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India may be looking at a dry spell for FTAs if RCEP falls through: Experts

Talks with major economies like the EU and US, among others, on trade and investment deals are stuck on similar issues

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The government’s strategy to secure bilateral deals with the United States, the European Union (EU) and other economies may be a difficult exercise if talks with the Regional Comprehensive Economic Partnership (RCEP) fall through, say experts.

Commerce and Industry Minister Piyush Goyal has batted for a bilateral deal with the US, while also stressing that India is keen to restart free-trade agreement (FTA) talks with the EU. But with institutional reform being a slow process and domestic industry unwilling to adjust to foreign players in the domestic market, India may be looking at a long dry spell for these FTAs, experts contend.

“The RCEP drama may lead to many déjà vu experiences for the government if the domestic scenario doesn’t change drastically, as the same issues have and will continue to creep up,” trade expert and Jawaharlal Nehru University professor Biswajit Dhar, said.

Even if domestic industry is brought on board, the government has to deal with the unenviable task of deciding which exports can be leveraged to boost outbound trade with so few sectors commanding an export advantage, he added.

Case in point, traditionally strong export sectors such as textiles, gems and jewellery and leather continue to face sectoral challenges and low competitiveness because of competition from emerging economies such as Vietnam and Bangladesh, he added.

A full FTA — one of the key demands of the Donald Trump administration — has seen Washington DC pushing for lower duties for high-value US goods such as electronics, wine and motorcycles. It also wants fewer restrictions on American medical devices and solar panels. The talks with the EU on a trade and investment pact are also stuck on similar issues.

Bilateral talks with trade partners such as China have also hit roadblocks on Beijing’s demand to open up India’s lucrative consumer market.

Slow pace

The government has clarified that India will remain out of the RCEP pact for now, until it gets better offers from other participating nations that safeguards its national interest. This includes protection for domestic industry from import shocks, and gradual tariff reduction. But experts point out that foreign partners have pushed for tariff reduction aggressively in all current trade negotiations. On the other hand, in all its engagements India has pushed for more market access for a narrow category of products.

In the first term of the Modi government, New Delhi has initiated FTA talks with only a single economy, the small nation of Georgia. Situated in the Caucasus region, the nation had a total trade of only $132 million in 2018-19. Even then, discussions had stalled more than three years since the beginning.

On the other hand, export promotion councils as well as industry bodies like Swadeshi Jagran Manch have repeatedly objected to new FTA engagements arguing that existing pacts haven’t helped India.

They have pointed to a NITI Aayog report which showed that the utilization rate of current trade deals by Indian exporters remain very low (between 5 per cent and 25 per cent). As a result, the trade deficit with the proposed RCEP nations has increased from $7 billion in 2004 to $78 billion in 2014.

In July, the Finance Ministry started assessing the shortcomings of each existing FTA deal, which have led to revenue being foregone due to spiraling trade deficit. India’s major FTAs constituted only 11 per cent of the total trade and up to 23 per cent of trade deficit.

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Good or bad

But this view has been countered by experts.

“The current narrative that FTAs are inherently disadvantageous for India’s exports is false. The fact remains that India’s trade (and exports) have gone up with every FTA partner, albeit at a slower pace than imports,” Sachin Chaturvedi, director general at the Research and Information System for Developing Countries (RIS), a foreign trade think tank, said.

The RCEP experience may lead to lower appetite for trade talks, he said.

“Negotiations don’t only focus on tariff reduction. They also talk about market access, non tariff barriers and standard, all of which are guided by institutions which need to back reforms in the domestic space as well,” Chaturvedi added.

The question remains whether India can effectively counter the might of Chinese exports independently or by being a part of a bloc like RCEP, he stressed.