Article 2: Maturing approach
Why in news: The India–U.K. Comprehensive Economic and Trade Agreement (CETA) has drawn attention as a milestone in India's trade policy, offering wider market access while highlighting opportunities and implementation challenges for exporters and MSMEs.
Key Details
- Zero-duty access for 99% of India's exports to the U.K.
- Reflects India's more calibrated FTA strategy, balancing liberalisation with domestic interests.
- MSMEs may face challenges in meeting SPS, TBT, and sustainability standards.
- Includes the Double Contribution Convention, benefiting Indian professionals and IT firms.
- Success depends on improving FTA utilisation, regulatory capacity, and export competitiveness.
Shift in India's FTA Strategy
- The India–U.K. Comprehensive Economic and Trade Agreement (CETA) reflects a more balanced and strategic approach to free trade negotiations.
- Unlike the 2009 India–ASEAN FTA, which contributed to a widening trade deficit, CETA seeks to combine trade liberalisation with protection of sensitive domestic sectors.
- A similar approach was adopted in the India–New Zealand FTA, where India successfully protected its dairy sector despite New Zealand's export interests.
- The agreement aims to secure long-term market access while adapting to an increasingly fragmented global trading environment.
- It also seeks to deepen India's integration into Global Value Chains (GVCs).
Opportunities under the India–U.K. CETA
- The agreement provides zero-duty access on 99% of India's exports, covering almost the entire value of bilateral trade.
- It is expected to enhance India's export competitiveness, particularly in labour-intensive manufacturing and services.
- Better market access to the high-income U.K. market could boost export diversification.
- The Double Contribution Convention lowers social security costs for Indian professionals and IT firms working in the U.K.
- International experience shows that well-designed FTAs can attract investment, promote technology transfer, and expand exports when backed by competitive domestic industries.
Challenges for MSMEs and Exporters
- Benefits are likely to be uneven, with MSMEs facing greater adjustment costs than larger firms.
- Many MSMEs lack the documentation, awareness, and compliance capacity needed to fully utilise FTA benefits.
- Meeting the U.K.'s Sanitary and Phytosanitary (SPS), Technical Barriers to Trade (TBT), and sustainability standards could be more challenging than tariff reductions.
- India's carbon-intensive exports may face increasing barriers due to stricter climate-related trade regulations.
- Non-tariff measures, such as the U.K.'s steel safeguard quotas, highlight that market access does not always guarantee market entry.
Structural Concerns and Risks
- India has historically underutilised FTAs because of low awareness, cumbersome procedures, and high compliance costs.
- The India–ASEAN trade deficit widened from about $10 billion (2017) to nearly $44 billion (2023), illustrating the risks of poorly utilised trade agreements.
- Although India currently enjoys a merchandise trade surplus with the U.K., this advantage could shrink if imports of high-value, price-inelastic goods such as luxury vehicles grow faster than exports.
- The economy-wide gains from provisions like the Double Contribution Convention may remain limited without broader industrial competitiveness.
- Weaknesses in regulatory administration, intellectual property protection, and dispute resolution could reduce the agreement's effectiveness.
Way Forward
- Strengthen MSME competitiveness through easier compliance, technical assistance, and export facilitation.
- Improve regulatory quality, customs administration, and awareness to increase FTA utilisation.
- Enhance industrial competitiveness through technology adoption, innovation, and skill development.
- Align domestic production with evolving global sustainability and quality standards.
- The true success of India–U.K. CETA will depend not merely on securing market access, but on converting that access into greater market share and sustained export growth.
Conclusion
The India–U.K. CETA marks a significant step in India's evolving trade strategy by combining market access with protection of domestic interests. However, tariff concessions alone cannot guarantee export growth. Strengthening MSME competitiveness, simplifying compliance, improving regulatory institutions, and aligning with global quality and sustainability standards will be crucial to convert preferential market access into lasting gains in trade, investment, and employment.