By Biswajit Dhar
The National Democratic Alliance (NDA) government’s foreign trade policy over its decade in power, viewed through its engagements in the bilateral free trade agreements (FTAs), can best be characterised as a story of two halves.
During the later years of its first term in office, the government was intent on reviewing the three major FTAs that the United Progressive Alliance (UPA) government had endorsed, with the 10-member Association of South East Asian Nations (ASEAN), the Republic of Korea, and Japan, arguing that these were against national interests The most defining moment of this phase was India’s withdrawal from East Asia’s mega-regional FTA, the Regional Comprehensive Economic Partnership (RCEP).
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In its second term and following the post-Covid recovery, the NDA government did a complete U-turn, commencing negotiations with eight countries/regions, including those that were being negotiated prior to the government took office and were stalled prior to the 2014 elections. This new-found enthusiasm resulted in the conclusion of two new-generation FTAs with the United Arab Emirates (UAE) and the European Free Trade Association (EFTA).
When the NDA government took office, few could have anticipated that it would soon turn FTA-sceptic. Within a few months, the government gave a strong endorsement to the burgeoning economic relations with its partners in East Asia, which went back to the “Look East Policy” of the early 1990s by upgrading it to the “Act East Policy”.
Through this policy shift, economic relations with the East Asian countries were sought to be intensified by promoting economic cooperation and developing strategic relationships, thereby providing enhanced connectivity in its broadest sense. More importantly, the RCEP received political backing at the highest level with India giving assurances to “exert efforts” for an early conclusion of the mega-regional trade agreement.
But there were also signs of strain in the process of India’s East Asian integration with the implementation of its three functional FTAs. The benefits accruing from these FTAs as regards merchandise trade were highly asymmetrical and were overwhelmingly against India. In other words, India was facing growing imbalances on its merchandise trade account with almost all the partner countries.
More worrisome for India was the fact that while its exports were not able to take advantage of the market opening in partner countries, its imports from these countries had escalated. Furthermore, India’s exports were focused more on raw materials and intermediate products, but its imports from FTA partners were largely finished products. It could thus be argued that India was exporting jobs and value addition through its trade engagements with these countries.
Unfortunately, there was no evidence of changes in India’s trade in services, as disaggregated data on services trade are not available from official sources. Services trade with the East Asian partners could well have improved as India’s trade in services has always been more buoyant as compared to its merchandise trade.
Non-availability of services trade data or for that matter any assessment of trade performance of these sectors from the government contributed towards worsening perceptions about these agreements.
Although the government tacitly supported the RCEP, various stakeholders in the country had voted against this proposed agreement arguing that it would increase imports of agriculture and dairy products from Australia and New Zealand, respectively, and manufactured products from China.
There was, thus, a general view that endorsing the RCEP would be detrimental to the interests of India’s agriculture and industry. With India and China’s differences over the border issues escalating towards the end of the NDA government’s first term in office, the decision to walk away from the RCEP negotiations perhaps became easier.
The second phase of the NDA government’s trade engagements was initiated in the third quarter of 2021 with the announcement that India and the UAE would commence negotiations for a Comprehensive Economic Partnership Agreement (CEPA).
This was the first of several broad-based agreements on which negotiations were initiated with several countries/regions, which included the United Kingdom (UK) and the Eurasian Economic Union. Besides, long-stalled CEPA negotiations with the European Union, Canada, and Australia were also resumed.
Three features of the NDA government’s engagements for concluding bilateral trade agreements distinguished this phase from those in its first term. First, the scepticism regarding FTAs that had dominated its earlier engagements seemed to have been diluted. Secondly, the government was willing to include several “sensitive” areas like government procurement and intellectual property rights (IPRs), which it had red-lined in the past. And, finally, there was an eagerness to conclude at least some of the deals, the best example of which was the CEPA with the UAE that was concluded in three months.
But the most significant change in the government’s attitude towards FTAs was seen through the recently-concluded agreement with the EFTA. This agreement is noteworthy for the firsts from the point of view of India. One, this is the first comprehensive trade agreement that India has concluded with advanced countries.
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Secondly, India agreed to include areas like IPRs and labour and environmental standards that it had resolutely refused to do in any bilateral trade deal. India’s commitments in these areas would involve amendment of its domestic laws. From a public interest perspective, the most critical would be the likely amendments in the Patents Act that can strengthen the rights of patent holders.
With the rights-holders exercising stronger control over the market, there is a real possibility that prices of medicines could significantly increase. This is an augury that the country can ill-afford given that high costs of healthcare already pose a heavy burden on a large section of the society. The government, therefore, needs to take adequate care to ensure that trade deals do not undermine the country’s development imperatives.
Biswajit Dhar is a distinguished professor at the Council for Social Development.
Views are personal.
By Biswajit Dhar
The National Democratic Alliance (NDA) government’s foreign trade policy over its decade in power, viewed through its engagements in the bilateral free trade agreements (FTAs), can best be characterised as a story of two halves.
During the later years of its first term in office, the government was intent on reviewing the three major FTAs that the United Progressive Alliance (UPA) government had endorsed, with the 10-member Association of South East Asian Nations (ASEAN), the Republic of Korea, and Japan, arguing that these were against national interests The most defining moment of this phase was India’s withdrawal from East Asia’s mega-regional FTA, the Regional Comprehensive Economic Partnership (RCEP).
In its second term and following the post-Covid recovery, the NDA government did a complete U-turn, commencing negotiations with eight countries/regions, including those that were being negotiated prior to the government took office and were stalled prior to the 2014 elections. This new-found enthusiasm resulted in the conclusion of two new-generation FTAs with the United Arab Emirates (UAE) and the European Free Trade Association (EFTA).
When the NDA government took office, few could have anticipated that it would soon turn FTA-sceptic. Within a few months, the government gave a strong endorsement to the burgeoning economic relations with its partners in East Asia, which went back to the “Look East Policy” of the early 1990s by upgrading it to the “Act East Policy”.
Through this policy shift, economic relations with the East Asian countries were sought to be intensified by promoting economic cooperation and developing strategic relationships, thereby providing enhanced connectivity in its broadest sense. More importantly, the RCEP received political backing at the highest level with India giving assurances to “exert efforts” for an early conclusion of the mega-regional trade agreement.
But there were also signs of strain in the process of India’s East Asian integration with the implementation of its three functional FTAs. The benefits accruing from these FTAs as regards merchandise trade were highly asymmetrical and were overwhelmingly against India. In other words, India was facing growing imbalances on its merchandise trade account with almost all the partner countries.
More worrisome for India was the fact that while its exports were not able to take advantage of the market opening in partner countries, its imports from these countries had escalated. Furthermore, India’s exports were focused more on raw materials and intermediate products, but its imports from FTA partners were largely finished products. It could thus be argued that India was exporting jobs and value addition through its trade engagements with these countries.
Unfortunately, there was no evidence of changes in India’s trade in services, as disaggregated data on services trade are not available from official sources. Services trade with the East Asian partners could well have improved as India’s trade in services has always been more buoyant as compared to its merchandise trade.
Non-availability of services trade data or for that matter any assessment of trade performance of these sectors from the government contributed towards worsening perceptions about these agreements.
Although the government tacitly supported the RCEP, various stakeholders in the country had voted against this proposed agreement arguing that it would increase imports of agriculture and dairy products from Australia and New Zealand, respectively, and manufactured products from China.
There was, thus, a general view that endorsing the RCEP would be detrimental to the interests of India’s agriculture and industry. With India and China’s differences over the border issues escalating towards the end of the NDA government’s first term in office, the decision to walk away from the RCEP negotiations perhaps became easier.
The second phase of the NDA government’s trade engagements was initiated in the third quarter of 2021 with the announcement that India and the UAE would commence negotiations for a Comprehensive Economic Partnership Agreement (CEPA).
This was the first of several broad-based agreements on which negotiations were initiated with several countries/regions, which included the United Kingdom (UK) and the Eurasian Economic Union. Besides, long-stalled CEPA negotiations with the European Union, Canada, and Australia were also resumed.
Three features of the NDA government’s engagements for concluding bilateral trade agreements distinguished this phase from those in its first term. First, the scepticism regarding FTAs that had dominated its earlier engagements seemed to have been diluted. Secondly, the government was willing to include several “sensitive” areas like government procurement and intellectual property rights (IPRs), which it had red-lined in the past. And, finally, there was an eagerness to conclude at least some of the deals, the best example of which was the CEPA with the UAE that was concluded in three months.
But the most significant change in the government’s attitude towards FTAs was seen through the recently-concluded agreement with the EFTA. This agreement is noteworthy for the firsts from the point of view of India. One, this is the first comprehensive trade agreement that India has concluded with advanced countries.
Secondly, India agreed to include areas like IPRs and labour and environmental standards that it had resolutely refused to do in any bilateral trade deal. India’s commitments in these areas would involve amendment of its domestic laws. From a public interest perspective, the most critical would be the likely amendments in the Patents Act that can strengthen the rights of patent holders.
With the rights-holders exercising stronger control over the market, there is a real possibility that prices of medicines could significantly increase. This is an augury that the country can ill-afford given that high costs of healthcare already pose a heavy burden on a large section of the society. The government, therefore, needs to take adequate care to ensure that trade deals do not undermine the country’s development imperatives.
Biswajit Dhar is a distinguished professor at the Council for Social Development.
Views are personal.
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