Devise realistic strategy

The recent controversy regarding India becoming obstructionist in the progress of signing of India-European Union Free Trade Agreement (FTA) has come into sharp focus, in the context that New Delhi is wary of a mega trading bloc- Trans-Pacific Partnership (TPP) taking a formal shape before the expiry of the fast track authority of the American president.

Such pressure and urgency calls for taking a fresh look at the approach that India should take in negotiating FTAs across the world as more and more cross-continental FTAs are going to be the medium for conduct of global trade. Long stalemate in Doha negotiations and fading confidence in the World Trade Organisation (WTO) result in proliferation of such FTAs.

Foremost among all the FTAs that India needs to be a party to is the signing of the Regional Comprehensive Economic Partnership (RCEP) involving the 10 Asean economies, Australia, China, India, Japan, South Korea and New Zealand. To add to this, the signing of the India-EU FTA is also important. India’s current approach towards negotiating FTAs is largely based on protective measures and defensive liberalisation.

Most of the countries in RCEP and EU want India to undertake deep tariff cuts in sectors such as agriculture, dairy industry, automobile, cotton etc. Large markets, wide consumers’ taste and growing purchasing power entice these foreign countries to negotiate hard on these fronts. The Indian government is fully aware that once these sectors are open to foreign entry and competition, such sensitive sectors will have deep repercussions on the economic livelihood, farmers’ welfare and agricultural productivity of the nation.

The RCEP members such as Australia, Malaysia, Indonesia, Thailand and New Zealand and EU countries like France and Germany, have strong comparative advantage in these sectors and want greater access to India’s large domestic market. India considers bringing down import tariffs in these sectors as non-negotiable for political and economic reasons. Most RCEP members are aware that the large Indian market is attractive and lure of it is somewhat lasting because India is the only county expecting higher growth rate in current world economy to the tune of 7.5%.

It is more so at a time when the Chinese demand could dramatically fall and real opportunity would rest with India. This compels the RCEP negotiators to keep demanding greater market access from India. However, New Delhi needs to take a fresh look at the negotiating strategy. It should focus on core strength such as demanding more access for India’s services exports and movement of natural persons especially in the background of restricting visa and increasing the visa fees in the USA and the UK.

India has established comparative advantage in service exports. A lot of these exports involve Indian professionals travelling overseas and working onsite on IT and software projects. Indian service providers are also filling up skills gaps in the labour markets of many advanced countries, particularly in industries like medical services and higher education as well as finance, accounting and human resources. This large expatriate community has been a major source of inward remittances for India.

Therefore, it would be better to bargain with RCEP countries by taking a little more liberal and negotiable approach than sticking onto exhibiting almost a closed door policy. Going by terms of agreement with RCEP partners, it looks RCEP agreement is not so overpowering or complex as TPP. Its scope of negotiations still do not include ‘new generation’ trade issues such as government procurement, labour and environment, IP contents, and the role of state owned enterprises in which India is relatively weak and unprepared.

Softer approach

This could be a welcome step for India to engage in RCEP by taking softer approach on non-negotiable issues. Time is appropriate to capitalise on those gains now because the rising wages in China is currently a great advantage for India and if it misses this opportunity, then the entire benefit will go to Bangladesh and Vietnam.

Looking at the prospects and core strength of our textiles sector, it would be prudent to open up the sectors of wine and cheese as a bargaining chip to secure our position in RCEP as well as in EU markets. Wine and cheese is never otherwise a big item in our consumer basket nor India exports huge amount of it to the outside world. So, the future prospect of textiles can be enhanced with this new trade strategy as it will create more employment and foreign exchange earnings.

Making non-negotiables paramount to trade negotiations is self-defeating and counterproductive. In an interdependent world, such strategy would result in isolation for India from participating in the development of global and regional trade. Engaging the RCEP partners and the EU in talks would be constructive provided some room for negotiations in India’s sensitive sectors are allowed where applied tariff average is still around 15%.

A negotiating clause could be brought forward which should give an opportunity to local producers to provide inputs and raw materials to produce and sell finished products in domestic markets. That would ensure local production and employment in sensitive sectors such as agriculture and automobiles. To remain completely non-negotiable would make the negotiating strategy unproductive.

In the name of defending politically sacred tariffs, India is depriving its textiles, pharmaceuticals and gems and jewellery exporters of greater market access to Asia-Pacific and European markets. Demanding now more access for Indian professionals would create further fissure in already held negotiations. It can complicate matters at a time when immigration is debated as a sore issue in developed countries like American politics, reigniting the flame of Monroe doctrine of 19th century-America for Americans.

(The writer is Professor, Lal Bahadur Shastri Institute of Management and former Senior Faculty, Indian Institute of Foreign Trade, New Delhi)