Going by recent media reports, it appears that India has put talks on free trade pacts (FTAs) on hold, with the Centre working out a ‘standard operating procedure’ (SoP) for negotiations. To be sure, the government has expressed the need for an SoP in the past. But there is a new context to the latest reports on a rethink on FTAs — namely, a realisation that India’s FTA with the UAE, in effect since May 2022, is not doing too well for the country. According to a press release issued on October 15, the “Indian side raised the issue related to the recent surge in imports of silver products, platinum alloy and dry dates and urged UAE to verify compliance to the rules of origin norms and ensure that the rules are not circumvented.” Since 2022, India has inked deals with the UAE, Australia and EFTA (14 FTAs are in operation), while Oman and UK are believed to be at an advanced stage of negotiations. As for Peru, concerns over rising gold imports in the wake of the UAE experience could act as a dampener in the talks.

If the Centre is revisiting the drawing board on how it should approach FTAs, it is to be welcomed. There could be serious dangers to rushing into talks, without having a template that spells out the broad red lines. Besides the unexpected surge in imports from UAE, questions have been raised over whether India should have opened up government procurement, something it has not done before. India’s economic partnership pact with Japan provides for a ‘most favoured nation’ clause on the same — which means the same privileges should extend to Japan as well. With non-trade issues such as labour standards, environment standards, gender and human rights clawing their way into trade pacts, a tariff-centric approach to negotiations will simply not do. Such issues are likely to pose big hurdles in talks with a stubborn EU.

Meanwhile, in its pact with the EFTA grouping, India seems to have conceded ground on IPRs, which may impact other negotiations. An SoP must be drawn up at the earliest to deal with the emerging realities. The Centre should also be more consistent and clear in its approach to FTA talks per se, shedding its on-and-off position that has been a feature of the last decade. A rigorous SoP should lend some clarity and put a stop to these inconsistencies. India needs FTAs that suit its interests. But the red lines with respect to IPRs, government procurement and other issues should be spelt out.

For India to derive maximum gains from FTAs in a world where exclusion can hurt, it should bring down its general (or MFN) tariffs gradually. India has been hiking tariffs in recent years; as a result, any tariff reduction pact would lead to a sharper fall in tariffs on the Indian side, leading to a greater relative advantage to the other entity. Besides reducing MFN rates, it is important to sort out inverted duty issues. Periodic reviews of FTAs are essential, not least because all FTAs have not just review, but exit clauses as well. There can be no a priori case against better FTAs.

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