Free Trade Agreements Are Back in Vogue

After eschewing any new major trade deals for almost a decade, India has suddenly changed track and signed the India-United Arab Emirates (UAE) Comprehensive Econo­mic Partnership Agreement (CEPA) earlier this month. The India-UAE CEPA, which is India’s 12th free trade agreement (FTA), is important for a couple of reasons. First, it is the biggest FTA so far as the UAE is India’s third largest trade partner after that with the United States and China. Second, the deal is also important because India had almost stopped signing new FTAs after the last two major deals with South Korea and Japan in 2009 and 2011, respectively. And in 2020, India had even opted out of the giant Regional Comprehensive Eco­no­mic Partnership of the Asia-Pacific nations. Though an FTA was signed with Mauritius in 2021, it is too small to be of any significance.

This sudden change of stance is surprising given that the recent focus of policies has remained largely on raising tariffs and protecting domestic industry. The new initiative signals an engagement with countries that have complementarities with the Indian economy. It also intends to use such FTAs as building blocks of a more liberal trade regime. The UAE suits the bill as it is basically a trading and financial services hub that poses no major threat to India’s manufacturing sector. In addition to this, the FTA can also be a game changer as it not only includes trade in goods and services but also investments in government procurement. The gains are expected to be substantial as it covers 90% of Indian exports—including agriculture products and major labour-intensive goods like leather, footwear, textiles, plastics, furniture, plastics, sports goods, and gems and jewellery, and also more sophisticated goods like pharmaceuticals, medical devices, and engineering products—and secures them zero-duty access to the UAE market. Moreover, Indian medicines will get automatic registration and market authorisation in the UAE when they secure the approvals in any developed country. These measures can make a substantial impact as the UAE is a major trade hub for the countries in the Gulf Cooperation Council, Africa, and Europe.