Thanks to complex procedures and compliance along with the global slowdown woes, India is yet to realise the full potential of the free-trade agreements (FTAs) it signed in the last three years.
More than 20% of the trade with FTA partners still happens through the general or most-favoured nation (MFN) route instead of FTA route. Of course, since 2011, bilateral trade with Asean has increased by 43% to reach $79.8 billion, making India the sixth largest trading partner of Asean. But trade experts reckon that the potential for growth is even greater. According to Bipul Chatterjee, deputy executive director at CUTS International, despite the FTA (signed in 2009), India has been unable to fully realise the trade potential with Asean while competitors like China have made major headway. ?These bilateral agreements have a geopolitical significance which delays the economic gains expected from them. The general economic conditions have also slowed down trade with our FTA partner countries,? says Chatterjee.
In case of Korea, the India – South Korea Comprehensive Economic Partnership Agreement (CEPA) was signed in 2009 but India’s imports from and exports to the country sharply declined in 2011-12 vis-a-vis 2010-11. On the other hand, post the 2011 bilateral pact with Japan, India’s imports from Japan increase at a faster rate than exports from India to that country.
Interestingly, despite the various bilateral trade agreements, experts opine that most of the trade still happens through the general route though there is no official data on the FTA and non FTA trade.
?There is a trade lacuna because of a lack of clarity in preferential and non-preferential rules of origin sometimes which increases the cost of compliance to exporters who then prefer to send their goods via the normal route,? explained Manab Majumdar, assistant secretary general, Ficci.
Rules of origin refer to the criteria needed to determine the source of a product and are relevant because duties and restrictions in several cases depend upon the source of imports.
Besides, a small duty differential in the FTA and normal trade also discourages traders from taking the former route as it increases business cost. According toead, Centre for WTO Studies, Indian Institute of Foreign Trade: “In many FTAs, we end up giving more market access to the partner countries and hence, the advantage is much less for us. This is the reason why the imports from our partner countries are increasing faster than our exports to them.?
Chatterjee added that the present customs procedures are not well equipped for a multiple tariff regime and ports too have to develop additional capacity to bridge that gap.
