The window for FTAs shrinks as India braces for a set of non-tariff barriers

Stress on non-tariff issues by the developed nations on India is shrinking the time window for free trade agreements (FTAs) with the UK, European Union, and Australia.

What are Free Trade Agreements?

• It is a pact between two or more nations to reduce barriers to imports and exports among them.
• Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
• The concept of free trade is the opposite of trade protectionism or economic isolationism.
• FTAs can be categorized as Preferential Trade Agreements, CECA, and Comprehensive Economic Partnership Agreements (CEPA).

Why the time is running out?

• Issues like climate action, carbon emissions, and labour issues are taking precedence over pure trade issues due to trade negotiations.
• There are chances that the focus might get shifted to a series of events linked to the G20 presidency, so India needs to act fast.
• The political lobbying from influential lobby groups such as farmer unions and the auto sector could intensify in the run-up to the 2024 national elections.

Differences between the old (FTAs negotiated before 2015) and the new FTAs

• Earlier there used to be about a dozen chapters.
• Now in the new FTAs, the number of chapters has doubled with non-trade issues dominating these FTAs.

What is the concern?

• India needs to be cautious in the FTA negotiation, in the future we may benefit from the GSP (Generalised System of Preferences), but if the developed nations put in a non-tariff barrier by citing labour or environment, then it becomes an issue.
• Carbon Border Adjustment Mechanism (CBAM): European Union has purposed CBAM to tax carbon-intensive products, from 2026. Many developing countries including India are expected to challenge this levy.
• An interim Trade Agreement or early harvest trade agreement is used to liberalize tariffs on the trade of certain goods between two countries or trading blocs before a comprehensive FTA (Free Trade Agreement) is concluded.
• The problem is that these early harvest schemes potentially target the low-hanging fruits, leaving the tougher goods and services for later.
• Recession in the developed world also stokes protectionist tendencies there, to which they respond by erecting walls — not necessarily based on tariffs — to stall imports from other countries.