AS INDIA pushes the pedal on free trade agreements (FTAs), non-tariff issues such as carbon emission norms, climate action, labour and gender balance standards, that comprise an increasingly substantive part of these new pacts, are weighing on these ongoing negotiations. Policymakers in New Delhi have flagged concerns these issues could pose hurdles for India in reaping the gains of its comparative labour advantage, with officials of the view that these incremental issues need to be dealt with “cautiously” in the ongoing FTA negotiations with the UK, the European Union, as well as the India-Australia Comprehensive Economic Co-operation Agreement (CECA). There is also a considered view in policy circles here that the window for wrapping up these FTA talks could narrow by early next year, given that New Delhi's focus would invariably shift to the series of events linked to India’s G20 Presidency and that political lobbying from influential lobby groups such as farmer unions and the auto sector could intensify in the run up to the 2024 national elections. In much of the negotiations currently under discussion, climate action, carbon emissions and labour issues are taking precedence over pure trade issues. Indian negotiators view these as instruments that could potentially offer partner countries a handle to trigger non-tariff protectionist measures, especially as developed nations stare at recessionary conditions. “There are significant differences between the old (FTAs negotiated prior to 2015) and the new FTAs under discussion currently. Earlier, predominantly trade-related issues used to dominate; rules, operations, tariffs measures. Earlier there used to be about a dozen chapters, now in the new FTAs, the number of chapters has doubled with non-trade issues such as gender balance, labour standards, environment and climate issues dominating these FTAs. That’s why we are putting our foot down. We have to negotiate these (FTAs) properly given this context,” a senior government official involved in the negotiations told The Indian Express. Developed countries such as the US, for instance, have brought up the issue of carbon emissions in the process of manufacturing melted steel as a non-tariff related issue. While India mostly produces steel generated from iron ore, which in turn comes from mining, most developed countries have resorted to methods to generate it from scrap, which results in lower carbon emissions, a senior official involved in the negotiations said. “…in our country, it (production of steel) is a primary process, while for some developed nations, they are converting scrap to steel which is being compared to our steel, and then there may be a levy of carbon adjustment tax… in this way, non-tariff barriers are becoming a feature,” the official said. “We have to be very cautious in the FTA negotiations…tomorrow we may benefit from the GSP (Generalised System of Preferences), but if they put in a non-tariff barrier by citing labour or environment, then it becomes an issue… in name of standards, adjustments, child labour, a number of countries are doing this. Then we lose our comparative advantage because of these non-tariff barriers and are not able to fully use (the advantages of an FTA),” the official noted. India had been a beneficiary of the US’ GSP programme since November 1975, under which beneficiary countries are allowed to export thousands of products to the US without the added burden of duties, which was then withdrawn by the Donald Trump administration in 2019. The European Union has also proposed a Carbon Border Adjustment Mechanism (CBAM) to tax carbon-intensive products, such as iron and steel, cement, fertiliser, aluminium and electricity generation, from 2026. Under the CBAM system, EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Many developing countries including India are expected to challenge this levy. For the India-Australia trade pact, the government will begin the tougher rounds of negotiations for the full pact which would dwell on the more contentious issues of dairy and agri products after the interim deal signed in April comes into effect from December 29. “The FTA with Australia has been the best case. given the complementarities between the key export products of both countries.it comes into force on 29th December. It is (an) early harvest (scheme), now we have to go full-fledged (FTA) in which other tougher issues will be there (sic). The easier ones are sorted and we had benefits in this. We need raw material from there and we need to access the market for manpower there. We will get better facilitation in terms of visa for Australia, after student visa, we will get better facilitation for work visa. But, other countries such as the UK and EU are not agreeable on this, so such issues figure prominently in bilateral discussions (for those pacts),” the official said. The problem, though, is that some of these early harvest schemes of the kind signed with Australia and under discussion with other countries potentially target the low-hanging fruits, leaving the tougher goods and services for later. This strategy can lead to significant delays in wrapping up the more broad-based FTAs, which could potentially lead to impediments. For now, a number of Australian products have been excluded by New Delhi from tariff reductions under the early harvest agreement including dairy products, rice, wheat, chickpeas, beef, sugar, apples, iron ore and toys. Also, early harvest agreements that do not graduate into full-scale FTAs are exposed to legal challenges from other countries that are members of the World Trade Organisation (WTO), an organisation that was formed on the premise that member countries should not discriminate between their trading partners. The exceptions to the rule are full-scale FTAs, subject to some conditions. One rider, incorporated in Article XXIV.8(b) of GATT, stipulates that a deal should aim to eliminate customs duties and other trade barriers on “substantially all the trade” between the WTO member countries that are signatories to an FTA. “For the purposes of this Agreement… a free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce… are eliminated on substantially all the trade between the constituent territories in products originating in such territories,” the Article states. The trade pact with the UK is also awaiting closure even as both countries had launched negotiations for the FTA in January with an aim to conclude talks by Diwali (October 24), but the deadline has now been missed. India and the UK have so far completed six rounds of negotiations. UK's Trade Secretary Kemi Badenoch visited India on December 12-13 for the sixth round of negotiations and the seventh round is due to take place early next year. Badenoch had told the Financial Times that she was no longer willing to commit to a deadline for the India-UK FTA, adding that upcoming general elections, which are due around 2024 in both countries, would make talks “difficult” if a deal is not finalised before then. The shadow on FTAs As trade talks with UK, EU and Australia enter a crucial phase, Indian policymakers realise they are fighting against not just time as India prepares for the G20 Summit next year, and national elections the year after, but also a new set of non-tariff issues that have become substantive now. Recession in the developed world also stokes protectionist tendencies there, to which they respond by erecting walls — not necessarily based on tariff — to stall imports from other countries.
