New Delhi: The Modi government is making a renewed push to scrap some of the pending UPA-era free trade agreements (FTAs) and even strike some new ones. aim to achieve $2 trillion export targets by 2030, and address disruptions in global supply chains created by the pandemic and the ongoing Russo-Ukraine war.
In its first term (2014-2019), the Modi government was reluctant to get FTAs, while it sought all foreign direct investment (FDI). UPA-era trade agreements For review to increase your exports. Existing agreements, the government believed, only encouraged more imports.
But, with increasing strategic alignment with some partner countries, notably Australia, France and the UK, India is now focusing on enhancing economic ties which partner countries have also sought, official sources told ThePrint. told.
According to sources, another reason why the government is renewing pending agreements is the emergence of several miniaturized arrangements in the wake of the pandemic – a trend accelerated by the Russia-Ukraine war.
Sources said that India, which is not part of any mega-trade agreement like the Regional Comprehensive Economic Partnership (RCEP), is now fast entering. short arrangement But there is no assured market access under such frameworks, and they are mostly focused on ensuring smooth functioning of supply chains while maintaining a security framework.
The Modi government is now emphasizing on negotiating some major FTAs by expediting talks with partner countries. Sources said all the concerned ministries – finance, commerce and foreign affairs – have been tasked by the Prime Minister’s Office (PMO) to complete these deals at the earliest.
In August last year, Prime Minister Narendra Modi Mandate to all Indian Missions abroad To seek ways to help increase Indian exports to the countries where they are located.
One official said the war had now “intensified trade problems”, giving rise to risks such as food insecurity and high energy costs. As a result, India is now expediting the process of FTAs to build stronger trade ties with friendly countries.
This has been done by keeping an eye on China, among other things. Despite border tensions, sugar imports into India almost reached $100 billion in 2021.
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Some old FTAs, some new
Free trade agreements remove barriers to entry for goods and services between two trading partners.
Under such agreements, goods and services can be bought and sold across international borders with minimal or no government tariffs, quotas or subsidies.
While the government has resumed talks on some pending UPA-era FTAs – such as those with Australia and the European Union (EU) – it has also begun discussions on new ones, such as the proposed India-UK FTA.
In an effort to expedite negotiations, the Union commerce ministry has taken the approach of signing early harvest deals – where both sides sign an agreement on easy aspects, while the main talks on abolition of tariffs on a range of products for one is kept. later period, sources said.
The first FTA signed under the Modi government was India-UAE Comprehensive Economic Partnership Agreement (CEPA) in February 2022. This agreement came into force in May 2022.
The agreement is expected to increase bilateral trade from the current $50-60 billion to $100 billion over the next five years, eliminating tariffs on a range of products being exported by India and the United Arab Emirates.
Subsequently, India and Australia signed part of what is now known as the Australia-India Economic Cooperation and Trade Agreement (AI ECTA), a free trade agreement formerly called the Comprehensive Economic Cooperation Agreement (CECA). .
Negotiations for ECTA began in 2011. In April, the two sides signed Phase 1 of the deal as an early harvest deal – Australia was then headed for elections and also needed an alternative market to its biggest trading partner, China.
negotiations with the European Union, which began in 2007 and were halted thereafter, resumed last month,
Similarly, talks with the UK are still in full swing. both sides had also imposed a Diwali time frame to sign the deal, but sources said it would now be difficult to meet the deadline Resignation of British Prime Minister Boris Johnson.
Some other FTAs that are in the pipeline are with countries including Israel, Canada, New Zealand, Indonesia and Thailand.
“The fundamental reason for having and accelerating these FTAs is that we want more market access in complementary economies”, said Jayanta Dasgupta, a trade expert and former Indian ambassador to the World Trade Organization (WTO).
“Today you cannot rely on the WTO to provide more market access. Moreover, India has realized that we need to export more not only to earn foreign exchange but also to create jobs. Without exports, no country is able to grow adequately and grow rapidly,” he said.
“China is slowly throttling supply chains and finding more and more profitable businesses inside China. Such a trend can only be addressed by India by signing more FTAs.”
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challenges and obstacles
According to sources, the biggest hurdle the government will face – something that has vexed the previous administration as well – is the “dismantling of tariff walls” for easier access to Indian markets.
The government is concerned that industry pressure may “force” India not to go for “ambitious tariff reduction commitments” as demanded by almost all major trading partners, including the UK, Australia and the European Union, official sources said. told ThePrint on condition of anonymity.
Due to the nature of FTAs, the domestic industry faces massive competition, and faces the risk of losing market share.
India has the highest average tariff in the Asia-Pacific region – 15 percent. According to the Geneva-based World Trade Organization, average import duties on industrial and agricultural products increased from 13.5 percent in 2016 to 15 percent in 2020.
“The industry protested then (in the UPA era) and they will still protest. But it is now clear how and why these FTAs are important in realizing the full strategic value of a relationship,” said an official.
This is due to the pressure of industry India is believed to have walked out of RCEP.
Australia has called for a major reduction in import duties on its agricultural products as well as wine and spirits.
Similarly, under the India-UK FTA talks, one of the main demands is reduction in tariffs. British whiskey, A similar demand would also come up in talks for a trade deal with the 27-nation bloc EU, which would also seek the elimination of tariffs in automobiles and auto parts.
The talks for an India-EU FTA, which began in 2007, were resume in june 2022 after a brief hiatus under the Modi government.
Sources said that both the UK and the EU have told India that they would not like to do an early harvest deal but want the entire deal to be signed in one go.
Officials said India is negotiating various forms of tariff reduction with partner countries.
It has adopted a two-pronged approach, where the country will reduce tariffs in a phased manner in some cases and with immediate effect – as soon as the agreement comes into force – in others.
There are many products where the government has imposed import-licensing requirements and a complete ban on the import of many products. For example, the government has banned the import of light emitting diode (LED) televisions and certain defense products.
As per the standard tariff, the Government of India levies a Basic Customs Duty (BCD) on goods along with Integrated Goods and Services Tax (IGST) and a Social Welfare Surcharge (SWS). While importers can claim input tax refund on IGST, no claim can be made on BCD and SWS.
India’s trading partners have, in the past, expressed concern over SWS, which is currently levied at 10 per cent.
“It is the inward orientation of the Atmanirbhar campaign that has worried trading partners and also restricted the negotiating capabilities of Indian officials,” a source said.
There are also concerns about “erosion of market access, which India may face in the existence of major trade agreements” where New Delhi is not a party, the sources said.
He said this could be restrictive for Indian firms in terms of their export prospects.
(Edited by Sunanda Ranjan)
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