As trade gap with UAE, ASEAN widens, India pauses talks with others

This comes after several trade agreements, including the pact with the UAE that came into effect in February 2022 and the one with the Association of Southeast Asian Nations (ASEAN) signed way back in 2010, have resulted in significantly higher imports of goods compared to exports, and concerns over potential breaching of rules of origin by the other side.

The deal with Australia, which came into effect in December 2022, is yet to deliver substantial export benefits compared to the pre-deal period.

The new SOP, designed to serve as a template for negotiation of multilateral and bilateral trade agreements, covers modern chapters in trade deals such as labour and environment, and emphasises the need for a clear understanding of “trade-offs” and “each party’s bottom line”.

It aims to “streamline” the process of launching, conducting and concluding trade negotiations, and addresses issues such as human resource mobilisation, negotiation team formation, and the composition and “hierarchy of negotiating teams”.

The “guidance document”,which includes draft templates for studies, reports and terms of reference, also incorporates input from the Ministry of External Affairs (MEA) on emerging trends such as “twinning” agreements between state governments and the provincial governments of foreign countries to enhance cooperation in various areas. Additionally, it includes contributions from the Department of Economic Affairs (DEA) and references to inputs made by management consultancy firm Boston Consulting Group.

The review of the negotiating strategy comes amid concerns over possible investment outflows, rapidly surging imports from FTA nations, and recognition of errors made when dealing with specific chapters in FTAs. These errors have led to a surge in the inflow of goods that are not even produced in the partner country.

“The pause in negotiations comes not only due to the widening trade gap but also concerns over the outflow of investment from the country. The focus is shifting to larger markets such as the European Union and the UK, where significant benefits could be gained, and to countries of geopolitical importance, such as the Maldives. However, the problem is the lack of subject matter expertise and loss of institutional memory. Foreign negotiators are battle-hardened with years of expertise in negotiations, unlike in India where officials are rotated periodically,” an official said.

Before the Lok Sabha elections, the government had signed a trade agreement with the European Free Trade Association (EFTA) and was close to signing an agreement with Oman to expand its footprint in the West Asia region. The deal with the UK was also near completion but could not be finalised due to several leadership changes in the UK. The government had also indicated plans to begin talks with the Russia-led Eurasian Economic Union (EEU). But the Ministry could now narrow its efforts to maximise export gains.

Notably, while India has been able to manage early harvest deals and negotiate with countries that have accommodated India’s style of functioning, trade deals with more competitive countries, such as the UK and the EU, have been stalled for years. India had earlier decided to exit from the China-led Regional Comprehensive Economic Partnership (RCEP) after years of negotiations.

“Negotiations with smaller countries such as Peru, Oman and Chile are paused as there are concerns that the deals we are signing are not providing equivalent benefits. We are opening a large market for the partner country, but there is a sense that we are not receiving commensurate returns,” another official familiar with the development said.

Trade data for September showed that India’s imports from the UAE surged at their fastest pace compared to any other country. Official data showed that imports increased by a sharp 49.22 per cent in September 2024 compared to the previous year. Meanwhile, exports to the transnational hub only managed a 23.75 per cent rise in September 2024 compared to the previous year.

The trend of sharply rising imports and slower export growth has been consistent over the last six months. In the April-September period, imports from the UAE surged by a significant 52 per cent to $31.45 billion compared to $20.69 billion in the same period last year, while exports grew by only 11.45 per cent to $17.23 billion this year compared to $15.46 billion in the previous year.

The trade gap between April-September 2024 as against 2023 widened by 171 per cent. Notably, the trade gap had jumped 55 per cent between April-September 2022 compared to 2021.

The Commerce and Industry Ministry has also initiated a review of the ASEAN deal, pointing out that it did not produce the expected gains and has led to rising imports.

The ASEAN trade deal, signed during the UPA era, has faced significant criticism due to the widening trade deficit, particularly after Covid-19. The trade deficit with the region increased by a sharp 70 per cent in FY23 compared to FY22. The goods trade deficit reached $44 billion in FY23.

Officials have stated that India faces tariff asymmetry in the ASEAN agreement and aims to complete the review by next year.

Concerns over a fresh surge in imports have also arisen as ASEAN has joined the China-led RCEP trade deal. Trade between China and ASEAN grew by 15 per cent in 2022 after the deal came into effect. India exited the RCEP negotiations in 2019 due to concerns about rising imports from China.

ASEAN countries comprise Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Timor-Leste or East Timor, which holds observer status, is on track to become its 11th member. The region remains a crucial trading partner for India, accounting for about 11 per cent of the country’s global trade.

Queries emailed Saturday to the Ministry of Commerce and Industry, Ministry of External Affairs, Department of Economic Affairs and Boston Consulting Group remained unanswered.