India has traditionally been committed to a multilateral approach in trade negotiations. Nevertheless, it has been actively engaged in preferential trade agreements (PTAs), which mainly involve merchandise trade; as well as in broader economic agreements involving investments, manpower flows and services. Its negotiating partners are at different levels of development in Asia, Africa, Middle East, and the Americas.

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There are several reasons for India to strategically engage in PTAs and in economic agreements.

First, India’s economic rise has led to its growing integration with the world economy. Barring unforeseen circumstances, India’s $1.2 trillion economy is projected to approach $5 trillion by 2022, just 12 years away. Its total international trade in goods and services was $660 billion in 2008, could approach $1.5 trillion within a decade. Among other indicators of India’s integration are its annual remittance inflows, which exceed $50 billion, and its diaspora of 25 million, which is growing both in numbers and in economic strength. India’s stock of inward FDI exceeds $100 billion, and the prospects for its further rapid rise are positive. Similarly, India’s outward FDI is also increasing rapidly and could approach $100 billion in next several years.

Second, PTAs help strengthen key bilateral economic and strategic relations. Examples include agreements with United States, Japan, Brazil, South Africa, Association of Southeast Asian Nation, Gulf Cooperation Council and the European Union. As a rising power, India’s strategic concerns have become much broader. In particular, maritime security, and developing a globally competitive and technologically advanced defense sector have become important priorities.

Third, the PTAs help cultivate a closer relationship and provide a stake to the economic partner in India’s rise. The examples include agreements with Sri Lanka, Bhutan, Myanmar, Malaysia, Singapore, Kazakhstan and Mauritius.

Fourth, such agreements facilitate diversification of sources of energy and natural resources. One of the examples is India’s 2007 TEAM-9 initiative (Techno-Economic Approach for Africa India Movement), involving some of the energy and resource rich West African countries. India should show flexibility and undertake similar partnerships with countries in Latin America and elsewhere.

PTAs are complex and lengthy legal documents. It is essential that customs officials and others responsible for implementation are aware of the nuances of the various clauses in the agreement, and of the specific ways the partner country could engage in undermining the spirit of the agreement, particularly with respect to rules of origin.

It should be recognised that PTAs and economic agreements are only one of the instruments and they need to be coordinated with other international agreements, which may impact on India. Thus, the European Union (EU) has been using its leverage in UN conventions such as the Stockholm Convention to undermine its competitors including India, in trade in chemicals.  This aspect, along with facilitating greater access to India’s professional and skilled manpower, should be integral components of any economic agreements with the EU.

Aggressive pursuit of PTAs and economic agreements is a new development in India’s economic and strategic diplomacy. India is still in the early stages of the learning curve in this area. The learning curve essentially involves significant reduction in per-unit resource costs as cumulative output increases (mainly applies to manufacturing), or greater organisational efficiency in negotiating, monitoring and evaluating the PTAs as more of them are initiated.To benefit from the learning curve, a ‘truthful organisation’ is essential. An organisation where defensive behavior (actions the individual takes to forestall embarrassment or threat when they are faced with failure or errors) is the norm cannot take full advantage of the benefits arising from the learning curve. The Ministry of External Affairs (MEA) and other ministries involved in PTA and economic agreements would need to examine ways to cultivate the requisite characteristics of a ‘truthful organisation’ if they are to become more proficient in this area.

Establishing a group of core officials from relevant ministries and government agencies who are specialised in PTAs, economic agreements, and in WTO affairs could assist in inter-ministerial coordination, in generating core competencies, and facilitate institutional memory. 

As India’s integration with the rest of the world deepens, there is a strong case for examining whether the current size of India’s foreign ministry officials, the nature and functioning of its missions abroad, and the method used to evaluate performance of the officials require modifications. There is a strong case for including the extent to which India’s economic and strategic space has been enhanced as criteria in evaluating the performance of India’s diplomats and Foreign Service officers.

The negotiating ministries and their officials also need to be much more proficient in undertaking background analytical and strategic research relating to the negotiating partners; in seeking advantage in negotiations; and in implementation of the agreements. It also needs to have robust capabilities in evaluating the impact of the individual agreements, and how the combination of these agreements affects India’s economic space and strategic leverage.

In this connection, it is important to examine whether the current research and analytical infrastructure is adequate. There is a strong case for establishing a well-resourced, relatively independent-minded research center to strengthen commercial intelligence and other analytical capabilities for negotiating, monitoring and evaluation of PTAs and economic agreements.

Any PTA will have gainers and losers domestically. The impact will also be different in the short run as compared to the long run. Thus, a balancing of these conflicting interests among the domestic stakeholders will be essential. One of the options is to keep some of the sensitive clauses of PTAs flexible and set up arrangements with stakeholders, particularly the industry groups. However, the industry groups are not always appreciative of India’s larger strategic interests and vision.

Communication strategies involving broader stakeholders and more mature and informed policy debates are essential. Increasingly, trade conflicts are likely to resemble a ‘guerilla war’. Thus, implementation integrity and trust among the two parties will take on even greater significance. It will therefore be easier for India to negotiate agreements with partners with similar strategic interests and values (such as Japan) than with others.

Multilateralism is in India’s interest. So while a strategic view of PTAs and economic agreements is essential, this should not undermine achieving greater competency in using the WTO processes and rules to secure advantage or avoid harm to India’s interests.(Mukul Asher is a professor at the Lee Kuan Yew School of Public Policy, National University of Singapore, and can be reached atsppasher@nus.edu.sg. Views are personal)