Since India turned its back on the China-led Regional Comprehensive Economic Partnership (RCEP), New Delhi has sought to insure us against Asian trade isolation with a renewed focus on free trade agreements (FTAs) bilateral with privileged partners. “Look West” was widely appealing, but progress was slow. With the EU, as both sides agreed to relaunch negotiations, a deal seems a long way off. Talks with the United States, marred earlier by the presidency of Donald Trump who called India a “tariff king”, have not made much headway under US President Joe Biden. Agreements with Australia and Canada have also been slow. The bag is one with the United Arab Emirates, with whom a full trade agreement could soon be finalized. The ongoing talks with the UK should not be breathless over the outcome, given our shared enthusiasm, but the search for a quick interim agreement on sensitive issues. set aside for a final pact later suggests a lack of ambition.
After leaving the EU, the UK under its Brexit chief Prime Minister Boris Johnson has appeared keen to make up for its departure with quick new trade alliances, a program that could be crucial for a considered administration. as having wavered on public health issues and in need of commercial gain. This should push the UK and India to seize every win-win opportunity. Ideally, this is accomplished by lowering import barriers both mutually and widely across borders for the mutual gains of specialization to materialize, with domestic markets only being prohibited with rare exceptions. In the opinion of the World Trade Organization, this is good for free trade in general. The market New Delhi explored with London, however, remains so riddled with hanglists that partial coverage of goods (up to 65%) and services (up to 40%) is the best that appears on the table. While a halfway deal might be an easy way out, it would be a compromise whose piecemeal nature could expose us to charges of trade discrimination under WTO rules. A full-scale FTA in the true spirit of free trade would be preferable. Deals that go too close to sector specifics risk taking too much energy to accomplish too little. In addition, the more fine-tuned the impact analysis, the more likely it is that voices calling for import protection will become stronger.
Proponents of a gradual path advise caution and cite the example of earlier interim pacts – such as with Thailand – which lost local support for their completion once the benefits began to look lopsided. While it is true that some FTAs have fueled export pessimism, this could be because our extent of free trade was insufficient for our global integration gains to materialize. Free trade tends to rattle local markets on either side, but the big bet is on possible net gains for both. This enjoins us to keep our nerves on short-term effects as we prepare for an export surge, which typically depends more on how we sharpen our competitive edge than market access. As our overlaps in value creation with the UK are not too great, import doors can be opened more easily by both. However, accounting concerns often seem to outweigh the dynamism of trade. Our high tariffs on Scotch whisky, for example, serve to fill customs coffers rather than create local jobs through import substitution. Similarly, UK labor market bars fail to protect UK jobs while depriving employers of a wider range of Indian talent. With a few concessions to guide the talks, we should aim for a comprehensive trade package.
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