What went wrong? What is the strategy change?
The department has set ambitious goals for the completion of the FTA negotiations. May 2022 for an early harvest program or a limited trade deal with the UK to lower tariffs on certain goods and services and conclude the FTA by the end of 2022. A similar deadline has been set for the FTA with Australia. The one with the EU, which has stalled for more than six years, according to Subrahmanyam, will likely reach its conclusion by mid-2023 given that it needs a consensus of 27 member states. The one with the UAE is close to the finish line.
To meet these deadlines, the ministry made both administrative and strategic changes, Subrahmanyam said.
The ministry has created two trade policy wings, one multilateral and the other bilateral. Most countries, he pointed out, have a huge trade promotion wing. We don’t. The DGFT is a kind of incentive distribution office. It was born out of the Foreign Trade (Development Regulation) Act 1992 – it quickly became a regulator and forgot the development part. So we are in the process of restructuring the department, explained Subrahmanyam.
The strategic shift, he pointed out, is twofold:
First, remove price disadvantages because when margins are tight, even a 10% advantage can make all the difference. India is the only major economy in the world that has not signed a major regional trade agreement or with a major economy. Therefore, India is left out.
Shah pointed out, thematically in the “early harvest” mechanism, India is now focusing more on allowing imports of raw materials or minerals or assemblies/components. This ensures that by force there is significant added value made in India after importation.
In addition, national industry vulnerability areas are actively identified – where we have a large manufacturing base such as textiles, or areas with high employment, where there is already significant investment, either by developers , or through institutional capital, Shah pointed out.
It is also expected that, unlike in the past, new FTAs will not be limited to trade in goods, Shukla said. They will cover services, trade facilitation, trade barriers and remedies, IPRs, investment, innovation, environment and climate change, etc.
Bhala is optimistic about the low-hanging fruits approach, all or nothing does not work. Sensitive sectors can be avoided at first and there are precedents for this – agriculture being avoided by the US and Israel; services being excluded by Australia and New Zealand in their agreements. Both were added later; but the approach should be to start preparing your industry for it today, he said.
The other tool to be used is assistance with the adaptation of workers and businesses. If a company can prove that it went bankrupt because of an FTA, its workers receive wages, training benefits to move to another sector, etc., Bhala added.
In conclusion, Nathani underlined, only the renewed interest in trade negotiations is encouraging. Today, he added, multilateralism is dormant, the world’s largest economies seek a “China plus 1” supply chain and perhaps most importantly, geopolitical alignments have shifted – trade increasingly takes place between like-minded countries. “In this climate, India must actively engage with its friends.”