Govt must do more on FTAs to help exporters benefit from trade deals

The free-trade agreement (FTA) between India and the European Free Trade Association (Efta) will come into force today, more than a year after it was finalised and signed. Given India’s other trade woes — the 50 per cent tariff currently  imposed on exports by the United States (US), and the long delay in finalising an agreement with the European Union (EU) — it is not surprising that the government is emphasising this. And Efta is certainly good news. This small bloc of developed nations — comprising Switzerland, Norway, Iceland, and Liechtenstein — may not be as influential a grouping as its larger cousin, the EU. But several of the countries in question are financial powerhouses, and the agreement includes promises of $50 billion in investment over its first decade of operation.

 

The agreement represents unusual flexibility from Indian negotiators. Tariffs on many imports from the Efta nations will be eliminated, and the duties on Indian exports to those countries were not very high anyway. It is encouraging that Indian of­ficials have recognised that a greater set of deals is possible when dropping the country’s high tariffs can be set off against other benefits, such as increased investm­ent. The age in which trade agreements consisted purely of a reciprocal lowering of tariffs on goods is over. Multiple other vectors — including investment, har­monised regulations, and the reduction of non-tariff barriers — are also on the table.

 

The government must also recognise that FTAs are welfare-enhancing only if they are used. In the past, there have been complaints that Indian exporters have not been able to take proper advantage of FTAs such as those that have been signed with Japan and the Association of Southeast Asian Nations (Asean). Since the signing of the FTA with Asean, for example, Indian exports to the region have not grown as much as imports from it. While that does not in any way represent a loss of welfare, it represents a lost opportunity. Some of that underperformance by Indian exporters might well be due to an inability to navigate the FTA’s clauses and benefits, or simple lack of awareness about the ways that small businesses could access these newly open markets. Correcting this problem should ideally have been a major priority for the government.

 

Government bodies supposed to do this job should work with businesses consistently to not only make them aware of the export possibilities, but also address issues such as non-tariff barriers that Indian firms often face, particularly in developed markets. As India signs FTAs with other countries and trading blocs, such mechanisms will become more critical. Indian firms, particularly smaller ones, must be provided guidance to help them navigate global markets. In the context of getting into new trade agreements, publicising Efta among stakeholders will enable them to utilise it properly and prepare for the agreement with the EU. And it certainly must be concluded soon — especially given the continued intransigence of American President Donald Trump in holding up a trade agreement with his country, and the increasing pressure on Europe to reduce trade ties with India over its purchases of Russian oil. Deals with the United Kingdom and Efta are all very well, but the prize is the EU, and officials should not lose sight of that goal.