Opinion Signing of FTAs is a start. Their success will be judged by gains in global market

These agreements also change how global firms view India. By signalling policy stability, they make long-term investment decisions more viable for companies seeking alternatives to China. Manufacturing in India for European markets makes commercial sense. The China-plus-one, Vietnam-plus-one, and Bangladesh-plus-one opportunities have re-opened.

India’s export opportunity is large and measurable. The chart compares countries’ market shares in Europe in low-skill manufacturing relative to their labour endowments shares. Bangladesh, Vietnam, and Indonesia export close to their potential, while China is a large outlier. India, by contrast, exports about 18 percentage points less than its potential — equivalent to roughly $160 billion in annual export headroom. Signing an FTA is an important first step. But market access must be matched by domestic readiness. Converting these agreements into sustained export gains will require action on four fronts that sit outside the FTA text.

The first challenge is standards. As the latest World Development Report makes clear, product-safety and environmental requirements — not tariffs — now shape which goods can reach global markets. Non-tariff measures affect 90 per cent of world trade today, up from 15 per cent in the late 1990s. Compliance costs are high, especially for firms in developing countries. The larger problem, however, is that non-compliance by even one exporter can damage an entire industry’s reputation. India has experienced this repeatedly. Failures by individual pharma firms, shrimp processors, or agricultural exporters have led to inspections, bans, and delays that hurt compliant firms as well. One bad shipment can shut a market. Industry associations must play a stronger role in self-regulation. Government can support compliance through testing infrastructure and technical assistance. But it is better for a shipment to be rejected in Mumbai than in Rotterdam.

The second challenge is complexity. India’s trade regime remains unnecessarily complicated. Complexity raises compliance costs and creates scope for discretion. Consider the UK FTA. The UK schedule has three categories: Zero duty, excluded, or quota-based access. India’s has more than 20. The MFN tariff schedule is full of exceptions and conditionalities. It includes more than 140 unique ad valorem rates and many specific tariffs. This complexity invites disputes. Volkswagen was recently asked to pay $1.4 billion for importing auto parts in separate consignments taxed at 5-15 per cent rather than as a single shipment taxed at over 30 per cent. From the firm’s perspective, this reflected tariff design. From the authorities’ perspective, it was evasion. Either way, complexity damages credibility. India learned this lesson with GST, where rate rationalisation came only after years of friction. The same logic applies to tariffs.

The EU FTA risks repeating this pattern. Wine tariffs have been cut from 150 per cent to as low as 20 per cent — but only if the wine is priced above 2.5 euros. Customs officials are now expected to verify prices at the border. Firms will respond by invoicing at the cutoff and adjusting prices later. Enforcement will come years down the line, through audits and penalties. This is how red tape is created. Simplicity is not cosmetic; it is central to export competitiveness.

Third, FTAs open export markets but do not ensure access to the best inputs and machines. That depends on the MFN tariff regime. Many capital goods and process machines in the UK agreement reach zero duty only after long phase-outs. Some of the best equipment comes from countries with which India has no agreement. As the Economic Survey has recognised, protection risks raising economy-wide costs, dampening competitiveness, slowing upgrading, and weakening export potential. FTAs thus cannot substitute for low, uniform tariffs across the board. Support to critical industries should instead rely on other instruments, preferably subsidies, rather than tariffs.

Fourth, India has a record of undermining its own trade agreements after signing them. Phased commitments create time for domestic lobbies to seek protection through other instruments. New research by economists Abhishek Anand and Naveen Thomas documents how anti-dumping duties and quality-control orders restricted man-made fiber imports from Indonesia despite an FTA. The short-term aim was to protect domestic producers. The result was higher input costs and weaker garment exports.

Some of these QCOs, especially on man-made fibers, are now gone. But the mindset that produced them needs to change. Protecting upstream producers often harms downstream exporters. Erratic regulatory orders weaken India’s credibility as a trade partner. Commitments matter only if they are sustained.

To be sure, the government has handled some negotiations well, including with the US, where talks have continued through back channels despite public pressures and temptation to abandon them. One hopes for a positive outcome soon. Several domestic reforms are moving in the right direction —simplifying labour codes, rationalising GST rates, expanding solar infrastructure, and setting up a deregulation commission to name a few. But one constraint looms large: High input costs, chiefly power and credit. As the Economic Survey points out, “For export discipline to work in India’s favour, competitiveness must be achievable and affordable.”

The success of India’s FTAs will not be judged by signing ceremonies but by a single metric: Gains in global market share. The opportunity is large. Delivering on it requires credibility with global firms and trading partners — built on standards compliance, simpler regulation, access to competitive inputs, and sustained commitments after agreements are signed.

The writer is assistant professor at Johns Hopkins University