Trade agreements struck earlier have taught India how to raise its game

Old FTAs, uneven gains: India’s early FTAs with Asean, Japan and South Korea have not yielded the desired outcomes.  Instead, the trade deficit with these countries has widened significantly. While the Asean-India Trade in Goods Agreement (AITIGA) of 2009 helped expand trade volumes, it also widened our trade deficit with Asean from $6 billion in 2009 to over $45 billion by 2022 (it’s now at $38 billion). 

Our experience has been similar with Korea and Japan; imports surged while exports stagnated, particularly in sectors where India had held a comparative advantage, like garments, pharma, etc.

These early agreements had several structural and design issues. 

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First, tariff concessions were asymmetrical (especially under the AITIGA), with India offering more liberal market access to all Asean countries, while Vietnam, Indonesia and Thailand opened up their markets through far fewer tariff lines than India did.

Second, non-tariff barriers such as complex certification procedures, sanitary and phytosanitary (SPS) regulations and technical standards have impacted India’s exports. Japan’s SPS measures are particularly stringent, making it extremely challenging for Indian exporters of farm produce and other food items.

Third, the agreements struck earlier primarily covered goods. Most of those FTAs have limited provisions for services or professional mobility, areas where India is competitive. Earlier FTAs also did not include strong safeguard or review clauses either, leaving little recourse for industries impacted by import surges or trade diversion.

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Our new playbook: India’s recently signed FTAs with the UAE, Australia and the UK offer a new playbook. Take the India-UAE Comprehensive Economic Partnership Agreement (CEPA). Since it was signed in 2022, India’s exports to the UAE have grown at an average annual rate of over 14%. This is also among India’s first modern FTAs. It has chapters on digital trade and e-commerce. 

The India-Australia Economic Cooperation and Trade Agreement has also yielded positive outcomes, with a much higher 77% utilization rate by Indian exporters within a year of signing the pact. Its success has encouraged the two countries to negotiate a CECA.

The positive outcomes of these new deals are not accidental. They are the result of a strategic approach formulated with lessons learnt from the past.

First, India is choosing its partners more judiciously, focusing on developed markets like the UK, EU and US which have complementary interests and offer meaningful market access for India’s goods and service exports.

Second, agreements are now broader in scope. They go beyond goods to include investment, intellectual property, digital trade and skilled labour mobility. In the India-UK negotiations, for instance, India secured London’s liberalization of professional-mobility rules and will enter into mutual recognition agreements (MRAs) on qualifications for various professional services. Both sides also agreed on a convention to prevent double contributions that exempts Indians on short stints in the UK from making social security payments there.

Third, trade agreements are being integrated with India’s domestic policy agenda, with efforts to deploy tariffs and other tools in support of ‘Make in India’ and various production-linked incentive schemes, even as investments are encouraged that would help Indian manufacturing assimilate into global value chains. India’s Trade and Economic Partnership Agreement with the European Free Trade Association is a case in point.

Fourth, India is looking to build trade resilience. New Delhi is negotiating deals with Chile and Peru to establish long-term resource partnerships, given their huge reserves of critical minerals such as copper and lithium, which are essential for various elements of India’s clean-energy transition. Crucially, lessons from the past have ensured that negotiated ‘rules of origin’ are effective, while safeguard mechanisms and review clauses are well integrated.

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On the horizon: India must ensure no repeat of past mistakes in its trade deals. Non-tariff barriers (NTBs) could pose a challenge, particularly in developed markets with high standards. Ficci recommends including the negotiation of MRAs on testing, certification and inspection to tackle NTBs in future agreements. 

Further, all pacts must include periodic review clauses and safeguard triggers. For instance, an ‘auto-trigger mechanism’—which ups tariffs automatically once imports exceed a certain threshold—could be considered. A similar clause is in place under the India-Mauritius deal. Finally, India must use and embed data more systematically into agreements, not just at the negotiation stage, but well into implementation too.

The author is president, FICCI.