Issues with India’s Free Trade Agreements (FTAs) – UPSC GS3

Context: To make FTA negotiations successful, India needs to address some of the issues that are hampering India’s FTA with other regional trade blocs.
Global developments in FTAs:
  • US-Mexico-Canada Agreement (USMCA)
  • EU-Vietnam FTA
  • 15-member Regional Comprehensive Economic Partnership (RCEP).
  • China and Taiwan, request for membership to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
  • The UK has initiated its negotiations for membership to the CPTPP earlier this year.
What are the issues hampering India’s FTA with other regional trade blocs?
  • Labour law issues:
    • Issues related to labour laws and investor protection provisions impact India’s ability to negotiate deep-trade agreements.
    • For instance, issues related to labour laws led to the suspension of the FTA negotiations with the EU in 2013 and pushed these negotiations to 2023.
  • Investor protection issues:
    • India’s 2016 template for a model investment treaty make it difficult for India to negotiate the investor protection provisions as it is more state-friendly and includes some burdensome provisions for the foreign investor.
  • Protectionist Tariff structure:
    • India’s tariff structure has been relatively higher than the average MFN tariffs in the manufacturing sector.
    • For example, as per World Bank data, the applied, weighted mean tariff rate for manufactured products in India increased from 5.5 percent in 2008 to 6.6 percent in 2019. Whereas it decreased in the case of Vietnam from 5.6 percent to 1.4 percent over the same period.
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