From Vaccine Maitri to Vikas Maitri: A case for shared prosperity through FTAs

India’s vaccine diplomacy can help regain its ground in the global trade landscape through Free Trade Agreements.

 |  5-minute read |   08-03-2021
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The government of India’s Vaccine Maitri initiative is turning out to be a critical antidote in the global fight against Covid-19. With the IMF predicting global growth at 5.5 per cent for 2021, conditional to extensive vaccination access, India’s role, therefore, as a world pull-up force for economic and livelihood recovery is paramount. Despite the prevailing sentiment of vaccine nationalism with developed countries hoarding vaccines, India has dispatched nearly 23 million vaccine shipments globally.

The initiative has generated immense goodwill, reliability, and trust among our partners, values that are critical for any bilateral or multilateral agreement, trade or otherwise. Therefore, given our focus on revamping our Free Trade Agreement (FTA) strategy post the exit from the Regional Comprehensive Economic Partnership (RCEP) negotiations, we should use this opportunity to enter into trade agreements on the principles of trade reciprocity, strategic complementarity and most importantly, trust.  

In this context, we have two reliable partners in Africa and the European Union (EU).

EU and India

The European Commission projects EU GDP to grow by 3.7 per cent in 2021 and 3.9 per cent in 2022, recovering from a contraction of 6.8 per cent in 2020. Volatile economic fortunes have also brought aggressive postures in economic relationships.

main_india-eu-summit_030821010634.jpgEuropean Council President Charles Michel (top), European Commission President Ursula von der Leyen (bottom right) and Prime Minister Modi (bottom left) at a virtual EU-India summit on free trade deal, held in July 2020. (File photo: Reuters)

The EU plans to be more “assertive” with its trade dealings with the world which comes in the backdrop of a new investment agreement between China and the EU. The EU, India’s largest trading partner, with bilateral trade of around USD 109 billion in FY21, accounts for almost 11 per cent of India’s total trade. The EU is also India’s second-largest export destination. While India’s exports to the EU consist of mainly apparel and textiles, machinery, organic chemicals, automobiles, gems and jewellery, iron and steel, mineral fuels and pharma products, EU exports to India comprise of machinery and equipment, gems and jewellery, auto, plastics and organic chemicals symbolising the presence of high trade complementarities between the two trading blocs. Estimates suggest an untapped export potential amounting to a staggering 90 per cent, measured as a percentage of our current exports to the EU. Despite this, an FTA has been elusive.

For an FTA with India, the EU is seeking market access through reduced import duties in agriculture and dairy products, alcoholic beverages, automobiles in the luxury segment, sectors against which India has strong reservations. There is also substantial disagreement on commitment over and above WTO’s intellectual property rights as it may hurt India’s generic pharma industry. Concerning services trade, India is bargaining ambitiously for improved market access in ITeS/BPO/KPO services, better movement of software professionals and advocating harmonised rules across European countries. 

EU’s data protection laws have also been a bone of contention between the two regions. The EU, on its part, is asking for increased access to India’s various sectors through the FDI route including multi-brand retail, banking and insurance, legal services etc. Therefore, our differences with the EU are sharp and resolving them requires careful consideration.

The AfCFTA- Newer avenues

Africa, on the other hand, after suffering a contraction of 2.6 per cent in 2020, is projected to grow by 3.2 per cent in 2021 and 3.9 per cent in 2022. In the most promising development, countries in the African continent, after years of deliberation, have finally come together to sign the world’s largest free trade area, measured by the number of countries participating, the African Continental Free Trade Agreement (AfCFTA).

While the AfCFTA has the potential to unleash the continent to higher growth and economic prosperity, the trade corridor faces several impediments. Poor infrastructural connectivity and high logistic costs coupled with rampant political uncertainty and terrorism are severe barriers to the fulfilment of the goals of this pact.

main_afcfta_reuters_030821125549.jpgWhile the AfCFTA has the potential to unleash the continent to higher growth and economic prosperity, the trade corridor faces several impediments. (File photo: Reuters)

In this respect, India can contribute to a better African growth story by providing the necessary infrastructural, logistic and tactical support needed for the betterment of the pact. Former High Commissioner to Nigeria, Mahesh Sachdev writes, “New Delhi can help the African Union Commission prepare the requisite architecture, such as common external tariffs, competition policy, intellectual property rights, and natural persons’ movement. It can also identify various African transnational corporations which are destined to play a greater role in a future continental common market and engage with them strategically.” Once AfCFTA is up and running, India can work up a mega FTA pact with the African trade block unlocking an export potential of nearly USD 25 billion, mostly in rice, medicaments and piston engines.

The road ahead

High trade complementarities between India and its partners and a new trade paradigm that has emerged post the rise of China will require greater efforts to resolve mutual differences. Trade alliances with Africa, EU, UK and US are the need of the hour in order to make its space in the global value chain.

Clearly, a strong political will is needed for any trade negotiations to succeed. Resolving differences and maintaining a fair balance by examining the genuine demands of the domestic industry is a must. For example, with regard to the EU-India BTIA, the fear of automakers that domestic carmakers will suffer if European cars flood the market will have to be looked into. This may not be completely true. German carmakers would be looking into the luxury segment in the auto sector where market access can be given by India. The small car segment, on the other hand, can be protected to start with. Encouraging European carmakers to set up a manufacturing base in the country might yield more negotiating ground with the EU to back off on TRIPS+ commitments which will protect India’s robust pharma segment.

India’s learnings from RCEP will also help it build a strategy for future negotiations. After all, trade deals are all about accepting offers that are achievable, realistic and reciprocal. This will only further the cause of an Aatmanirbhar Bharat.

Also read: Why Modi's decision on not joining RCEP makes a lot of sense

Writer

VK Saraswat, Prachi Priya and Aniruddha Ghosh

VK Saraswat is member of NITI Aayog, Prachi Priya is a Mumbai-based economist and Aniruddha is a PhD student at Johns Hopkins University.

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