Strategic interests hold the key to India’s FTAs

Wuhan virus pandemic and Ukraine crisis has upended the prevalent geoeconomics and geopolitical scenarios. Security concerns and geopolitics always defined the contours of strategic alliances and the World order.  Rapid economic activity with the advent of globalisation, free market system and cross border trading in the post-cold war era steadily took front seat over the geopolitics.

Soon geoeconomics became the defining feature of the World order. Economies with established supremacy in global trade activity eventually adorned the Peking Order of global hierarchy. While the importance of the geopolitics hasn’t diminished altogether but economic priorities dominated the groupings.

Enamoured by the benefits of globalisation and a deeply interconnected world, “lets trade more” became the favourite mantra of nations. Countries began to rely on economic cooperation and trade to serve as force multiplier to strengthen the bilateral ties. Thus, geoeconomics began to dominate the strategic partnerships. With time, geoeconomics became the lynchpin of foreign policy agenda for countries. Subsequently, strategic interests and historical hostilities took a back seat.

By the turn of 21^st century, mixing politics with economics, Chinese started wielding trade as political weapon. Punishing the countries that refuse to toe its line with economic coercion, China effectively exploited economic reliance to support its foreign policy objectives. Using the bilateral pacts to punish its rivals, imposing economic reprisals, China rode roughshod over international rules of trade.  China used the trade cudgel only when it has less to lose. Carefully calibrating its benefits, Beijing consciously dehyphenated trade from its objectives when it is major beneficiary of the bilateral trade. While it coerced South Korea, Mongolia, Norway, Lithuania with reprisals, Beijing, which enjoys a lopsided trade relationship refrained from halting trade transactions with India despite the prolonged standoff with India.

Not keen on derailing their economic interests, nations lulled into complacency owing to their reliance on China refused to challenge its blatant violation and mercantilism. While small countries suffered and paid heavy price, nations failed to impose sanctions continued to trade with China which is deeply integrated into the global institutions.

While there has been a growing pushback from countries against China and its opaque trade policies, it reached to its hilt in the aftermath of Wuhan virus outbreak in China. Being largest goods exporter, the supply chains suffered major disruptions and global markets reeled under shortages of essential goods and supplies. China’s aggressive posturing in South China Sea threatening the peace and stability of Indo-Pacific region drove nations with mutual interests in the region to engage closely. Together, pandemic triggered economic security threat promoted nations to reassess their geoeconomics and geopolitical decisions.

Security threats coupled with uncertainties and vulnerabilities in trade supplies propelled the countries in the Indo-Pacific region to launch Supply Chain Resilience Initiative (SCRI). While the driving force in unveiling the SCRI by the three Indo-Pacific countries India, Japan and Australia is to reduce reliance on China, its core objective is to build- “free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and in keeping its markets open”¹. Notably, the initiative has been preceded by security talks where countries have constructively engaged in consensus building of multi polar Indo-Pacific which is free and open.

India and Japan enjoy a Special Strategic and Global Partnership while India and Australia have elevated ties to Comprehensive Strategic Partnership, signed mutual logistics sharing agreement, similar to one signed with Japan. Recently, leaders Modi and Morrison agreed to hold institutionalised annual summits making Australia the third country to have such engagement with India. The other two being Japan and Russia. This substantial revitalisation of ties based on mutual interests, shared values of democracy, rule of law and further reinforced by geopolitical compulsions have nearly posited India and Australia as “like-minded countries” despite their differences over Ukraine.

This strengthened engagement which will now encompass spheres like political, military and diplomatic engagements has culminated in the signing of India-Australia Economic Cooperation and Trade Agreement (ECTA), a milestone which eluded both countries for a decade.

Absence of dynamism, ambitious target setting and a laggard approach towards geoeconomics have plagued India’s economic resurgence. Consequently, India’s exports stagnated and New Delhi fared very poorly when compared to China which actively inked FTAs and extended its supremacy in global trade. But post pandemic disruption in global supplies, China’s mercantilist and opaque trade practices elicited a push back from EU and other countries towards China. Wary of China’s unfair trade practices, countries are now strategically allying with other countries. This has opened an opportunity for India.

Indeed, China’s punitive trade tariffs, gross interference in domestic politics of Australia, penetration and acquisition of strategic industries by stealth, regulatory hurdles on Australian imports, Beijing’s growing influence in Indo-Pacific Islands its traditional strategic sphere of influence have irrevocably dented the Australia-China ties. To diversify trade, explore huge Indian markets and strengthen the vision of FOIP, Australia evinced lot of interest in inking an early harvest agreement.

India’s FTA with Australia and a Comprehensive Economic Partnership Agreement (CEPA) with UAE in February demonstrate that strategic interests are guiding India’s economic partnerships. Indeed, in this swiftly changing world of our times, countries are trying to balance the twin tools of geopolitics and geoeconomics to cater to their national interests.

Deftly making the right choice of junking multilateral trade agreements essentially dominated by China, India turned its focus towards bilateral trade agreements. With pandemic necessitating the need to rejig the economy, India proactively stepped up efforts to reenergise trade ties with strategic partners and preferably the largest markets for Indian exports. Factoring geopolitical aspects, New Delhi gave major fillip to trade negotiations with countries with whom India enjoyed strong strategic partnership.

India’s new approach is evident from the choice of the FTA partners. Tellingly, India has sealed FTA with UAE and Australia, members of the touted “Western Quad” and “the eastern Quad”. Infusing trust and making the mutually beneficial win-win approach a basic paradigm, India is proactively pursuing FTAs with natural allies.

Geopolitics and geoeconomics are intricately connected. Strikingly, geopolitics takes a precedence when security and territorial integrity are under threat. While the war in Ukraine has hindered global growth, aggravated inflationary pressures, the high oil prices have compounded the process of economic recovery. Additionally, it has heightened and accelerated the security threats from Indo-Pacific to Europe.  At this juncture, nations are cautiously treading a path of consciously allying with natural partners refocusing their energies on the traditional geopolitics.  

India is a big political opportunity for the European countries. After the failure of the EU-China talks, seeking alternatives, a seven-member European Parliament delegation essentially a fact-finding team arrived in India to revive and resuscitate the stalled trade negotiations. Aside the strategic interests, India’s perspective of renewable energy and green hydrogen initiatives which are in line with Europe’s priority to be fossil fuel independent is presenting fresh possibilities for new trade policies².

One of the major aspects of India-Australia ECTA is to decouple economy from China. So, this ECTA is not one off the event, but would serve as stepping stone to similar agreements with UK and EU. After India-UAE FTA, talks with GCC countries and Israel gathered pace.  Strategic congruencies and vast economic opportunities firmly position Indian as a cogent partner for FTAs. With strategic interests dominating the landscape of the foreign policy canvass of countries, the west is seeking to heighten its engagement with a democratic India.  

Notwithstanding, India’s neutral stance on Ukraine crisis, with strategic interests holding the sway, UK Prime Minister arrived in India to give fresh momentum to India-UK FTA.

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