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Bhalla panel favours India joining RCEP; supports FTAs with trade partners

Joe C Mathew     October 31, 2019

A High-Level Advisory Group (HLAG) headed by economist Surjit S. Bhalla, has favoured India signing free trade agreements (FTA) with trade partners. It called for a sustained medium-term advocacy programme to spread awareness about potential FTAs and opportunities for utilisation of FTAs among medium and small scale industries of the country.

The report will strengthen the Narendra Modi government's resolve to go ahead with negotiations for the proposed Regional Comprehensive Economic Partnership (RCEP).

HLAG, which submitted its report to the ministry of Commerce and Industry on October 30, was assigned the task of assessing the global environment and make recommendations for boosting India's share and importance in global merchandise and services trade; managing pressing bilateral trade relations, and mainstreaming new age policymaking.

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The report said there is a need to correct the perception that Regional Trade Agreements (or FTAs) have not benefitted India and trade partners have grown at India's cost. "This needs to be tackled urgently. There is no doubt that in the short-run trade partners such as Korea and Japan have gained more than us. However, that speaks only half the truth", the report said.

According to HLAG, the role of FTAs has become crucial in foreign trade policy due to the stalemate in the multilateral trading system. "The role of global value chains in the economic development of a country, criticality of technology and investments in a developing economy and imperative of seeking market access by negotiating multi-layered regulatory environment in partner countries" have become very important it said.

The report listed out several actions to pursue gains from FTAs. "In order to expand markets, selection of appropriate trade partners is of critical value. Long term economic interest should drive the selection of a trade partner. Principle of complementarity is the bedrock for partner selection. India should launch a five-year program for negotiations of FTAs based on complementarity and long-term sustainability. Relevant segments of Industry must be associated with the process of negotiations", it said.

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Emphasising the need for market access negotiations to go deeper than simple tariff negotiations, the report said aspiration to board regional value chains should determine the development of rest of the eco-systems between trade partners. "The negotiating architecture requires review to ensure availability of best knowledge and informed capacities for negotiations; this review process may be kick-started by identifying and resolving non-tariff barrier issues faced with India's major FTA partners", it said.

"A comprehensive yet selective and inclusive approach aiming India's interest in the long-term is required. Every FTA must be conceived with a view of achieving national objectives and not driven by narrow considerations, sometimes even driven by political expediency.

While negotiating market access for goods in FTAs, India should focus on both tariffs and non-tariff barriers in partner countries. In services, India should go beyond Mode 4 (movement of persons), and also focus on Mode 3 (commercial presence), as Indian investors have an interest in investing in the FTA partner country", it said.

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The report called for the establishment of an institutional mechanism for seeking inputs from stakeholders prior to finalising an FTA, as well as informing industry well in time about any steps that they would like to take during the period of transition with the aim of minimising their adjustment costs. It also wanted the Government to undertake comprehensive outreach programs for explaining the opportunities for exports, particularly to MSMEs, in the markets of FTA countries.

The HLAG held 12 meetings during October 2018 and April 2019 and sat through detailed presentations by members, as well as by the industry and several departments of the Government of India. The report says while deliberations of HLAG focused on examining challenges and opportunities in different sectors and proposing policy and institutional changes to address them, "the Group recognised the primacy of the interplay between international and domestic developments in these domains".

The HLAG also looked at some sectors like pharmaceuticals, electronics, textiles etc., in detail to derive horizontal and sector-specific recommendations.

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