During the GATT and WTO negotiations debates were held on the viability and coexistence of the Free Trade Agreements and Regional Trading Arrangements (FTA and RTA) that appeared to go against the fundamental tenet of the WTO which was the MFN status to all and among its members. But the EU already existed and needed to be accommodated and so was NAFTA let alone others. But arbitrariness by various countries for providing MFN status itself has tended to serve their geopolitical rather than geo economic ends. Pakistan is one such example.
But eventually Article 24 of WTO was worked out and became the guiding principle for the cohabitation of the RTAs within the ambit of the global body that today is crying for far reaching reforms. Several RTAs/FTAs have also been under stress. Trump changed NAFTA and the EU suffered from the BREXIT. ASEAN goes ahead while SAARC languishes and some of the ones in Latin America like MERCOSUR are trying their best to stay afloat as the global economy faces its worst challenges. Africa is also striving for a single market with AfCFTA.
The nature of FTAs has also transformed with the complexity of Trade itself moving from goods to services to investment and Tariffs to Non-Tariff barriers to protectionist measures and penal provisions and greater incidence of Anti-Dumping (AD) and Countervailing duties and then to facilitation.
Migration and Mobility became a major issue and ongoing point for discussion especially with the West as countries like India which excel in services are subjugated to visa restrictions and delays in ever so innovative ways by their major markets. In this 21st century the Tech Trade will become more subjective and pronounced as the world moves into AI driven green industrial Revolution 4.0 where ‘Green Apartheid ‘seems to be a crass reality. Somehow the vicious cycle does not break.
And with the pandemic and the Eurasian war and the weaponization of financial instruments, energy and food and fertilizers -have created new road blocs for trade and related instruments and institutions as the WTO mechanism for dispute resolution remains tardy, ineffective and unreliable. Hence for India, chairing the G20, challenges are clear and present danger and need to be addressed along with Climate change issues which has become an integral part of the trading regime.
ESG is the buzz word.US-China Trade wars especially between the Numero Uno and the aspiring to be Numero Unohave crafted the crevices difficult to bridge as the RCEP, CPTPP, IPEF, BRI and BBB initiatives are striving to command the allegiance of the unsuspecting, who are somehow trying to navigate in this terrible quagmire of mutually destructive syndrome among the superpowers.
India, going with the fashionable trend, has in the past been quite fond of the FTAs. More so, they made good sound bytes during the high-level visits. As such the success of a visit was judged by the number of MoUs and Agreements that are signed. In the FTAs each side tries to get the best bargain for its market access and effort is made to have some sort of a balanced outcome mechanism.
However, mostly they related to manufactured goods and tariffs while India has accrued much greater competitive advantage in the Services sector over time. Hence, it is important to include it. Over time the studies and assessments conducted by the Ministry of Commerce indicated that India was losing in the bargain and a galloping trade deficit often was the outcome. Hence, a sudden statis and quest for review and revise the mechanisms ensued.
For a few years even the thought of FTAs or finer version called CEPA (Comprehensive Economic Partnership Agreement) were an anathema and kept on the back burner. Then India participated in the negotiations with the China centric RCEP and opted out feeling that potential injury to Indian interests will outsmart the likely benefit or market access. But then a new drive for FTA/ CEPAs has been launched as India intends to be a reliable part of Global value and Supply Chains given the Chinese disruption. This is further aimed at increasing its exports through various internal reforms, refinement of production processes and logistics while working for market access and attracting investments through various mechanisms.
‘Make in India’ for the World and ‘Local for Global’ with economic incentives, innovations and taxation reforms and laying red carpet and ease of doing business for the investors have become the new norm as India has embarked on an ambitious FTA/CEPA agenda with key partners. New Delhi recently signed and activated with Australia (ECTA) and the ones with EU, UK and Canada are being expedited. Negotiations on the one with the USA have its own complications and are unlikely to move on despite the two countries being Global Comprehensive Strategic Partners. How would one cope with increasing protectionism and trade and increasing use of sanctions as the new currency in international discourse?
In recent times the CEPA with UAE has stood out in its expanse and speed of conclusion and that seems to have become an agreed template for engagement with other countries in the region including with the Gulf Cooperation Council (GCC). Pursuant to the Framework Agreement of 2004 and two rounds of negotiations in 2006 and 2008, only this month India and the GCC announced the resumption of FTA negotiations that were held back for a while since the two sides had been trying to find their feet.
The region is extremely important for India’s Energy Security, Economy and Investment and above all for the over 8.5 mn Indian expats who are instrumental in the overall growth and development of the Gulf countries while acting as living bridges and remitters of nearly 10% of India’s foreign exchange reserves. UAE and Saudi Arabia and Qatar have emerged as the critical trade and investment partners with Abu Dhabi being the 3rd largest and Riyadh the 4th. Thousands of Indian companies have established their presence in the Middle East who have invested over $ 80 bn there.
GCC and India realize the immense potential but have certain complexities too that would need to be addressed. When the discussions first began there was a fear in India that India’s petrochemicals industry and export might suffer but now India has become more confident. But it is important to assess the direct benefits that might accrue but could be limited by the intra GCC dynamic and competition. Riyadh had recently asked all foreign companies and corporates to open their offices and facilities in the Kingdom by 2024 in pursuit of Vision 2030.And those outside will not be able to secure government projects and contracts.
Moreover, can the mobility of professionals within the GCC and uniform work permits, at least for professionals if not for all, be agreed upon under the FTA regime. Likewise, to obviate the currency risks can the national currency be the preferred route and how?
It has to be a plus in the bilateral format since the plurilateral ones like the I2U2 (with India, UAE, USA and Israel focusing on trade and technology) are already showing much greater promise. It might also be useful to look at the countries which already have an extensive network of existing FTAs with major markets and signing one with them could provide Indian companies a much greater market access through the prescribed value addition. The Hashemite Kingdom of Jordan is one such option worth exploring.
This article was originally published by Financial Express as Bridging the gulf: Harnessing the FTAs on January 2, 2023.
Read more by the author: West Asia: A 2022 Recap.