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

  • Published
    26th Dec, 2022

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.

Examples of non-tariff barriers:

  • Process of manufacturing melted steel:
    • India mostly produces steel generated from iron ore, which in turn comes from mining.
    • On the contrary, most developed countries generate it from scrap, which results in lower carbon emissions.
    • It may result in the levy of a carbon adjustment tax on India.

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.
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