The revenue forgone by our Customs department was Rs.2,60,714 crore in FY2014. Of this, 23% was on account of export promotion schemes; the rest due to FTAs!

Steven Philip Warner | The Dollar Business

It’s easy to welcome diplomats for dinner sponsored by your taxpayers. It’s another thing to convince them to open their doors to your exporters.

2015 is a special year. Two mega-foreign trade pacts (FTAs) should come into force this year involving nations accounting for over 60% of world GDP. One being the Transatlantic Trade and Investment Partnership (TTIP) between EU and US, other being the Transpacific Partnership (TPP) that US will sign with 11 other nations. And India, despite all the chemistry in display of late with foreign lords, has not been invited to either of the blocs! Some woodenheads lament this. They claim India’s “club membership” will affect its trade relations, especially given that the China-led RCEP is making progress. Correction: FTAs don’t make exports like shooting fish in a barrel.

There are reasons why India should not be forced by a handful of armchair economists to join this new world order that comes in the name of FTAs. First, FTAs these days actually have the ‘A’ for “Agreement” scissored; these are called “Partnerships” (think of RCE‘P’, TP‘P’, TTI‘P’, etc.). There is little point in ego massaging oneself by being able to call any First World nation an “on-paper partner”. Second, look at how poorly India has performed on FTAs. With RCEP members, India has accumulated a trade deficit of over $300 billion since 2009. With TPP, India runs a deficit with 67% of members with a deficit of over $30 billion. In the past five years, India’s deficit with its FTA members (ex SAARC) has totalled over $135 billion. FTAs – avoid! Third, why are we recommending that our exporters get over the habit of FTA-driven zero import tariff advantages? The answer is – we have a body called DGFT which pens down a document called FTP. Incentivise exports to an extent that Indian exporters will not require tariff mercy from foreign nations. WTO may object – but till the time the future of its very own Doha Development Round is uncertain, India will have to talk tough. Fourth, the revenue forgone by our Customs department was Rs.2,60,714 crore in FY2014. Of this, 23% was on account of export promotion schemes, the rest due to FTAs! We’d rather have Rs.2 lakh crore being doled out to exporters as a stimulant! Fifth, talking of even imports, has the Indian government signed an FTA with a nation with a “written promise” that the price benefit that comes from the lowering of duties on imports will be passed on to the final Indian common man? Sixth, all that FTAs are doing at this time is discouraging our domestic manufacturing sector by making India’s large consumer market a haven for foreign-made, tariff-favoured products. Seven, the oft-referred to sphagetti bowl. Take India-Sri Lanka for example. The two nations have signed three FTAs till date. One being bilateral (it talks about concessions on import duties on sourcing of fabrics from India and the resultant finished apparel articles from Sri Lanka!), and two multilateral under the SAPTA and SAFTA. There are duplications in terms of products covered under the FTAs that leave you wondering if a college graduate worth his salt ever got a chance to read the fine print. Eight, India should not sign an FTA to find itself not conforming to ground rules. For instance, the TPP has sophisticated elements of modern-day trade – like an agreement on labour standards, IPR, etc., which are elements that suit the First World. Ninth, India’s National Manufacturing Policy promises to create 100 million jobs and contribute 25% to GDP in a decade. And there is the Make in India campaign to serve. The vision is to make India a net exporter. Call it limitations on existing capabilities of our infrastructure or lack of bargaining power on the part of our plenipotentiaries, FTAs doesn’t seem to be the answer that works. Tenth – if China and US are signing FTAs, why should we fail to imitate? A May 2015 research paper by Narayanan (Purdue University) and Sharma (Centre for WTO Studies) concludes that, “India loses in terms of GDP, in all scenarios when it reduces tariffs.” As for others, it summarises, “When China reduces its tariffs, it enjoys increase in both GDP and welfare. Japan and USA emerge as the biggest winners...” Convinced?

We need to stop being ostriches. No point burying our heads in the sand. Hope-driven extrapolations should give way to direct action and incentives for exporters in the new FTP. Let’s stop taking pride in FTA numbers. Discontinuing this new age World War is sensible – isn’t hundreds of billions worth of damage reason enough? WWI, WWII, Cold War... let’s leave the list at that.