How To Make FTAs Work

India’s experience with free trade agreements has been bitter. Can the country learn from its mistakes?

- Joe C. Mathew

On March 6, Commerce and Industry Minister Piyush Goyal made a candid admission on the floor of Parliament. He told the Rajya Sabha that India’s Free Trade Agreement (FTA) with the 10-country ASEAN (Association of South East Asian Nations), its biggest trade pact so far, has increased the country’s trade deficit with them. India’s trade deficit with ASEAN was $5 billion at the time of implementation of the FTA (FY11). In FY19, it was $21.8 billion, a four-fold increase, he said.

The discomfort with large trade agreements like the one with ASEAN was visible in November 2019 too when India walked out of talks for the Regional Comprehensive Economic Partnership (RCEP) – seen as leading to create the world’s largest economic block – signed among 16 East Asian economies, including ASEAN members.

However, worries about older existing trade deals are not preventing India from exploring new trade pacts. The RCEP may have been aborted, but the country has been in discussion for a trade agreement with its biggest trade partner, the US. The commerce ministry has also hinted that the country will explore opportunities arising out of shakeup in global supply chains due to trade wars (especially US-China) and outbreak of the novel coronavirus (Covid-19) influenza.

India has till date signed about two dozen trade agreements – from FTAs to preferential trade pacts with countries and groups of countries. It is negotiating an equal number of deals with others. It seems to be confident that it can make future deals work. This is only possible if it can learn from its mistakes.

Global Minnow