Introduction

India has entered into 20 regional or free trade agreements, excluding the recently concluded pacts with the United Kingdom and European Free Trade Association (EFTA). Negotiations are ongoing with major economies including the United States, European Union, Canada, and the Southern African Customs Union. This renewed urgency is driven by U.S. tariffs of up to 50% on key Indian exports, underscoring the strategic importance of trade diversification. However, evidence from earlier FTAs reveals that market access without domestic preparedness has widened trade deficits rather than strengthened exports.

Why in the News?

India’s FTA strategy is at a critical inflection point. While the country is rapidly expanding its trade pact network and reconsidering engagement channels even with blocs like RCEP, outcomes from earlier agreements expose structural weaknesses. Trade deficits with ASEAN widened from $10 billion (2017) to nearly $44 billion (2023), and similar trends are visible with Japan and South Korea, despite rising exports. 

India’s Expanding FTA Landscape

1. FTA Coverage: Enters 20 FTAs; recent additions include the UK and EFTA agreements.
2. Negotiation Momentum: Accelerates talks with the U.S., EU, Canada, and SACU.
3. Strategic Trigger: Responds to steep U.S. tariff escalation on Indian exports.
4. RCEP Positioning: Maintains non-accession while exploring consultative channels.

Trade Imbalances from Earlier FTAs

1. ASEAN Trade Deficit: Expands from ~$10 billion (2017) to ~$44 billion (2023).
2. Japan and Korea Pattern: Imports of high-value, capital-intensive goods outpace export growth.
3. Structural Asymmetry: Export basket remains less competitive against partner economies.

Negotiation and Design Deficiencies

1. Standards Alignment Gaps: Weak mutual recognition on quality standards and certifications.
2. Rules of Origin Weakness: Allows import surge without commensurate domestic value addition.
3. Non-Tariff Barriers: Insufficiently addressed despite tariff liberalisation.
4. Sectoral Misalignment: FTAs not tailored to India’s comparative sectoral strengths.
5. Industry Consultation Deficit: Limited engagement with exporters during negotiations.

Implementation and Domestic Uptake Failures

1. Low Utilisation Rates: Indian exporters fail to exploit preferential margins.
2. Domestic Awareness Gaps: Government does not adequately popularise FTAs among industry.
3. Partner Advantage: Counterpart economies utilise preferences more effectively.

Course Correction through Recent Agreements

1. Review Mechanism: Reassessment of ASEAN, Japan, and Korea FTAs initiates correction.
2. India-UAE CEPA Outcome: Achieves balanced trade expansion; non-oil trade touches ~$100 billion in FY25.
3. Learning Curve: Demonstrates value of calibrated concessions and sector-specific focus.

Strategic Priorities in Ongoing Negotiations

1. United States Engagement: Requires structured consultations with services, seafood, engineering goods, and textile exporters.
2. European Union Talks: Demands focus on carbon-intensive sectors like iron, steel, and cement.
3. CBAM Challenge: Trade terms must factor the Carbon Border Adjustment Mechanism.

Beyond Agreements: The Export Support Imperative

1. Standards Infrastructure: Strengthens quality, certification, and testing ecosystems.
2. Trade Infrastructure: Improves logistics and supply-chain efficiency.
3. Technology Upgradation: Enables competitiveness in global value chains.
4. Market Intelligence: Supports exporters with real-time demand and compliance data.

Conclusion

Free trade agreements can only serve as an entry point, not a substitute, for export competitiveness. India’s experience with earlier FTAs shows that tariff liberalisation without adequate attention to standards, rules of origin, sectoral strengths and domestic capacity leads to widening trade deficits rather than sustained gains. The relatively balanced outcomes under recent agreements underline the importance of better-designed negotiations and continuous review. As India advances talks with major economies, the real test will lie beyond signing pacts; in systematically supporting exporters through quality infrastructure, technology upgradation and market intelligence so that market access translates into durable trade outcomes.

PYQ Relevance

[UPSC 2017] Account for the failure of the manufacturing sector in achieving the goal of labor-intensive exports. Suggest measures for more labor-intensive rather than capital – intensive exports.

Linkage: This PYQ directly aligns with the article’s core argument that FTAs without domestic productive capacity and sectoral competitiveness lead to import surges rather than export expansion.

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