Before entering into trade agreement with any other country, India should identify its purpose and objective of such an arrangement and what it seeks to fulfil and achieve by any proposed agreement. We look nave in our decision to enter into trade agreements with Thailand, Sri Lanka and Singapore as instead of our taking any advantage out of such agreements, we have ended up with building up negative balance of trade. India should emulate the example of the US, which has entered I not the largest number of trade agreements mostly with the developing or least developed countries and gained massively out of these agreements. Its RTAs/FTAs with Caribbean, South American, North American and African countries covered substantially all the trade as required under the WTO norms, but in practice, these were very clearly textile-centric and on the surface showed that as a leading, benevolent economy of the world, US is allowing duty-free import of apparels manufactured in these regions, but when read with the condition that such duty-free imports would be of such apparels as have been manufactured out of raw-materials purchased from the US, their real objective comes out clearly. The European Union also adopted the same policy of profiting even from the developing or least developed countries by allowing conditional duty-free imports of their products. This did help both the US and the EU to substantially increase their exports of yarn and fabrics.

Do Indian RTAs Make Good Economic Sense?

While it is true that entering into a trade agreement does increase trade between the trading partners, but one really needs to keep a close watch whether the increase in trade is in terms of increase in our exports or imports. What kind of countries we are entering into trade agreements with? Do they have substantial markets ? Will our products stand the local competition? On the other hand, will the duty-free products of the countries with whom we are entering into preferential trade agreement not damage our indigenous industry and lead to their closure or at least shrinkage? Have we ever undertaken that kind of exercise, which is an absolute necessity to make a good bargain out of the trade agreement. Our experience in respect of the countries with whom we have entered into such agreement has been disappointing if not dismal. We seem to be rushing in where angels may fear t o tread.

There is yet another aspect to it. We must also take in to account the number and kinds of trade agreements that our proposed trade agreement partner has already entered into with other countries, with whom we would find very difficult to compete. Entering into agreement with such countries can land our exports in serious and stiff competition, which we may not be able to withstand. Trade agreement with ASEAN countries is a good example in this case. They have already entered into a number of trade agreements with various countries including China. Do we really stand a chance of any competition with China in third countries, where both the Chinese and Indian products vie for a pie in the import markets of these countries? ASEAN countries are not developed and rich countries, where niche products from India could command a big market and their prt level apparel requirements can be best and most competitively met with by China because of economies of scale.

Further, we need not forget that ASEAN countries not only have substantially smaller markets, but also have better infrastructure and lower transaction costs and therefore production costs, rendering our dream of having a field day in their market sour.

On the other hand, by entering into trade agreement with such countries which are already our formidable competitors and allowing them duty-free import into India would squeeze Indian market and even could replace the indigenous production which has been our strength in times of crisis like global downturn. Soon, we would be deprived of our indigenous strength which will stand eroded on account of presence of duty-free products from all our trade partners. This may be particularly true in case of textiles and garments, where we are facing tough competition from some of our neighbours and the members of ASEAN group of countries. If their products are to be allowed duty-free entry, it can cause considerable damage to our export and domestic market, threatening jobs of millions of workers, who rank o only next to agriculture, sector-wise. The Government will do well by examining all present and future trade agreements that it is pursuing at present in the context of sensitive areas like textiles and garments.

We seem to be excited or even obsessed by the sheer number of heads in the countries we are entering into trade agreement with, which not only have the distinct advantage of price and quality over our products, but also are an open arena for widest and wildest competition from all those who have earlier entered into any trade agreement with the countries, we are proposing to partner with.

Seen in this context, our proposed trade agreements with the EU, the US and the Mercosur could be considered as economically good propositions where we do have the genuine possibility of reaching out to important and prosperous (even if these are temporarily down, but not out) markets.