Introduction
Negotiations for a Free Trade Agreement (FTA) between India and Oman have hit a major roadblock due to disagreements over market access for specific petrochemical products. Despite concluding negotiations earlier in March 2024, Oman’s request for revisions in India’s market access offer has led to a stalemate. Indian officials are hesitant to reopen discussions, fearing it would necessitate renewed inter-ministerial consultations and could potentially unsettle domestic industries already wary of foreign competition.
The proposed FTA is a part of India’s broader strategy to deepen economic ties with Gulf Cooperation Council (GCC) countries, aiming to boost trade and investment. Oman, being a key player in the Gulf region and a strategic partner for India, holds significant importance due to its proximity to major shipping routes and the Arabian Sea. The success or failure of this agreement could set a precedent for India’s other ongoing trade negotiations in the region.
Background
India and Oman share a longstanding trade relationship, with bilateral trade reaching approximately $10 billion in the previous fiscal year. The proposed FTA aims to strengthen these economic ties by eliminating or reducing duties on a wide range of goods, including petroleum products, textiles, electronics, pharmaceuticals, machinery, and iron and steel. Currently, more than 80% of Indian exports to Oman face an average import duty of 5%, while Oman’s import duties range from 0% to 100%, depending on the product category.
The FTA also seeks to enhance cooperation in services and investments, focusing on sectors such as information technology, healthcare, tourism, and renewable energy. For Oman, the FTA represents an opportunity to diversify its economy beyond oil exports by gaining preferential access to India’s rapidly growing market. For India, it is a chance to secure energy supplies and expand its exports to the Gulf region.
Contentious Issues
A significant sticking point in the negotiations is Oman’s demand for greater market access for petrochemical products, particularly polyethylene and polypropylene. These products are vital intermediates in the manufacturing of plastics, medical devices, electronics, and automobile components. Currently, they attract a 7.5% import duty in India. Omani negotiators argue that reducing these tariffs would benefit both sides by lowering costs for Indian manufacturers dependent on petrochemical imports.
However, Indian petrochemical manufacturers, including both public and private sector players, strongly oppose duty concessions on these products. They argue that Omani companies benefit from substantial subsidies on raw materials, which could lead to unfair competition if tariffs are reduced. Indian industry representatives also fear that such concessions might undermine the government’s “Make in India” initiative by flooding the domestic market with cheaper imports.
In addition to petrochemicals, Oman is seeking expanded market access for approximately 500 trade lines, covering agricultural products, processed foods, chemicals, plastics, and certain services. Indian negotiators, however, are cautious about offering additional concessions without securing reciprocal benefits for key Indian exports, such as textiles, pharmaceuticals, and engineering goods.
India’s Position
Indian officials have expressed reluctance to restart discussions on market access revisions after having previously sought inter-ministerial approvals. Revisiting these offers would require fresh consultations with various stakeholders, including industry representatives, trade bodies, and different government departments. This process, officials argue, would not only delay the agreement but might also expose India to domestic political pressures ahead of the upcoming general elections.
Past experiences with FTAs have also made Indian policymakers wary. For instance, the India-UAE Comprehensive Economic Partnership Agreement (CEPA) signed in 2022 led to a surge in imports of precious metals and food items, raising concerns about unfavorable trade balances. Similarly, FTAs with ASEAN countries have been criticized for increasing India’s trade deficit due to a surge in imports, especially in sectors like electronics and chemicals.
Given this backdrop, India is keen to ensure that any new FTA does not repeat past mistakes. Indian negotiators are emphasizing the need for stronger safeguards, such as rules of origin and anti-circumvention measures, to prevent misuse of preferential access.
Oman’s Perspective
From Oman’s standpoint, gaining enhanced access to the Indian market is essential for diversifying its economy, which is heavily reliant on oil exports. The Omani government has been pursuing a broader economic diversification strategy known as Vision 2040, which aims to develop non-oil sectors such as manufacturing, logistics, and renewable energy.
Omani officials argue that India’s concerns about petrochemical subsidies are overstated and that the proposed tariff reductions would be mutually beneficial. They also point out that India’s existing FTAs with other GCC countries already provide concessions on petrochemical products, making their demand reasonable.
Furthermore, Oman is keen to use the FTA to strengthen its position as a regional trade hub. Enhanced access to the Indian market could boost Omani ports like Sohar and Duqm, which are strategically located along key shipping routes. By offering logistics and re-export capabilities, Oman aims to attract foreign investments and enhance its trade competitiveness.
Geopolitical Considerations
Beyond trade, the India-Oman FTA has significant geopolitical implications. India is concerned about the potential for China to exploit the agreement as a mechanism for circumventing international trade restrictions. There is apprehension that China might use Oman as an intermediary to dump goods into the Indian market, especially in response to steep tariffs imposed by the European Union and potential similar actions by the United States.
India’s concerns are not unfounded. Recent investigations have revealed instances of Chinese goods being routed through third countries to bypass tariffs, exploiting loopholes in rules of origin clauses. To address this risk, Indian negotiators are pushing for stringent rules of origin and compliance mechanisms to ensure that only products with substantial value addition in Oman benefit from tariff concessions.
Additionally, the FTA is seen as part of India’s broader strategy to counter China’s growing influence in the Gulf region. By strengthening economic ties with Oman and other GCC countries, India aims to secure energy supplies, expand its export markets, and counterbalance China’s Belt and Road Initiative (BRI).
Current Status and Future Prospects
As of now, the FTA negotiations remain stalled, with both sides needing to address the contentious issues to move forward. While Oman is pushing for a swift resolution, India is unlikely to make significant concessions without securing substantial gains for its domestic industries. Experts suggest that a possible way forward could involve a phased approach, where less contentious sectors are prioritized, leaving sensitive areas for subsequent rounds of negotiation.
The outcome of these negotiations could significantly impact regional trade dynamics and economic cooperation between India and Oman. A successful agreement would not only boost bilateral trade but also serve as a model for India’s ongoing FTA negotiations with other GCC countries. Conversely, a prolonged stalemate might prompt Oman to explore alternative trade partnerships, potentially diminishing India’s influence in the Gulf region.
Conclusion
The deadlock in the India-Oman FTA negotiations highlights the complexities inherent in international trade agreements. Balancing domestic industry interests with international economic partnerships requires careful consideration and strategic planning. As both nations work towards resolving these issues, the future of their economic relationship hangs in the balance, with potential implications for the broader region’s trade landscape.
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