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What's the article about?
- This article talks about the emerging issue of non-tariff barriers in free trade agreements.
Relevance:
- GS3: Indian Economy;
- Effects of Liberalization on the Economy; Prelims
Context:
- Earlier India was not in favour of signing FTAs due to fears of losing domestic markets to foreign players.
- However, as a result of changing circumstances and increased globalisation, India is now actively pursuing FTAs with a diverse range of countries.
- Trade pacts have been signed with Australia and the UAE, while negotiations are ongoing with the UK and the European Union, among others.
- But as these talks enter a critical phase, new kinds of non-tariff trade barriers (NTBs) are also emerging. These NTBs range from carbon emission norms and climate action to labour and gender balance standards.
- Indian negotiators are concerned that their inclusion could provide partner countries with instruments to impose non-tariff protectionist measures, not allowing India to fully take advantage of the trade pacts.
For Example: the issue of carbon emissions is now taking the form of a NTB.
- Recently, the European Union reached an agreement on a carbon border adjustment mechanism which is meant to target carbon intensive products such as iron and steel, cement, aluminium and fertilisers.
- Under the framework, levies would be imposed on imported goods on the basis of the emissions during their production process.
- As per the European Commission, the adjustment mechanism will “equalise the price of carbon between domestic products and imports”, and thus ensure that the EU’s climate objectives “are not undermined by production relocating to countries with less ambitious policies.”
- This will impose costs on Indian exporters, act as a barrier.
- On similar lines, manufacturers of steel in India will be at a disadvantage when compared to those in the US where the process results in lower carbon emissions.
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The Basics of Trade Barriers:
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Way Forward:
- While negotiations must surely proceed with care, they must not be derailed over these issues.
- The government must push ahead with these trade agreements. In fact, the domestic reform agenda must be aligned with ensuring that the benefits from these trade pacts can be maximised.
- The first two decades after 1991-92 saw a steep decline in tariff rates.
- The trend, however, has been reversed under the present government with the average applied import tariff actually rising.
- At a time when firms are looking to diversify away from China, pursuing a China plus one strategy, India must lower barriers to trade, seek actively to be a part of global value chains.
