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Sustainable development in India’s FTAs

Sustainable development in India’s FTAs

Is India’s historical protectionism towards its European counterparts making way for a 'greener shade' of trade agreements?

Historically, India has always kept a protectionist stance with regard to its trade policy, stemming from its colonial past. The country (partially) pulled out of an international trade and foreign investment agreement after gaining independence in 1947. This approach led to stunted growth until the iconic 1991 Union Budget was announced, focusing on liberalisation, privatisation, and globalisation.

In 2019, India abandoned the Regional Comprehensive Economic Partnership. Now, two years and a pandemic later, it wishes to ink as many free trade agreements (FTA) as possible. It has brokered two in 2022, one with the United Arab Emirates (UAE) and one with Australia. It is now working on multiple agreements, including with the United Kingdom (UK) and the European Union (EU). While thus far India has been reluctant to include non-trade provisions in the agreements, such as sustainable development clauses, this may change in the near future.

One may wonder what the impact will be of India's shift in trade policy on the realisation of the world’s sustainable development goals, especially those relating to climate change. India’s agreement with the UAE, the Comprehensive Economic Partnership Agreement (CEPA), was concluded in February 2022. The agreement with Australia, the Comprehensive Economic Cooperation Agreement (CECA), was concluded in April 2022. In line with India’s traditional approach to trade policy, the agreements do not contain significant environmental provisions.

Interestingly, the CEPA contains the most environmental provisions, recognising in its preamble the need to protect the environment. The CEPA further states that 'each party affirms its commitment to implement the multilateral environmental agreements to which it is a party'. This provision, like every other in the CEPA, is subject to the dispute settlement mechanism provided in the FTA. However, the CEPA does not further substantiate environmental standards and primarily emphasises the sovereign rights of the parties in setting their environmental policies. The limited attention paid to sustainable development in the agreement is especially problematic considering that the UAE’s main exports to India are oil and petrochemical products.

Unfortunately, the CECA, on the other hand, does not contain any substantive provision relating to sustainable development. It mentions the principle in its Preamble but does not expand upon it further. This is concerning since three quarters of India’s imports from Australia are coal, making it single-handedly responsible for India’s trade deficit with the Commonwealth. It is also disappointing since Australia and India had previously agreed to collaborate on renewable energies and since this FTA is seen by some as a trailblazer for agreements with Canada, the EU, and the UK.

However, India seems to be leaning towards a greener trade policy, one that could trigger significant climate action. One of the primary benefits of reaching an agreement with India, according to the UK's Strategic Approach to the FTA negotiations, is the promotion of a ‘modern and sustainable trading agenda’. The UK’s Strategic Approach bears the promise not to lower environmental and climate standards enshrined in the UK’s legislation as well as in multilateral environmental agreements. It further seeks to include ‘provisions that support and help further the government’s ambition on environment, climate change and achieving Net Zero greenhouse gas emissions by 2050, including promoting trade in low carbon goods and services’. Lastly, it aims to ‘provide for appropriate mechanisms for the implementation, monitoring and dispute resolution of environment provisions’. Assuming that the UK plans to properly enforce these environmental standards and that India agrees to them, a deal between the two nations might represent an ‘unprecedented opportunity for green industries’. However, this assessment should be taken with a grain of salt. Not only could the UK’s Strategic Approach have been more assertive regarding its chapter on environment and climate, but the shift towards a ‘greener shade’ of FTAs will ultimately depend on the good faith of both parties to uphold such standards.

Following the parties’ commitment to resume the trade talks in May of 2021, India and the EU were set to begin the FTA’s official negotiations in June 2022. The parties’ first attempt to conclude an FTA was halted in 2013 as they failed to reach an agreement on certain contentious issues, including environmental and labour rights. Notably, the EU’s demand to include a Trade and Sustainable Development chapter in the pact was opposed by India, which argued that such clauses would infringe on the country’s sovereignty.

Even though the exact contours of the FTA are yet to be discussed, considering the importance of sustainable development provisions in the EU’s revised trade strategy, the topic will likely feature high on the agenda. Not only do these provisions place an obligation on the EU’s trade partners to enforce international environmental standards, but the EU’s FTAs are often used to ‘remove barriers to trade and investment in renewable energy’. While it remains to be seen whether the parties will overcome past disagreements – a question that divides political commentators – last month’s meeting between the President of the European Commission and the Indian Prime Minister provided a glimpse of hope. Aiming to strengthen bilateral ties, the leaders agreed to establish a Trade & Technology Council, holding ‘extensive discussion on climate-related issues’, including possible collaboration in the area of green hydrogen. Finally, by suspending past negotiations over the (non-)inclusion of sustainable development clauses, the EU has proven its commitment to the fight against climate change, sending a strong message to India: if it wishes to take part in an EU rules-based order, the acceptance of such clauses ‘will be non-negotiable’.

While the criticism from the Glasgow Conference still looms, as India missed the COP’s main objective of achieving Net Zero by 2050, pushing back against the ‘phase out’ of coal, India appears to be moving (slowly but surely) towards a greener future. By setting for the first time five national climate goals – including a pledge to cut down emissions to Net Zero by 2070 – the Indian Government seems ‘serious about climate change but without compromising India's economic potential’. The ongoing negotiations with the UK and EU will constitute the ultimate test of India’s commitment to its objectives. Provided that these negotiations succeed, this new generation of FTAs would constitute a welcome departure from India’s historical protectionism towards its European counterparts, as well as a critical step towards achieving the world’s climate objectives.

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