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RSTV: THE BIG PICTURE- RECIPROCAL TRADE POLICY

RSTV: THE BIG PICTURE- RECIPROCAL TRADE POLICY

RSTV

Introduction:

Highlighting the prinicple of reciprocal access to global market, Commerce and Industry Minister Piyush Goyal has said that if Indian companies are not allowed to participate in businesses or opportunities emerging in any country then India will also not allow those countries to participate in India. He also made a statement in the upper house on Tuesday on India’s decision to not join RCEP and said India has not benefited to it’s expected potential from some of the Free Trade Agreements. He stressed on the need for a balanced market access outcome across all pillars of negotiations, fair trade practices, open market based operations and transparency.

 

Reciprocal trade agreements

  • Reciprocity, in international trade, the granting of mutual concessions in tariff rates, quotas, or other commercial restrictions.
  • Reciprocity implies that these concessions are neither intended nor expected to be generalized to other countries with which the contracting parties have commercial treaties.
  • Reciprocity agreements may be made between individual countries or groups of countries.
  • The logical extension of reciprocity is the development of a full customs union that eliminates by progressive mutual concessions all tariffs and other restrictions between participating countries
  • Countries use bilateral/regional trade agreements to increase market access and expand trade in foreign markets. These agreements are called reciprocal trade agreements (RTAs) because members grant special advantages to each other.
  • RTAs include many types of agreements, such as preferential arrangements, free trade agreements, customs unions, and common markets, in which members agree to open their markets to each other’s exports by lowering trade barriers.

 

Why is there a need for RTAs?

  • They have become an increasingly prominent feature of the multilateral trading system in recent years, in part, because of stalled global negotiations taking place under the auspices of the World Trade Organization (WTO).
  • Many observers believe that RTAs deepen market integration and complement efforts by the WTO to liberalize international markets.
  • While acknowledging that RTAs can open up markets, other observers contend that these agreements also distort trade and discriminate against nonmember countries.

 

The Reciprocal Trade Agreements Act:

  • The Reciprocal Trade Agreements Act of 1934 is a S federal statute.
  • This Act aims to make provisions for negotiation of tariff agreements between the U.S. and other nation
  • Through negotiation the Act brings reduction of duties.
  • The provisions of the Act encompass rules for the principal-supplier relationship.
  • The major provisions of the Act later formed the part of the General Agreement on Tariffs and Trade (GATT) Agreement.
  • Thus Act through reduction in tariff encourages the trade relation between U.S. and other foreign countries.
  • The Act in fact amended the Tariff Act of 1930 and this Act was later amended by the Trade Expansion Act of 1962.

 

Generalised System of Preferences (GSP):

  • The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
  • GSP was instituted on January 1, 1976, by the Trade Act of 1974.
  • GSP has been given on non-reciprocal basis yet the US has linked it with market access and tariff reduction which is against the basic tenets of GSP.
  • Often GSP authority lapses before it is renewed, in which case duties on imports that are normally covered are held in escrow pending renewal.
  • US President has said he intends to end the preferential trade status granted to India and Turkey, asserting that New Delhi has failed to assure America of “equitable and reasonable” access to its markets, an announcement that could be seen as a major setback to bilateral trade ties.

 

Trade imbalance between India and RCEP partners:

  • India’s experience with the previously concluded FTAs hasn’t been good.
  • India is wary of its market being flooded with the Chinese goods once the deal is approved.
  • The partnership will have an impact on sectors such as steel, pharmaceuticals, e-commerce, food processing, agriculture, intellectual property, and food security.
  • The presence of China creates apprehensions, especially when it enjoys manufacturing surplus and is already dumping its products across the world, including in India.
  • Apart from China, India is also losing out to financial and technological hub of Singapore, agriculture and dairy majors Australia and New Zealand, plantations of South East Asian countries, and pharmaceutical trade with China and the US.
  • With e-commerce as part of RCEP discussion, the Indian resistance at WTO of not letting the discussion on digital trade will weaken.
  • Many of the RCEP countries are also resisting India’s offer on export of services.
  • The free movement of investments will benefit investors in the US, Singapore, Japan and China, but very few Indians will be taking advantage of this.
  • Zero tariff on steel import would open flood gates of Chinese imports into India.
  • The gulf between India and the other 15 countries in the RCEP remains deep, and it isn’t clear how or if it can be bridged.
  • The exports from ASEAN into India have grown far quicker than Indian exports to the bloc.
  • Indian companies want more market access for services.
  • India has constantly resisted provisions on intellectual property rights.
  • India doesn’t want to commit to provisions over and above the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement under the WTO, as that could be detrimental for the domestic generic pharmaceutical industry.
  • India has already opposed few proposals on patent extensions and restrictive rules on copyright exceptions.
  • In the past, too, India has not been able to get a fair deal with respect to services trade, despite giving greater market access in goods trade.

 

Way Forward and Conclusion:

  • Reciprocal Trade Agreements determine the world’s trading pattern and basis of trade is comparative advantage.
  • Tariff and non tariff barriers prevent the actual comparative advantage with the member country.
  • India has come from the position of strength.
  • The weakening of WTO Appellate mechanism it is very important for India to protect its national interest.
  • We should thrive hard to protect and expand services sector because it is our comparative advantage.
  • The entire economy should be built in such a way that we can achieve our 5 trillion target with keeping our national interest ahead.