India’s ‘early harvest’ trade deals could run into trouble

Synopsis: India should be mindful of legal requirements of arriving at an “early harvest” trade deal before signing a full FTA.

Introduction

India wishes to fast-track its free trade agreement (FTA) negotiations with several countries like the UK, Australia, the European Union, and Canada.

It is keen to conclude an “early harvest” trade deal with some of these countries. This marks a departure from the trade protectionism that India has been practising over the past few years.

Must ReadFree Trade Agreements – Explained
How Early Harvest trade deals could run into trouble?

WTO’s principle of most favoured nation (MFN): An FTA where countries give preferential access to each other’s products at the cost of other countries is inconsistent with the MFN rule.

Conditions associated with FTAs: FTAs are subjected to certain conditions. For instance, eliminate customs duties and other trade barriers on “substantially all the trade” between the FTA member countries.

Although the meaning of “substantially all the trade” is not given in the agreement, it is evident that the FTA should cover a very high proportion of trade between the FTA member countries.

Leading to disputes: Any trade deal between WTO member countries that does not cover substantive trade between them will be vulnerable to a legal challenge at the WTO’s dispute settlement mechanism.

Early Harvest deal: An early harvest deal is a precursor to an FTA, in which the trading partners reduce tariff barriers on limited goods to promote trade.

Most Favoured Nation is a treatment accorded to a trade partner to ensure non-discriminatory trade between two countries vis-a-vis other trade partners. Under WTO rules, a member country cannot discriminate between its trade partners. If a special status is granted to a trade partner, it must be extended to all members of the WTO.

What can be done to save the “early harvest” trade deals?

Design and present asinterim agreements”. GATT allow countries to sign interim agreements subject to certain conditions. Such as, India will have to show that it will not be able to enter into an FTA without the measure at issue, that is, without the “early harvest” trade deal.

Schedule for FTA. The interim agreement should include a plan or a schedule for the formation of an FTA within a reasonable period of time. It should be notified to WTO members, who can make recommendations if they believe that the interim agreement is not likely to lead to the formation of an FTA.

Source: This post is based on the article “India’s ‘early harvest’ trade deals could run into trouble” published in The India Express on 15th September 2021.

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