As India looks to seal modern free trade agreements (FTAs) with advanced economies like the UK and the EU, a report has cautioned that taking binding commitments on new areas, including environment, labour and sustainability, in the trade deals may hamper the country’s export prospects in future.

Modern or “new-age” FTAs differ from the traditional ones, as they cover, and involve the country’s commitments on, a wide range of subjects. These may include labour, climate/environment, digital technology, public procurement, supply chains, e-commerce, gender, health, education and even some evolving sectors, in addition to the traditional pillars of goods, services and investment.

A report by the Global Trade Research Initiative (GTRI) suggests that India, like many developing countries, still has an evolving regulatory mechanism concerning most of these new areas.

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“International commitments must be taken only after the domestic regulatory framework is in place. And both must be in sync. New non-trade issues may serve as non-trade barriers and hamper our exports in the future,” said the report.

The GTRI report, titled, FTAs: Fabulous, Futile, or Flawed? An evaluation of India’s FTAs with ASEAN, Japan and South Korea, is authored by its co-founder and former Indian Trade Service officer Ajay Srivastava. He had a long stint with the commerce ministry until March 2022 and was a part of negotiations for trade deals, including the recent one with Australia.  

The report acknowledges that most of the new areas that are sought to be included in modern FTAs are important and are being discussed at the multilateral and regional institutions. But it also warned “commitments on these issues in FTAs may prove too onerous and would increase the cost of manufacturing and services”.

It cited the example of taking commitments in data flows. “…taking commitments in data flows and digital trade when the domestic policy frameworks are not ready may not be in India’s best interests,” it added.

The report suggested that the increase in India’s trade deficit in the aftermath of the FTAs with ASEAN, Japan and South Korea will continue even in the agreements once they are reviewed.

Stressing that India requires a comprehensive strategy that goes beyond just forging FTAs, the report highlighted less than 20% of global trade takes place at concessional duties.

“India’s weak export performance with FTA partners …happened because of high tariffs in India and significantly lower tariffs in its FTA partners,” it said.

However, the report flagged what it called “myths” about FTAs, including the notion that most world trade happens through FTAs, and that FTAs weaken the WTO, lead to accelerated increase in exports, promote domestic manufacturing, result in enhanced participation in global value chains, promote investment and lower prices for consumers.