For the first time since India became actively engaged in negotiating bilateral free trade agreements (FTAs) two decades ago, the country’s negotiators will have their hands full as the government has begun engaging with three major partners, the EU, the UK, and the US for early conclusion of FTAs. While the negotiations with the US should begin within weeks, the agreements with EU and UK appear to have reached a decisive phase following the visits by European Commission President Ursula von der Leyen and British trade minister Jonathan Reynolds. Though India and its two prospective FTA partners were enthusiastic about the early conclusion of the FTAs even in the past, an added dose of urgency is being shown now.
It seems probable that this sense of urgency was triggered by the US president’s protectionist trade policy and its likely adverse consequences for global trade. Faced with these uncertainties, India and its two partner countries look keen to clinch the agreements, assuring themselves of additional market access. They could, thus, carve out safe havens when protectionist sentiments seem to be on the rise. India must respond to this emerging situation by opening its markets, with adequate preparedness and careful consideration of sensitivities. It also needs to carefully weigh the changes the EU and the UK are seeking in its regulatory regimes, particularly in the area of intellectual property protection, which can have far-reaching implications.
Both the EU and the UK are seeking enhanced market access in India through sharp reductions in tariffs, especially in some of the highly protected sectors such as automobiles. While there is a widely accepted view that India must reduce its tariffs, shedding the label of having an overprotected economy, it must be emphasised that the opening of the economy should be carried out in sync with a strategy for improving the competitiveness of domestic producers, enabling them to benefit from the market access offered by its partner countries. Such a strategy was missing when FTAs with the Association of South East Asian Nations (Asean), South Korea, and Japan were negotiated. Consequently, Indian enterprises were unable to increase their exports; they lacked the capacities to take advantage of the market opening offered by the partner countries.
Though the EU has consistently sought an increased presence of its agri-business in India, the government has been reluctant to allow this for several valid reasons. India’s major concern is that subsidised commodities from the EU would capture its domestic market, threatening livelihoods in the farm sector, which supports a sizeable share of the country’s workforce. Further, opening of agricultural markets could also put India’s domestic food security at serious risk, worsening the high levels of food insecurity in the country. In other words, the government was justifiably reluctant to allow trade openness to disrupt a sensitive sector of the economy.
In the area of intellectual property. protection, prospective FTA partners are seeking at lea st one major amendment in India’s Patents Act, involving a key provision which provides space to the country’s generic pharmaceutical industry to produce affordable medicines in the country. Section 3(d) of the Patents Act does not allow patents to be granted for minor improvements of medicines that have already enjoyed patent protection, thus preventing perpetuation of patent monopolies. As per the law, a patented medicine enjoys market monopoly for 20 years, following which generic producers can begin producing cheaper alternatives. However, most pharmaceutical companies from the UK and EU have adopted the strategy to extend patent monopolies on older medicines, a practice known as “evergreening”. The Union government needs to resist pressures to remove Section 3(d) that prevents “evergreening”, on two counts. First, Section 3(d) belongs to a set of provisions in India’s Patents Act that was unanimously adopted by both Houses of Parliament to ensure availability of affordable medicines in the country. Secondly, removing Section 3(d) can open the floodgates for a comprehensive revision of the Patents Act and the removal of other public interest provisions. This would not only seriously threaten access to affordable medicines in the country but also compromise citizens’ right to health.
Gauging from the negotiating approaches of both the EU and the UK, it is quite evident that for India to benefit from the two FTAs, it must conform to the stringent requirements of “behind-the-border measures”. For instance, the inclusion of labour standards in the EU/UK FTAs implies that partner countries’ labour laws must be fully compliant with International Labour Organization’s Fundamental Conventions. India has not ratified two key conventions, on freedom of association and collective bargaining, in view of its decision to adopt flexible labour market policies. Could this policy discordance between India and its FTA partners emerge as a major sticking point in the negotiations?
Further, the EU has adopted the corporate sustainability due diligence directive, obliging their companies to identify and address adverse human rights, including labour rights, and environmental impacts of their actions inside and outside Europe, throughout their supply chains. Indian firms participating in value chains with their counterparts from the EU, could feel the impact of the due diligence directive unless they meet the requirements when it is fully implemented in 2029.
EU/UK environmental regulations, enforced through the FTAs, could adversely affect India’s market access in the partner countries, unless the country prepares well to meet the challenge. The EU’s Carbon Border Adjustment Mechanism, a tax on imports, is scheduled to be introduced from 2026 in six sectors having high-carbon content and is expected to be as high as 20% to 35%. In the same vein, UK’s Environment Act 2021 sets out a comprehensive framework for environmental protection, which can be used to ensure that FTA partners follow similar environmental standards and commitments.
All of this means that India could face considerable challenges before meaningful bilateral trade agreements can be hammered out with the EU and the UK.
Biswajit Dhar formerly taught at JNU and is currently distinguished professor, Council for Social Development. The views expressed are personal
