The window for FTAs shrinks as India braces for a set of non-tariff barriers

Subject :Economy

Context:

As India pushes the pedal on free trade agreements , non-tariff issues such as carbon emission norms, climate action, labour and gender balance standards, that comprise an increasingly substantive part of these new pacts, are weighing on these ongoing negotiations.

What is Free Trade Agreements:

It is a pact between two or more nations to reduce barriers to imports and exports among them.
Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
The concept of free trade is the opposite of trade protectionism or economic isolationism.
FTAs can be categorized as Preferential Trade Agreements, Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreements (CEPA).

What is the current issue:

Issues like climate action, carbon emissions, and labor issues are taking precedence over pure trade issues due to trade negotiations.
There are chances that the focus might get shifted to a series of events linked to the G20 presidency, so India needs to act fast.
The political lobbying from influential lobby groups such as farmer unions and the auto sector could intensify in the run-up to the 2024 national elections.

What is the differences between the old and the new FTAs

Earlier, predominantly trade-related issues used to dominate like rules, operations, tariffs measures etc.There used to be about a dozen chapters but now in the new FTAs, the number of chapters has doubled with non-trade issues dominating these FTAs.

What is the concern:

India needs to be cautious in the FTA negotiation, in the future as we may benefit from the Generalised System of Preferences(GSP), but if the developed nations put in a non-tariff barrier by citing labour or environment, then it becomes an issue.For example European Union has purposed CBAM to tax carbon-intensive products, from 2026.
An interim Trade Agreement or early harvest trade agreement is used to liberalize tariffs on the trade of certain goods between two countries or trading blocs before a comprehensive Free Trade Agreement is concluded.
The problem is that these early harvest schemes potentially target the low-hanging fruits, leaving the tougher goods and services for later.
Recession in the developed world also stokes protectionist tendencies there, to which they respond by erecting walls not necessarily based on tariffs to stall imports from other countries.

What are Non – Tariff Trade Barriers:

A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff.
Nontariff barriers include quotas, embargoes, sanctions, and levies.
As part of their political or economic strategy, some countries frequently use nontariff barriers to restrict the amount of trade they conduct with other countries.

What are different types of Non Tariff Barriers:

Licenses : Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country.
Quotas : Countries often issue quotas for importing and exporting both goods and services. With quotas, countries agree on specified limits for products and services allowed for importation to a country.
Embargoes : Embargoes are when a country–or several countries–officially ban the trade of specified goods and services with another country.
Sanctions : Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions–or additional customs and trade procedures–that slow or limit a country’s ability to trade.
Voluntary Export Restraints : Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country can export to specified countries.