Last month, India and the United Arab Emirates (UAE) signed a Comprehensive Economic Partnership Agreement, which includes a Free Trade Agreement (FTA). An FTA is a bilateral agreement that aims to increase trade between the two signatories by relaxing tariff and non-tariff barriers on most goods in this trade basket. The United Arab Emirates is India’s fifth major FTA. The experience of the four previous FTAs ​​shows that following tariff relaxation, India’s imports have generally grown at a faster rate than exports to the respective trading partners.

India signed an FTA with its seven South Asian neighbors (Safta) in 2006. In 2011, it signed separate FTAs ​​with South Korea, Japan and the 10 countries that make up the Association of European Nations. Southeast Asia (ASEAN). The Asean FTA is the most important, as the bloc accounted for 10% of India’s exports and 11.7% of its imports in 2019-20. By comparison, India’s overall trade with each of the other three regions was less than 4%. It is also with ASEAN that the gap between the growth of imports and the growth of exports has been the most pronounced.

At initial stage of trade liberalization through FTAs, India will be negatively affected due to negative terms of trade and loss of revenue from tariffs, suggests analysis by academics Chandrima Sikdar and Biswajit Nag in a 2011 article titled “Impact of India-ASEAN Free Trade”. OK’. However, their simulation shows that significant longer-term gains can accrue to India if there is a reallocation of resources towards export-intensive sectors. This idea becomes relevant as the UAE is India’s third largest trading partner and the second among its top 10 trading partners to enter into the FTA.

ASEAN Advantage

Within ASEAN, Singapore and Indonesia collectively account for more than half of imports to India. On the export side, Singapore is the main destination, followed by Malaysia and Vietnam. In 2011-12, the first year of this FTA, India’s exports to the region soared by 43% from 2011-12. Since then, however, they have been limited, moving up and down in the $30-35 billion annual range, peaking at $37.5 billion in 2018-19.

Meanwhile, India’s imports from ASEAN countries nearly doubled between 2011-12 and 2018-19. Consequently, India’s “terms of trade” with ASEAN, calculated as the value of exports relative to imports, deteriorated over the past decade when the FTA was in place. Amid exports that have moved in a narrow band, India’s trade deficit with Asean widened from $5 billion in 2010-11 to $23.8 billion in 2019-20 .

Wider and deeper

India’s basket of imports from ASEAN countries has remained largely the same over the past decade when the FTA was in place. According to a four-digit classification standard, India imported about 1,000 items from ASEAN countries in 2010-11 and 2019-20. But there are changes within that show how ASEAN partners have taken advantage of the trade pact. For example, the number of products whose imports into India exceeded $50 million increased from 69 to 168.

Seven of the top 10 import heads rose faster than the overall rate. Coal, palm oil, petroleum products and electronic items are the main imports. However, the relative importance of palm oil has declined, while that of other products has increased. On the export side, mineral fuels and oils (excluding crude oil), which have been the largest export over the past decade, have declined significantly, while exports of frozen meat and raw aluminum have declined. increase.

Call to UAE

The UAE FTA will result in the removal of duties on 80% of tariff lines, which represents 90% of India’s exports to the UAE by value. In 2019-20, the UAE accounted for 9.2% of India’s exports, third after the United States and China. Jewellery, diamonds, mineral oils and electrical parts for telecoms are the main export heads. India’s hope will be that zero tariffs and better market access can boost exports in sectors where India is competitive such as textiles, leather and pharmaceuticals. However, agricultural products such as dairy products, fruits, vegetables and food grains, on which India can gain significantly, are currently excluded from the FTA.

The UAE FTA also gives India an opportunity to deepen its engagement with other cash-rich countries in the Gulf Cooperation Council. India is also in talks for more trade pacts, including with Australia, Canada, Israel and the European Union. While increased market access can boost export-oriented sectors, as ASEAN’s experience shows, this is not a given.

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