Opinion Seize the deal

Moving from a limited agreement towards a comprehensive free trade agreement will prove to be a far more tricky proposition.

On Tuesday, Union Commerce Minister Piyush Goyal announced that India and the US were close to finalising a “quick” trade deal. This limited deal, unlike a more comprehensive free trade agreement, is likely to cover around 50-100 goods and services. Discussions between the two countries have reportedly revolved around providing concessions to US farm products, dairy in particular, and on pricing of medical products such as stents, in return for the restoration of benefits extended to India under the generalised system of preferences (GSP), and market access for generic drugs. For the US President, Donald Trump, a deal that provides American agricultural products with greater access to the India market, and is concluded before November, could bring benefits in the presidential elections. For India, a trade deal, even though limited, if concluded, is a welcome sign, as it signals a reversal of the protectionist impulses emanating from government. However, it must be mindful of not offering too many exceptions in order to secure the pact. Market access should be granted strategically, securing one’s own benefit.

Moving from a limited agreement towards a comprehensive free trade agreement will prove to be a far more tricky proposition. The US is likely to push for far greater access for its agricultural/dairy products than India will be prepared to offer — this was also a major sticking point in the RCEP negotiations. Other thorny issues are likely to include intellectual property rights and digital taxation. On its part, the Indian government needs to develop a clear and coherent strategy on free trade agreements. In the past, it has vacillated in its approach. While arguing for greater trade and integration with the global economy, it has walked out of the RCEP and called for reviewing the previously signed FTAs based on the notion that the country has not benefited from them. And though a study by NITI Aayog has shown how Indian exporters had not gained from trade agreements according to the expectations, others have shown that much of India’s trade deficit stems from imports of raw materials, intermediate and capital goods, not consumer goods.

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Signals emanating from the government in the recent past — the decision to opt out of the RCEP, as well as the hikes in import duties — have suggested it is veering away from freer trade, towards a more inward-looking, protectionist stance. This approach needs to be reconsidered. The benefits stemming from free trade are indisputable. While the degrees of access and protection should be aggressively negotiated, the bottomline is that free trade is good. At the same time, the government needs to focus on addressing the structural issues that continue to plague the country’s export competitiveness. The current global environment — the spread of the COVID-19 pandemic, and the increasing US-China altercations — provides an opportunity for reconfiguring trade relations. While China continues to be central to global supply chains, and any re-adjustment will be time costuming and a costly affair in the short run, India must seize this moment.