Free Trade Agreements

• About: Free Trade Agreements (FTAs) are trade agreements between two countries (or blocs) which aim to give each other access to markets by lowering or removing border protection measures such as border taxes on exports and imports, and other barriers (such as standards, processes).  
• Coverage: FTAs can cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc).
  • FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy. 

• Types of Trade Agreements: 

How FTAs Can Negatively Impact MSMEs? 

• Limited Global Reach: Only 16% of Indian SMEs engage in international trade, with 13% involved in exports. This is significantly lower than the international average of 19%. 

• Vulnerability to External Shocks: Indian SMEs are vulnerable to global disruptions, as seen during the Covid-19 lockdown, which severely impacted supply chains. 

• Technical Barriers: Indian MSMEs often struggle with compliance to international standards, including sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBTs).  
• Limited Networking Opportunities: MSMEs in India often lack connections with potential buyers abroad, which limits their market access and visibility. 
• Loss of Domestic Market Share: As cheaper imported goods flood the market due to lower tariffs under FTAs, domestic MSMEs may lose market share to foreign competitors, leading to a decrease in sales and revenue.  
• Scaling Challenges: The lack of capital, technology, and access to skilled labor can hinder their ability to compete on price, quality, and efficiency against foreign goods entering the Indian market. 

How FTAs Can Negatively Impact Farmers? 

• UPOV 1991 Convention: EU is pushing India to join the UPOV 1991 (International Union for the Protection of New Varieties of Plants) , which grants exclusive rights over new plant varieties to large corporations.
  • By joining UPOV 1991, India could face restrictions on seed sovereignty, where farmers may be forced to buy seeds every season due to use of Terminator seeds (genetically engineered to be sterile after first harvest). 
• TRIPS-Plus Demands: The EU’s TRIPS-plus demands aim to expand the intellectual property (IP) rights of multinational companies (MNCs) over agrochemicals, such as pesticides and fertilizers.
  • It would lead to the monopolization of agrochemical markets by large companies and increase in prices of essential inputs for farmers. 
• Non-Tariff Barriers (NTBs): Applying the EU’s pesticide maximum residue limit (MRL) of 0.01 parts per million (ppm) for several pesticides and food commodities could lead to the rejection of India’s agricultural export consignments. 
• Increased Competition: Under Economic Cooperation and Trade Agreement (ECTA), Australia is looking to expand the export of pulses, wines, sheep meat, wool and horticultural produce to India which may prove detrimental for subsistence based Indian small landholder farmers. 
• Food Insecurity: India currently applies a 30% tariff to all Canadian lentil exports , which will be eliminated after India-Canada FTA.
  • It could lead to a 147% increase in Canada’s exports over five years, threatening India’s goal to boost domestic pulse production and reduce import dependency. 

Way Forward 

• Investment in Infrastructure: Streamlining logistics through digital tools and integrating transportation modes (road, rail, and ports) would reduce logistics costs and improve efficiency. 
• Relaxation of Rules of Origin (ROO): To improve FTA utilization, India should work on making ROO requirements more flexible and commodity-specific rather than uniform across all sectors to lower transaction costs for exporters. 
• Emphasis on Services: India should focus on designing FTAs with greater emphasis on market access for its strong services sectors, particularly in IT, business process outsourcing (BPO), and other knowledge-based services. 
• Re-negotiating Existing FTAs: For FTAs already signed, India should seek to renegotiate terms to focus on diversifying into high-tech and value-added products like chemicals, automotive components, and electrical apparatus. 
• Boosting R&D: Boosting R&D in Export-Oriented Industries to create high-value products that align with global demand. 
• Integrated Policy Approach: India’s Production-Linked Incentive (PLI) scheme, aimed at boosting manufacturing in select sectors, should be aligned with future FTAs to ensure that sectors benefiting from the PLI scheme are also given preferential treatment in trade agreements.