How Might India Prepare Itself for an Application to the CPTPP -- Will this make India more attractive for Japanese FDI

India’s trade policy: Historical roots and the MFN framework

India was present at the negotiations that produced the Bretton Woods institutions and the General Agreement on Tariffs and Trade (GATT), and for several decades found the Most Favored Nation (MFN) regime broadly congenial. Unlike China, which was absent from these foundational negotiations, India participated as a sufficiently important trading nation and newly independent state to have a genuine voice in shaping the post-war economic order. Successive rounds of multilateral negotiations delivered meaningful reductions in average tariffs, and special and differential treatment (SDT), which was grafted onto the GATT around the mid-1950s as a concession to decolonizing nations, allowed India to maintain relatively high tariff walls without full reciprocity.

As countries across Asia and Africa gained independence, SDT became an embedded assumption of the multilateral system: different rules, it was accepted, should apply to self-declared developing countries. Within this framework, India was a comfortable and active participant.

Over time, however, frustration mounted. Major advanced economies carved out exceptions for themselves, from the European coal and steel community and the successive enlargements of the European Community to the North American Free Trade Agreement (NAFTA), while insisting on strict MFN discipline from others. India had long viewed the United States as the anchor of the MFN system, but the proliferation of U.S.-sponsored preferential arrangements eroded that confidence. Unresolved issues from the Uruguay Round, including India’s food security safeguards, were carried into the WTO and assurances of a permanent settlement remain. The expansion of the World Trade Organization (WTO) agenda to include investment and intellectual property through the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement on Trade-Related Investment Measures (TRIMS) introduced trade-related remedies for non-trade distortions, a precedent that India viewed with deep unease, as it implied that domestic policy choices in areas well beyond tariffs could be subject to international disciplines. At successive ministerial conferences, India found that when it declined to sign onto agendas set by the United States and the advanced economies, whether on the so-called Singapore issues, on plurilateral agreements, or on investment facilitation, it was routinely cast as the “spoiler.” Most visibly, when India walked away from the Regional Comprehensive Economic Partnership (RCEP) in 2019, that characterization intensified, even as it obscured the genuine inconsistencies in the positions of its critics.

The turn toward preferential trade: India’s recent PTA binge

Despite this history of skepticism, India underwent a notable policy shift beginning in the early 2020s. In roughly five years, nine PTAs were negotiated. The sequencing was deliberate. India began with partners where the domestic political resistance was manageable and where early wins could demonstrate results quickly, building credibility for more ambitious agreements to follow. A so-called ‘early harvest’ deal with Australia (a member of RCEP and of CPTPP) served as an initial test case, intended as a steppingstone to a more comprehensive agreement still under negotiation. The United Arab Emirates followed, reflecting India’s deepening economic ties with the Gulf. A deal with the European Free Trade Association was notable in that, with so little remaining to negotiate on inbound tariffs into the bloc, it became in practice largely an investment agreement. The personal presence of Prime Ministers Modi and Starmer at the signing the free trade agreement with the United Kingdom in 2025, sent a clear political signal of changed intent. Negotiations with the European Union were concluded in early 2026, widely described as the most ambitious trade deal India has ever attempted. An ongoing dialogue with the United States adds further complexity, given the particular importance of the U.S. market for both Indian goods and services exports.

Several converging pressures seem to be behind India’s shift. A large bilateral trade deficit with China, accounting for roughly two-thirds of India’s overall merchandise trade deficit, raised the political salience of trade diversification. The progressive shrinking of the effective MFN space as major economies proliferated their own preferential arrangements created the risk of India being systemically excluded. The return of the Trump administration in the United States accelerated the sense that reliance on the multilateral system alone was no longer a viable strategy. At the same time, there was a growing recognition within the Indian government that the earlier generation of shallow agreements had underperformed, in part because of distortions in Indian domestic policy that had limited firms’ ability to take advantage of preferential access. The new round of agreements was therefore designed not only to open markets abroad but to use external commitments as a lever for domestic reform.

The new trade landscape: Factor endowments, fair trade, and India’s growth imperative

A fundamental tension runs through contemporary trade negotiations. Classical liberal trade theory, grounded in Ricardian comparative advantage and the Heckscher-Ohlin framework, holds that the gains from trade derive from differences in factor endowments. A labor-abundant, capital-scarce economy like India should, on this logic, benefit from openness precisely because its cost structure differs from that of its trading partners. Yet the logic in recent negotiations, particularly with the EU, has shifted increasingly toward “fair trade”: the imposition of common standards on labor, climate, and investment as conditions for market access.

This situation creates a major tension. If trading partners are required to converge on similar regulatory standards before trade can take place, much of the underlying rationale for trade between economies at very different levels of development is weakened. For an economy at India’s level of per capita income, reconciling the traditional basis for trade with demands for regulatory harmonization poses a genuine analytical and political challenge that would inevitably surface in any CPTPP accession negotiation.

The macroeconomic backdrop makes engagement with trade architecture more urgent, not less. India is growing at around 6% annually and aspires to reach 8%, while the world economy is likely to expand at roughly 3%. To sustain, let alone increase, India’s share of global trade under these conditions will require deeper integration into global value chains. A country growing faster than the world economy will, almost by definition, need to expand its trade ratio, and the trade architecture it chooses will shape how effectively it can do so. Integration into global value chains, rather than a retreat to protection, is the most credible path to the productivity gains that India’s demographic trajectory demands. Any concessions India makes to the United States, moreover, will tend to be multilateralized through its existing agreements, constraining its room for maneuver and reinforcing the need for careful, sequenced engagement with future partners.

Is CPTPP the next step? The investment case and the path forward

CPTPP membership is a legitimate and timely subject for serious intellectual debate, even in the absence of any official Indian initiative. Several factors favor engagement. India has now concluded agreements with the EU, ratified one with the UK, and is modernizing its Comprehensive Economic Partnership Agreement (CEPA) with Japan. The CPTPP’s membership already includes several of India’s most important trading and investment partners, and the agreement’s geographic footprint across the Indo-Pacific makes it strategically relevant in a way that earlier preferential arrangements were not. If Vietnam was able to accept the agreement’s high standards as a founding member, it is difficult to understand why India would view them as unreachable.

A critical dimension is investment rather than trad alone. Japan remains an investment superpower and the originator of the “flying-geese” model of regional industrial development, under which more advanced economies progressively transfer industries to neighbors at earlier stages of development. India faces its largest urbanization surge ahead and requires large-scale capital for its energy transition, where a shift from fossil fuels to renewables implies higher capital expenditure (in generation and transmission) even as operating costs fall. Its investment needs are therefore enormous and growing. Existing multilateral financing mechanisms no longer provide the scale of support that earlier emerging markets enjoyed at similar points in their development, and bilateral investment flows, while significant, have not filled the gap. Even if ambitious seen in a WTO context, CPTPP’s disciplines could serve as a credible framework for building the regulatory confidence that Japanese and other foreign investors require, making it as much an investment agreement as a trade agreement for India.

Significant political and procedural obstacles remain. There is already a long queue of accession candidates and India would need to win over members with whom past trade negotiations have been prolonged such as Australia or those who were anguished by India’s exit from the RCEP negotiations, including Japan itself. The domestic political economy of liberalization in a large and diverse democracy is demanding, and the constituencies that blocked RCEP, including allegedly the dairy lobby, have not disappeared. Nevertheless, the geopolitical and economic logic is compelling. The acceleration of great-power competition and the fragmentation of the multilateral trading system make it increasingly costly for a large emerging economy to remain outside the major regional trade architectures. Prime Minister Modi’s personal engagement in signaling India’s new trade openness represents a genuine strategic shift. The task now is for intellectual communities on both the Indian and Japanese sides to translate that shift into rigorous analysis of what an application by India for CPTPP membership would entail in concrete terms, in terms of net benefits to all parties and in terms of a coordinated diplomatic strategy.

Comment

URATA Shujiro:
India’s recent turn toward an active free trade agreement (FTA) strategy reflects a broader shift away from the inward, protectionist orientation that characterized its trade policy from the 1950s to a more outward-looking approach in recent years. The case for FTAs rests on a familiar but compelling chain of logic: greater market access drives export growth, which attracts foreign direct investment (FDI), which in turn facilitates technology acquisition, deeper integration into global value chains, and ultimately higher productivity and economic growth. This narrative forms a convincing rationale for the current FTA push, with the recently concluded comprehensive agreement with the United Kingdom representing a significant milestone.

Yet pursuing this strategy entails a genuine policy dilemma. Opening one’s own market, which is the unavoidable quid pro quo of any FTA, faces organized domestic resistance, notably from manufacturing firms, small- and medium-sized enterprises (SMEs), and the agricultural sector. The services sector raises its own set of sensitivities as well. At the same time, trade liberalization sits in tension with the goal of maintaining strategic autonomy, a concern that carries particular political weight in India given the broader international environment of weaponized interdependence. Questions therefore arise as to what enabled Prime Minister Modi to overcome this domestic opposition in concluding a comprehensive FTA with the United Kingdom, and why this breakthrough proved achievable now rather than in earlier rounds of trade liberalization.

The actual track record and tangible outcomes of India’s previous FTAs in expanding exports and attracting FDI also warrant closer examination, particularly given earlier agreements that appear to have delivered limited tangible benefits. On the multilateral front, India’s posture toward mechanisms designed to work around the WTO consensus-based deadlock, such as plurilateral joint statement initiatives or the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) which India has so far declined to join, remains cautious. Understanding which specific WTO reform priorities India is prepared to advance actively, and which it will continue to refrain from, is essential context for assessing the credibility and scope of its broader trade strategy.

YOSHIDA Yasuhiko:
India’s emphasis on strategic sovereignty mentioned by the speaker, while understandable in the current geopolitical climate, deserves particular attention from Japanese people engaging with Indian counterparts. In an environment where no country can realistically sustain competitiveness across entire supply chains, securing competitive access to components and materials from overseas is increasingly a precondition for building internationally competitive domestic industries. Advancing what may be called a “productivity paradigm” that prioritizes efficiency, openness, and global value chain integration over self-sufficiency is therefore central both to maximizing the economic benefits of India’s FTA strategy and to making India a more attractive destination for Japanese FDI.

The challenge of negotiating capacity is a related and equally important concern. Complex, multi-track FTA and PTA negotiations—such as those conducted during the RCEP process, which involved the simultaneous operation of multiple committees and more than 10 working groups running negotiations in different rooms in addition to the Chief Negotiators’ Committee—place extraordinary demands on a limited pool of skilled negotiators. Even highly talented officials can find such processes difficult to navigate when resources are stretched thin, but developing countries across Asia and Latin America have managed to successfully navigate these negotiations, suggesting that with the right institutional investments and capacity-building efforts, India could do so as well.

In this context, deeper engagement with APEC, and more particularly involvement of Indian officials in committees’ meetings and activities (observer participation would also be an option), building on past expressions of interest in formal membership during Prime Minister Modi’s tenure, could provide a valuable platform for developing negotiating expertise and laying groundwork for future FTA and PTA efforts, including possible CPTPP accession. India’s FTA and PTA policies are expected to promote Japanese FDI across a range of sectors. Competition in Indian market is tough for Japanese FDIs, though it should be tolerated if there are India’s proper policies such as for access to international supply chain, access to export market, and the ease of doing business in real terms.

Suman BERY:
A core conceptual challenge underlying India’s trade policy debate is that it has not fully internalized what economists call the Lerner symmetry theorem: that a tax on imports is simultaneously a tax on exports. The widespread political instinct to champion exports while shielding the domestic market from import competition is therefore internally inconsistent. This is compounded by a larger historical narrative in which openness is associated with economic vulnerability. This is a legacy of the colonial period that continues to shape public and political attitudes toward trade liberalization. India’s own experience following its 1991 unilateral trade liberalization offers compelling evidence for an argument to the contrary: not only did the economy grow faster, but it also became demonstrably more resilient. The intellectual case for import liberalization as a driver of both global value chain participation and macroeconomic resilience deserves to be pressed more forcefully, even as the political difficulty of doing so remains real.

The observation that APEC membership discussions have taken place is of particular interest, not least because CPTPP retains important structural and procedural links to the APEC framework. Regarding capacity building for negotiations within these frameworks, there is still significant uncertainty regarding how to reliably achieve such capacity building and any expertise available in terms of personnel choice and training would certainly be beneficial to the current civil service. On the WTO, India stands to gain from a genuinely reformed multilateral system, but meaningful progress on contentious issues, such as a permanent settlement on public food stockholding or fisheries subsidies, would require the major powers to offer reciprocal concessions which they have so far been unwilling to provide. Whether Japan could play a constructive intermediary role in helping to bridge these gaps is a question worth exploring further. On capacity building for negotiations within these frameworks, the fundamental constraint is a limited bureaucracy that carries the weight of multiple simultaneous and highly complex negotiating tracks, without always being held sufficiently accountable for outcomes. Additionally, there is significant uncertainty regarding how to reliably achieve such capacity building and specific recruitment and training protocols geared toward negotiation would be highly beneficial. Whether India can develop more elastic and effective institutional mechanisms to broaden that base remains an open and consequential question.

Q&A

Q:
India was not at the negotiating table for CPTPP and therefore could not shape the agreement, but could CPTPP shape India instead? Is there any debate in India about using the opportunity of CPTPP accession to align domestic reform priorities with the agreement’s standards, and to leverage foreign pressure, known as gaiatsu in Japanese, for India’s own benefit in terms of such reform?

Suman BERY:
Intellectually, this framing finds only little traction in India, where external conditioning of this kind is widely seen as a violation of sovereignty, with a strong sense that India needs to decide things for itself. The 1991 reform episode is instructive in this regard: India had its back against the wall at a time of political transition, but the government nonetheless came up with its own reform agenda, so that by the time a letter of intent was to be signed with the International Monetary Fund (IMF), that agenda was ready to be implemented domestically, without admitting that it was “bowing” to foreign pressure. India is rightly or wrongly too proud to openly acknowledge that external frameworks are being used to lock in domestic change. That said, the Indian system would benefit from pre-commitment devices, particularly in the area of investment treaties, and that dimension of the argument retains its relevance.

Q:
As the global environment and order are rapidly transforming, what kind of side effects can be expected with regard to bilateral and multilateral trade agreements?

Suman BERY:
The UK’s accession to CPTPP and the EU’s interest in closer association with the agreement reflect a broader conclusion gaining ground in multilateral circles: a rules-based order is preferable to an arbitrary one, and that conviction is becoming more rather than less relevant as geopolitical uncertainty deepens. On the bilateral front, regardless of whether the United States considers itself bound by multilateral norms or believes it can extract differentiated concessions from individual partners through divide-and-rule tactics, a medium power such as India effectively operates in an MFN world in practice. This underpins the enduring logic of open regionalism in which reciprocal concessions are made in areas of mutual importance while multilateralizing the resulting efficiency gains, since purchasing from a high-cost partner is ultimately against one’s own interest. That principle, potentially applicable under Article 24 of the GATT, has not lost its relevance, precisely because it aligns with the rational self-interest of participating economies rather than depending on altruism or external pressure to sustain it.