India’s Free Trade Agreement with the EU is generating much hype, coming on the heels of the India–New Zealand FTA and the India–UK CETA. As India embarks aggressively towards the closure of free trade negotiations, little is ever said about the ‘spaghetti bowl’ effect of these bilateral trade deals, a phrase made popular by Prof. Jagdish Bhagwati through his seminal work - “Termites in the Trading System”.
Victor Fung, Chairman of the multi-billion global trading house Li & Fung wrote, as far back as 2005, in the Financial Times: “Bilateralism distorts the flow of goods, throws up barriers, creates friction, reduces flexibility and raises prices…In each new bilateral agreement, considerations relating to ‘rules of origin’ multiply and become more complex. This phenomenon is what trade experts call the ‘spaghetti bowl effect.’”
Regulatory Complexity
At the core of FTAs are Rules of Origin, which come with baffling clauses, such as product transformation at the four or six-digit levels of the Harmonised System of Nomenclature (read: tariff), value addition of 30 or 35 or 40 percent, or Product Specific Rules. Other complex clauses, unfamiliar to most but liberally sprinkled by negotiators, include: wholly produced goods, originating goods, fungible materials, non-originating materials, regional value content, indirect materials, non-qualifying operations, accumulation, and Tariff Rate Quotas.
A typical FTA runs into 1,000 to 1,500 pages with chapters on trade facilitation, trade remedies, operational and certification procedures, intellectual property, dispute settlement, and compensation. The complexity, sophistication, and impact of these provisions are understood only by negotiators.
India’s Strategic Shift
It was not very far back that India’s position on FTAs was one of defensive scepticism. In the Economic Survey of 2019, the Government’s position was that FTAs had led to a disproportionate increase in imports from FTA partner countries, while exports to these trading partners had not outperformed overall exports. It concluded that, in the backdrop of threats from circumvention of trade rules, progress on FTAs must be combined with strengthening India’s ability to respond. However, six years later, India’s stand has changed dramatically to one of confident outreach.
A report in The Financial Express suggests that as major FTAs become fully operational, more than 80% of India’s trade will move under a duty-free regime. However, NITI Aayog’s recently published study in January 2026 highlighted a significant widening of India's trade deficit with its FTA partners and identified structural imbalances in how these agreements were performing. The report emphasized the need to tighten Rules of Origin to prevent "trade diversion," where goods from non-FTA countries (like China) were routed through FTA partners to claim preferential benefits.
Enforcement Performance
The discovery of a string of frauds involving the imports had led the Government to amend the Customs Act by inserting Section 28DA and notifying the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020. These provisions strengthened the ability to verify an importer's claims for FTA concessions and obligated importers to hold information relating to the overseas manufacturer’s costs, without factoring in the practicality of whether such commercially confidential information would be shared between buyer and seller. It was indeed a muscular response, but the jury is out on whether it really proved effective.
Market Access as Leverage
Donald J. Trump has taught the world how to leverage market access. His philosophy has been: “If you want to have access to the greatest market in the world, you have to pay for the privilege”. India’s large consumer population sits on top of the asset side of the balance sheet. If used as leverage alongside an astute investment-linked market access policy, it would have brought in huge FDI and changed our manufacturing topography. India’s auto industry opened itself with such a strategy. The policy was formalised primarily through Public Notice No. 60, issued in December 1997. It served as a gatekeeper: if a foreign car manufacturer wanted to access the growing Indian market by importing components such as CKD/SKD kits, they had to agree to several conditions. The success of India’s auto industry needs no elaboration, other than to say it has become the world’s third largest. Have we missed the bus ?
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