India looks to establish standardised negotiation process for trade deals

The government is seeking to revive a decade-old proposal to streamline FTA negotiations, especially in the backdrop of imbalanced deals with a couple of trade partners

Amid negotiations and renegotiations of a flurry of free trade agreements (FTAs), India is contemplating an FTA negotiating strategy. 

 

Discussions to roll out a standard operating procedure (SOP) for FTA negotiations first started more than a decade ago, after India signed pacts with its key neighbouring countries and was also in discussions with some developed nations to strike similar deals. It was felt that an SOP would act like a guidance document and help in creating an institutional memory for future negotiations. 

Though bureaucrats at the department of commerce held intense discussions over the next three-four years, the SOP did not see the light of the day, mainly due to lack of internal consensus.

 

The idea has now been revived, against the backdrop of India signing four trade pacts within a span of the three years – between 2021 and 2024 – with Mauritius, United Arab Emirates (UAE), Australia, and European Free Trade Association (EFTA). India has been in discussions with at least half a dozen countries for trade and investment pacts. That apart, there is growing importance of sustainability and issues such as government procurement, labour, and digital trade being a part of modern trade deals. 

Government officials believe the need for a negotiating strategy for FTAs is crucial, considering India’s past experience with South Korea and the Association of South East Asian Nations (ASEAN), where, several government officials, believe India has not been a net gainer. In fact, they say, even the recently signed trade deal with the UAE has not resulted in large gains for India.  

In all these cases, India’s trade deficits with these countries have widened after signing the pact, along with other challenges such as non-tariff barriers. India also needs to be wary of the rising imports from China and whether FTAs signed by India are being used to route goods from China to India, the officials say. 

The fresh SOP aims to capture Indian trade negotiators’ experience, and provide guidance for launch and conclusion of FTAs. India is also trying to capture the global best practices, as implemented by trade blocs such as the European Union (EU) and countries such as Australia. It could also include the way forward and strategy towards regional agreements, such as the US-led Indo Pacific Economic Framework for Prosperity (IPEF). 

“The SOP will act like a guiding document, especially for new negotiators, where they will be able to decipher the detailed overview as well as the step-by-step process in FTA negotiations. The document is broadly ready,” a senior government official told Business Standard. 

A Cabinet approval may not be required before releasing the SOP document, but it is learnt that the final go-ahead will come from the Prime Minister’s Office. 

No body of experts 

Unlike other nations, India does not have a dedicated body of trade and legal experts for negotiating trade agreements. FTAs for the country are negotiated by bureaucrats who head the negotiating team. This poses a challenge of continuity, since government officials are transferred to other departments in three to four years on average. On the other hand, negotiating an FTA is an elaborate process that can sometimes take years. 

Trade experts say firming up the SOP is a step in the right direction, but it can help only to an extent, considering the dynamic nature of negotiations. They also flag lack of transparency in the negotiating process. 

“An SOP can add as much value to trade negotiators as training manuals help an aviation pilot. More critical is long hours of on-the-job training and real-time experience,” a trade expert says on the condition of anonymity. 

Agneshwar Sen, Partner-Tax and Economic Policy (International Trade), with EY India says in order to maximise gains from a trade agreement, the pact needs to be reviewed at regular intervals. 

For instance, earlier this year, India and the four EFTA countries signed an FTA , which may be instrumental in India receiving $100 billion as foreign direct investment (FDI) in 15 years and in creating 1 million jobs. “To ensure this happens, there should be a periodic review of such commitments by setting up committees to monitor that the investment goals are being met. In case this is a success, we can use this model for trade and investment agreements with other countries. These elements should be part of the SOP,” Sen says.  

Similarly, in case of a sudden surge in import of items from the FTA partner country, SOP should outline the mechanism on how a prompt response to address such a situation can be taken.  

“We have seen that in the case of the India-UAE CEPA. There has been a surge in the import of precious metals such as silver, platinum, and even food items such as dates. India should be able to react quickly to this and prevent disruptions in the domestic market,” Sen says. 

Way ahead 

Because of the none-too-pleasant experiences with FTAs, India is ‘taking it slow’ and recalibrating its strategy to ensure it is able to maximise trade and investment gains from such pacts. For more than two years, the country has been in talks for an FTA with Peru, Oman, UK, EU, Canada, Israel, and Gulf Cooperation Council. In some of these cases, the launch of negotiations did not happen due to a lack of common ground or political issues. 

Barring proposed large and strategically important FTAs – such as with UK, EU, Maldives – India, for the time being, has slowed down the pace of negotiations with countries such as Peru and Oman. The idea is to get back to the negotiations once India firms up its guidelines on FTAs. 

Biswajit Dhar, Distinguished Professor at the Council for Social Development, says there has not been enough “transparency” about India’s negotiating process, and therefore not enough clarity as to how the country should negotiate. “For instance, when India started negotiating an FTA with the European Union, they (EU) put all their draft chapters in the public domain, which triggered a lot of discussion even in the European Union,” he says. 

Similarly, India needs a transparent stakeholder involvement. “It should not be the case that when things go wrong, the industries end up saying the deal should be reviewed. I think there should be an insider-outsider strategy, something that has been followed in the case of (India’s stand on) WTO negotiations,” he adds. 

Status of India’s FTA talks

Australia: Next round of negotiations for a comprehensive FTA in December 

UK: Negotiations were paused in May 2024 due to UK general elections; UK yet to get back to India on the negotiation date

EU: 9th round of negotiations completed in September 2024

Peru: Seven rounds completed; next round of negotiations will be initiated after finalisation of India’s overall FTA strategy

Sri Lanka: 14 rounds of negotiations held so far  Oman: Negotiations completed in March 2024; further discussions going on

Eurasian Economic Union: Draft terms of reference shared by EAEU under finalisation