The high cost of raising trade walls (The Hindu)

• Mains Paper 3: Economy 
• Prelims level: Free Trade Agreements
• Mains level: Future challenges of the Free Trade Agreements

Context:

• India’s international trade posture appeared to turn protectionist in the past week, with two indicators the government sent out. 
• The first, which played out live on television was contained in the Union Budget announced by Finance Minister Nirmala Sitharaman on February 1. 
• The other, that went virtually unnoticed, was that India declined to attend a meeting of trade negotiators in Bali (February 3-4) that was discussing the next step in the Association of Southeast Asian Nations (ASEAN)-led Regional Comprehensive Economic Partnership (RCEP) trade agreement.

.Rise in trade deficits:

• The government’s problem with FTAs was a key theme in its decision to walk out of the RCEP negotiations (of 16 countries) in November 2019, where Prime Minister Narendra Modi and members of his cabinet cited the rise in trade deficits with FTA partners. 
• The government says it will now review all those agreements, in particular TAs signed with the 10-nation ASEAN grouping (FTA), Japan (Comprehensive Economic Partnership Agreement, or CEPA) and South Korea (CEPA), and wants to “correct asymmetry” in negotiations with new partners.
• India makes a complete break with RCEP, as its absence from the Bali meeting indicates it is determined to, negotiating the bilateral trade agreements (TAs) will not be a priority for the other countries until RCEP is done. 
• The process of legal scrubbing is likely to take most of the year, and any talks with India will probably only follow that. 
• It is also hard to see any of them being able to offer India a better deal bilaterally once they are bound into the multilateral RCEP agreement.

Tough road ahead:

• A similar scenario awaits the announcement of the India-United Kingdom FTA talks. British Prime Minister Boris Johnson is to visit Delhi in the next few months, while Mr. Modi heads to the U.K. in November for an environmental summit, and their bilateral bonhomie is expected to boost chances of an FTA post-Brexit. 
• However, it is unlikely that the U.K. will actually be able to talk until next year, after terms for the U.K.’s full withdrawal from the European Union (EU) are completed.

No safety net:

• While the absence of a TA with any country does not mean that trade will not grow, other changes in the world trading order may become significant hindrances when added to this present scenario. 
• The decline of multilateralism, accelerated by retrenchment of the U.S. and China’s intransigence have all meant the World Trade Organization (WTO) has lost steam as a world arbiter. This leaves states that are not part of arrangements without a safety net on dispute settlement mechanisms.
• The government has invoked the massive $57-billion trade deficit with China to explain protectionist measures, but it forgets its own trade surpluses with smaller economies, particularly in the neighbourhood, where Indian exports form more than 80% of total trade with Nepal, Bangladesh, Bhutan and Sri Lanka, respectively. 
• Even with Pakistan, before India cancelled most favoured nation (MFN) status and Pakistan suspended all trade, in 2019, India’s exports stood at about $2.06 billion of a total of $2.55 billion.

Rise of regional agreements:

• It is clear that most of the world is now divided into regional FTAs, including the North American Free Trade Agreement (NAFTA) for North America, the Southern Common Market (MERCOSUR for its Spanish initials) for South America.
• The EU, the Eurasian Economic Union (Russia and neighbours), the African Continental Free Trade Agreement (AfCFTA), the Gulf Cooperation Council (GCC) FTA in West Asia, and now the biggest of them all, RCEP, which minus India, represents a third of the world’s population and just under a third of its GDP.
• With the door to RCEP all but closed, and the South Asian Association for Regional Cooperation (SAARC) virtually abandoned, India is not a part of any regional FTA. 
• The trend across the world does not favour trade in services the way it does in goods, as most countries have turned migration-averse.
• India’s strength in the services sector and its demand for more mobility for Indian employees, is thus becoming another sticky point in FTA negotiations.
• The debate over trade is as much about India’s leadership ambitions in the world, and the factors that could inhibit its rise. 
• It would be hard to argue that India can rise in Asia without closer trade links with the East or the backing of South Asia.

Way forward:

• India’s demographic might is certainly attractive for international investors, but only if that vast market has purchasing power and is not riven by social unrest and instability. 
• Historically, the decline of colonial powers and more ancient empires can be traced to times when they turned inward and disengaged from foreign trade. 
• It flows logically that in the modern, economically interconnected and technologically inseparable world, India’s global rise cannot but be accompanied by an open mind on trade as well.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions: 

Q.1) With reference to the  flame-throated bulbul, also called the Rubigula, consider the following statements:
1. It is found in the Western Ghats from southern Maharashtra and Goa southwards.
2. Its IUCN Red List Status is Vulnerable.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both  
(d) None
Answer: A

Mains Questions: 
Q.1) What is Free Trade Agreements? What are the future challenges of Free Trade Agreements?