Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

Investment lessons from the India-EFTA trade deal


From UPSC perspective, the following things are important :

Prelims level: Trends in Indian Foreign Trades; Free Trade Agreement Policy;

Mains level: Trends in Indian Foreign Trades; Free Trade Agreement Policy;

Why in the News? 

India needs a clear Free Trade Agreement policy, especially in dealing with International Trade and Foreign Investment Laws.

About Free Trade Agreement:

    • A Free Trade Agreement between two or more countries aims to reduce or eliminate barriers to trade, such as tariffs, quotas, and other restrictions, to facilitate the flow of goods and services across borders.
    • Its significance for India: It can increase market access for Indian goods and services, boost exports, attract foreign investment, stimulate economic growth, create employment opportunities, and enhance competitiveness through exposure to international markets and technologies.
  • Present status of India’s Involvement in FTA: 
    • India is involved in various free trade arrangements, including the South Asian Free Trade Area (SAFTA), the Association of Southeast Asian Nations (ASEAN) Free Trade Area, the India-Japan Comprehensive Economic Partnership Agreement (CEPA), and negotiations with the European Union for a free trade agreement, among others.
    • Negotiations for India’s FTAs with countries like the United Kingdom and the European Union (EU) appear to have stalled amidst the current parliamentary elections in India.


Why does India need to rebuild its Free Trade Agreement policy?

  • For Comprehensive Economic Treaties: Combining trade and investment negotiations provides India with clear negotiating leverage to strike beneficial deals.
    • It allows India to leverage concessions in trade for advancements in investment, and vice versa. This approach enhances India’s bargaining power in FTA negotiations.
  • For Scope Expansion: India should expand the scope of investment issues by incorporating provisions for protecting foreign investors under international law, ensuring their confidence in investing in India.
    • It will help India to establish an efficacious dispute settlement mechanism under international law to resolve investment disputes effectively.
    • Providing enforceable legal protection to foreign investors is crucial for boosting their confidence, especially amidst declining foreign direct investment levels in India.
  • For addressing the drop in FDI Levels: The policy should address the decline in foreign direct investment levels in India by instilling confidence among foreign investors through robust legal protection and dispute resolution mechanisms.

Investment lessons from the India-EFTA Trade deal:

  • The India-EFTA FTA includes a comprehensive investment chapter, which is missing in recent Indian FTAs with countries like Australia, UAE, and Mauritius.
  • The agreement includes provisions wherein EFTA countries commit to making honest endeavors to increase FDI to India and facilitate job generation, codifying an obligation of conduct rather than an obligation of result.
  • Economic theory highlights the close linkage between trade and investment. While earlier Indian FTAs included both binding trade rules and investment protection, recent ones decoupled international trade law from international investment law.
  • The India-EFTA FTA, emphasizes combining trade and investment negotiations in one comprehensive economic treaty, that is ‘FTA 3.0 Approach’, which represents a departure from the decoupling approach seen in recent FTAs.

Way Forward:

  • Capacity Building: Enhance the capacity of Indian negotiators and policymakers to understand complex trade and investment issues, including legal frameworks, dispute resolution mechanisms, and international best practices.
  • Integrated Negotiation Approach: Adopt an integrated approach to FTA negotiations, wherein trade and investment aspects are negotiated together within a single agreement, ensuring coherence and synergy between the two.

Mains PYQ:

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