Edited excerpts from an interview with Shantanu Nandan Sharma:
Why is the world, including India, drifting towards preferential agreements?
In a simplistic sense, multilateralism should prevail. That is the ideal situation as it gives a set of universal rules with a sense of certainty. But there is a dichotomy as some countries have evolved faster than the others for a variety of reasons. There is little commonality in issues among various countries. Some non-trade issues have also evolved over time and those have become an intrinsic part of the global economic platform.
Now, some countries want to use multilateral bodies (e.g., World Trade Organization) not just to further their trade prospects but to deal with perceived discriminatory situations. For instance, it’s aspirational for the EU to pursue an environmental agenda through the global trade architecture.
The issues of an emerging country could, however, be very different. Also, as most production now happens through value chains, it is much wiser for countries to build a framework within the ambit of existing value chains. If I source from country A and export my products to country C, then I must build an architecture of trade policy and regulations in a manner that I remain better connected with A and C than, say, X, Y or Z. Another reason for the growing number of FTAs is geopolitics. From the old adage of offshoring we have now moved to friendshoring or nearshoring.
Is friendshoring an outcome of recent turbulence such as the pandemic and the two ongoing wars?
Yes, all those problems have forced large manufacturers to feel jittery about their supply chain assurances. China was the most dominant country in supply chains as long as the only consideration was competitive input price. It’s no longer the case, mainly due to the US-China conflict. So, a new concept of friendshoring has emerged. This means, the supplying country may not be the cheapest supplier but it must be in the right geopolitical grouping.
India is negotiating with some 50 nations, individually as well as in bloc. Which is the hardest nut to crack?
The countries, with whom India is currently negotiating with, need to be segmented. An FTA with Oman, for instance, should be easier. It could adopt the same template as the UAE. Such an FTA is a political statement rather than for any major market access. Most other FTAs will need substantive negotiations where both geopolitics and economy will play an equal role. The EU will be the hardest nut to crack. As the EU negotiates with India, it won’t be merely looking for market access for its automobiles but will force us to comply with certain environmental and labour standards. From the EU’s viewpoint, there is a need to create a level-playing field between importers and domestic manufacturers. As far as the UK is concerned, we can’t surely wrap up the negotiations before the general elections.
Should India retaliate if the EU or any other developed nation impose non-tariff barrier in the garb of environmental or labour rules?
If you are negotiating with a large trading partner, you can’t base your negotiations on threats of retaliation. It is important to build your own industry on the plank of higher international standards. If a new market is opening up, you should be able to leverage it. India should negotiate in a way that we won’t open up all tariff lines on Day 1, but, say, in Year 6 or 7. By then, we should be able to bring necessary changes to our domestic industries. Sustainability has emerged as a major element on which a lot of work needs to be done in domestic policies before positions are taken in a trade agreement.
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