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Need to be cautious with FTA, UK will take India to the cleaners Be careful, FTA can do great damage to local industry


By K R Sudhaman

At a time when there is an emphasis on going for more free trade agreements, expert studies of India's FTAs indicate that they have been more beneficial to its FTA partners than India. The studies by former senior economic adviser, H A C Prasad in collaboration with India's Exim Bank clearly suggested that the partner countries have benefitted more from India's imports than India exporting from those partner countries due to the preferential treatment provided under such trade agreements.

The benefits to partner countries are more pronounced especially in electronics and farm products. This caution cannot be taken lightly considering the fact that India is giving emphasis to electronics manufacture and stepping up processed food exports.

India has a variety of Trade Agreements– Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), Regional Trading Agreements (RTAs), Comprehensive Economic Cooperation Agreements (CECAs), Comprehensive Economic Partnership Agreements (CEPAs), Comprehensive Economic Cooperation and Partnership Agreements (CECPAs) and Economic Cooperation and Technical Cooperation Agreements (ECTCAs).


Prasad, who has specialized in India's trade, said the studies showed the share of preferential imports from India by India's FTAs in their imports is much lower than India's share of preferential imports from these FTAs in India's imports. Even the preferential tariffs for imports from India by these FTAs are relatively higher than India's preferential tariffs for imports from these FTAs barring some exceptions.  There was some sort of an ‘Unequal Exchange' for India in its FTAs in terms of both tariffs and preferential imports/exports with some exceptions.


He however said there was some sort of balance in terms of Preferential trade  only in the case of India-South Korea preferential trade, where both the preferential trade shares and preferential tariffs on both the import and export sides are near to each other.


Some of exceptions to this observation are APTA and MERCOSUR where the balance seemed to have shifted in India's favour in terms of both the preferential tariffs and share of preferential trade, he said adding in the case of in the case of ASEAN too the share of preferential imports by ASEAN from India is less than India's preferential imports from ASEAN.


In the light of these findings, Prasad said the new FTAs/CECAs like the India-Australia CECA and the India-UAE CEPA and the ones in the pipeline need therefore to be examined. Also India needed to be careful while liberalizing some of the sectors.


Prasad said the electronics Industry has pointed out that FTAs have done great damage to the local industry as India is a huge consumer market and in signing FTA with the ASEAN, domestic electronic manufacturing was adversely affected. A carefully thought out tariff rationalization policy is needed if India has to make up for the loss in missing the bus and make its dream of ‘Make in India' a reality in the semiconductor sector.


There are some sensitive items with livelihood concerns in the farm sector, where caution is needed, he said. In case of natural rubber, imports have increased from Indonesia, Malaysia, Thailand, Singapore and Vietnam. This had resulted in domestic price of natural rubber coming down much below the production cost resulting, which is detrimental to growers in the country. So any further tariff liberalization for natural rubber is not advisable as it had major livelihood implications in rubber growers. Pepper and Arecanut also faced similar issues.


India has signed 13 Regional Trade Agreements (RTAs)/Free Trade Agreements (FTAs) with various countries/regions namely, Japan, South Korea, countries of ASEAN region and countries of South Asian Association for Regional Cooperation (SAARC)Mauritius, United Arab Emirates, Australia. India's merchandise exports to all these countries/regions have registered a growth in the last ten years. In addition, India has also signed 6 Preferential Trade Agreements (PTAs) including Asia Pacific Trade Agreement (APTA).

India is now in the process of finalising its FTA with Britain.  Instead of entering into FTA straight away with a developed nation, India should first strengthen its innovation system and frame its own rules with regard to labour and environmental standards.


A study by Global Trade Institute (GTRI) revealed that the India-UK free trade agreement (FTA) would not yield any substantial benefits for India, as many of its exports to the UK already enjoy low or zero tariffs. On the contrary, the UK is likely to gain more as the UK exports face stiff tariffs in India, particularly on items like cars, Scotch whisky and wines.


The FTA could lead to tariff reductions on these goods, potentially opening new opportunities for the UK. The simple average tariff in India on goods imported from the UK is 14.6 per cent. Indian tariff on British cars is 100 per cent and on Scotch whisky and wines it is as much as 150 per cent. Wind turbine parts that currently attract a 15 per cent tariff will be benefited if tariff is reduced.


It is also reported that for electric vehicles (EVs) the UK has asked for tariff-rate quotas on its exports to India. This literally means a certain amount of EV imports into India from the UK would attract a lower rate of tariff, with a higher rate applying to imports over and above that threshold level. These are some of the concerns that should be kept in mind while finalizing the FTA. (IPA Service)

The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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