India now negotiates FTAs from a position of strength, leveraging market access and growing global influence.
After a decade-long hiatus following the India-ASEAN FTA in 2010 and its withdrawal from the RCEP Agreement in 2019, India reignited its market integration and liberalization efforts by signing the India-Mauritius CECPA in February 2021. Expected benefits from earlier FTAs elude India, as imports outpaced exports, thus widening the trade deficit. But this is a New India that the world is now dealing.
As the fastest-growing economy, with a market of 1.4 billion people, India now possesses the bargaining power to negotiate trade agreements on its own terms.
Govt procurement
In a historic first for any FTA, the India-UAE CEPA features a government procurement chapter, extending national treatment to UAE companies, but under specific conditions. UAE companies gained access to government contracts valued only over ₹200 crore from 34 ministries and departments, aiming to safeguard MSMEs supplying goods and services to the government. The chapter also allows India to apply a preferential procurement policy for its MSMEs.
Additionally, recognizing the UAE’s role as a global trans-shipment hub, India included a sunset clause with a robust safeguard mechanism to counter sudden import surges, thus protecting domestic industries.
Also a legal commitment is being made to promote target-oriented investment and employment creation. The legal framework within the India-EFTA TEPA reveals that for the promised investments and jobs to materialise, India’s economy must maintain a growth rate of 9.5 per cent, with annual returns on EFTA investments exceeding 16 per cent over 15 years. If not satisfied, India could pull back tariff concessions proportionately after 18 years.
Stringent Rules of Origin (ROO) using build-up and build-down methods for Regional Value Content and product-specific restrictions have given India an edge in FTA negotiations.
In India-UAE CEPA, goods must have a value content addition of at least 40 per cent for preferential tariff. India has been vigilant in protecting its market, especially in gems and jewellery, by securing lower value addition thresholds — 1.5 per cent under India-Australia ECTA and 3-7 per cent under India-UAE CEPA — promoting jewellery exports.
India has rebuffed a push for data exclusivity in the India-EFTA TEPA, signalling a steadfast stance on Intellectual Property Rights (IPR), especially within the pharmaceutical sector.
Labour commitments
India is breaking away from its traditional reluctance to include labour standards in regional rules framework and FTAs. This change is evident in its ratification of the Indo-Pacific Economic Framework’s supply chain agreement and the India-EFTA TEPA.
The former commits members to uphold the International Labour Organization’s (ILO) labour rights. Chapter 11 of the latter requires implementing labour laws without using domestic standards to restrict imports from other members. EFTA members agree not to use higher domestic standards to restrict India’s labour-intensive exports, acknowledging India’s comparative advantage and countering the argument that labour standards could reduce competitiveness.
India is advancing the ‘Make for the World’ initiative in FTA negotiations. Moving away from a one-size-fits-all approach, India is crafting tailor-made solutions for each partner, prioritising its own interests. MOCI is discussing formulation of SOP for FTAs, aiming to streamline the process and address common challenges, as some of these agreements form part of the Ministry’s 100 days agenda.
Underscoring policy continuity under the incumbent government, these developments will be closely watched.
The writers are economists with India Exim Bank. Views expressed are personal.