSMEs often lack the capacity to compete with large MNCs from partner countries.
• Complex Rules of Origin (RoO)
  • Certification and RoO compliance is difficult, leading to underutilisation of FTA benefits.
  • Often, third-country goods are routed via FTA partners exploiting relaxed RoO norms.