Q.10 Briefly discuss the legitimacy of preferential trade agreements (PTAs) and free trade agreements (FTAs). Review the India’s experience regarding them. Give your suggestions to make them favourable to India.

Ans. Multilateral trade agreements, in general, are the first best solutions for deepening global trade as they are founded on the core principles of non- discrimination. Meanwhile, RTAs (Regional Trade Agreements) are efforts by nations aimed at deepening economic relations, usually with neighbouring countries, and tend to be largely political in nature. With the multilateral trade negotiations process under the WTO being a painfully slow one requiring broad-based consensus, RTAs have progressively assumed

greater importance and a growing share in international trade. While RTAs are broadly compliant with WTO mandates and remain broadly supportive of the WTO process, they remain second-best solutions that are discriminatory in nature against non-members and are inefficient as low cost producing non- members lose out to members. While bilateral RTAs have no equity considerations, mega-regional trading groups may not necessarily be equitable if membership is diverse and small countries may lose out either way—if they are part of it they may not have much say and if they are not, they may stand to lose.

India has always stood for an open, equitable, predictable, non- discriminatory and rule-based international trading system and views RTAs as building blocks in the overall objective of trade liberalization as well as complementing the multilateral trading system under the WTO. By mid-2016, India had signed 10 FTAs (Free Trade Agreements) and 6 PTAs (Preferential Trade Agreements) and all of these were in force. As per the official sources (Economic Survey 2015–16), India’s experience with them have not been so clear—

• The net impact of the RTAs on export performance and trade outcome is a mixed bag and requires detailed analysis.

• The trade increases have been much greater with ASEAN then other FTAs and they have been greater in certain industries such as metals on the import side.

• FTAs have led to increased dynamism in apparels, especially in ASEAN markets.

• The governmental analysis suggest that Indian PTAs do increase trade without apparently leading to inefficient trade.

Suggestions:

(i) Today, when global trade is shrinking with extra production capacity, instances of trade violations are high. In such a situation, if India pursues with the FTAs, India must enhance its ability to respond with WTO-consistent measures such as anti-dumping and conventional duties and safeguard measures.

(ii) The big question is whether India should continue negotiating FTAs. With which country to negotiate them is another question. A related and even bigger question is as how India should ‘position’ itself relative to the new mega-regional agreements (such as the recently agreed upon, the trans-pacific partnership).

(iii) The WTO process of promoting multi-lateral trade seems to have been overtaken by preferential trade agreements in the world. In this backdrop, India needs to make a strategic choice—to play the same PTA game as everyone else or be excluded from this process. It is never advisable to be excluded.