ABSTRACT
All evidence points to a heightened need for industrial policies to support developing countries’ participation in GVCs in increasing returns activities with or without FDI. However, India faces significant challenges in formulating such vertical industrial policies under the FTAs signed since the mid-2000s. Apart from WTO-plus tariff liberalisation, WTO-plus provisions in FTAs relating to broad definition of investments as well as rules on the operations of investors and protection of investments, indirect expropriation and the ISDS mechanism reduce policy sovereignty and heighten the risk of policy failures by limiting the possibilities to redesign industrial development trajectories towards more sustainable paths. By locking in liberalisation at exiting levels and restricting the use of a range of policies and instruments, these trade agreements reduce the policy space to implement many of the industrial policy tools for building and upgrading domestic capabilities. As a result, these comprehensive trade agreements have not only undermined the purported objectives of FTAs, namely, increased investments and greater exports, but may have also undermined India’s long-term development prospects. The chapter provides a discussion of WTO-plus provisions in the last four major FTAs signed by India involving investment chapters or separate investment agreement (namely, India-Singapore CECA 2005, India-South Korea CEPA 2010, India-Japan CEPA 2011 and India-Malaysia CECA), which impinge most directly on the policy space for vertical industrial policies; their possible implications that ought to be kept in mind while planning any future trade agreements; and the industrial policy options that can still be exercised within a strategic industrial development framework.
