Government takes a step ahead in aligning FTP with WTO

The FTP, which came into effect on April 1, spoke for the first time about global value chains and their relevance in world trading order

The Narendra Modi-led government has taken a least anticipated but bold step in aligning the Foreign Trade Policy (FTP) 2015-2020 with the global trading norms under the World Trade Organization (WTO), even as it has made efforts to bring exporters to the changing realities of the global trading paradigm.

The FTP, which came into effect on Wednesday, spoke for the first time about global value chains and their relevance in world trading order. Global value chains are fast becoming the most important aspect of any bilateral and multilateral trading arrangement.

Global value chains are typically created by integrating goods and services from various countries into one composite production network to produce a single product or service. These are turning out to be a prominent feature in mega-regional trade pacts such as the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and the Investment Partnership and Regional Comprehensive Economic Partnership.

“The mega agreements are bound to challenge India’s industry in many ways, for instance, by eroding existing preferences for Indian products in established traditional markets such as the US and EU (European Union) and establishing a more stringent and demanding framework of rules. The Indian industry needs to gear up to meet these challenges, for which the government will have to create an enabling environment,” said the FTP statement.

This is the first time a government has introduced an FTP, explaining the intent and rational that has gone behind shaping the policy.

It adds that going forward, India will have to sign bilateral and regional trade pacts not only with countries that turn out to be lucrative markets for its produce but also with those which are crucial suppliers of critical inputs and have complementarities with the Indian economy.

Commerce and Industry Minister Nirmala Sitharaman said India was not in a position to join the TPP and neither was it invited due to poor standards. Therefore, she exhorted the exporters to view this as an opportunity to improve the quality of their products.

“These mega-agreements give us a tremendous opportunity of creating an environment within the country for producing high quality products for reforming our standards, for updating ourselves on value chains and to strategise out trade relations,” said Commerce Secretary Rajeev Kher.

The government has also made it clear with the new FTP that the days of innumerable subsidies and doles given to exporters will now be done away with but in a phased manner.

Bucking the trend, the FTP for the first time deals with a separate section on ‘Phasing out of export subsidies.’  This is done to comply with the WTO’s Agreement on Subsidies and Countervailing Measures.

“In the case of India, some sector may be affected and would require rationalisation of support over a period of time. The phasing out and eventual elimination of agricultural export subsidies is also one of the key elements of the Doha Development Agenda,” the statement said.