FTAs: The gulf between market access and market success

Last Thursday, our commerce minister, addressing a meeting on ‘Leveraging Free Trade Agreements (FTAs)’, called for a nationwide effort to maximise their utilisation and ensure that the benefits of enhanced market access reach businesses across the country. That reminded me of the longstanding policy emphasis on awareness as a means of improving FTA utilisation. The Foreign Trade Policy Statement released on April 1, 2015, aimed to raise India’s merchandise and services exports from $465.9 billion in 2013-14 to $900 billion by 2019-20. Its analysis revealed a lack of awareness among industry about FTA benefits. The government had, therefore, instituted an outreach programme covering tier-I and -II cities. Many seminars followed. More significantly, the statement acknowledged that export documentation did not separately capture preferential trade data. It said that India’s exports under various FTAs could not be quantified and that certificates of origin could provide an approximation, although the scope for error was substantial. It promised a system to capture export data under FTAs at the earliest. Eleven years later, agreement-wise and product-wise FTA utilisation data for exports is still not available in the public domain. The Trade Connect portal does not disclose the number or value of preferential agreement-wise origin certificates. It does not cover origin statements made under self-certification mechanisms. On imports, the evidence hardly suggests deficient awareness. Indian Customs data shows that concessional rates under FTAs and other preferential arrangements had a revenue impact of ₹98,569 crore in 2024-25. Typically, foreign suppliers advertise these concessions to Indian customers, while importers and customs brokers examine them to reduce landed costs. Foreign buyers ask Indian exporters for preferential origin documents because duty affects purchasing decisions. Businesses and executives are alert to benefits that influence prices and margins. Low export utilisation may, therefore, reflect commercial realities rather than ignorance. The preference may be too small, the origin rules too onerous or compliance too costly. Moreover, India is seldom a partner country’s only FTA partner. Although duty on Indian goods may fall, duties on competing goods from several other countries may also be nil or similarly reduced. The relevant question is not whether Indian goods receive a concession against the MFN rate, but whether they obtain an advantage over their competitors. An FTA may remove a tariff disadvantage but need not confer a competitive edge. The tariff structure can also produce unequal benefits. India’s MFN duties are high on many products, whereas duties in several partner countries are already low. Eliminating a 10 or 15 per cent Indian duty can significantly benefit a foreign supplier. Reduction of a partner’s duty from 3 per cent to nil may offer Indian exporters little advantage, when competitors enjoy the same access. The larger concern is that excessive emphasis on FTA awareness diverts attention from the central issue — competitiveness. An FTA cannot reduce India’s costs of power, credit, logistics, testing and regulatory compliance, or ensure adequate scale, consistent quality and timely delivery. If these disadvantages exceed the tariff preference, awareness will not secure orders. The government should gather through the shipping bills and publish FTA utilisation data and offer product-specific guidance where information gaps exist. But seminars cannot substitute for policies that reduce costs and improve productivity. FTAs may open doors; Indian exporters will enter them only when they can compete on cost, quality and delivery.                 

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