India Should Include Sunset Clauses in Future Trade Agreements to Avoid Outdated Terms

A former senior trade official has called for India to incorporate sunset clauses and review mechanisms in future trade agreements, arguing that rigid pacts can lock the country into outdated terms that no longer serve its economic interests. The recommendation comes as India pursues deeper integration with global markets through multiple trade partnerships.

Learning from Past Trade Agreement Challenges

The article points to several examples where India's trade agreements have become problematic due to their inflexibility. The WTO's Information Technology Agreement (ITA-1), which India signed in 1997, initially served the country well by eliminating tariffs on computers and IT components. This dramatically lowered costs and enabled faster growth in India's software and IT services sector.

However, the agreement lacked adaptation mechanisms for technological changes. Over two decades, the electronics sector gained strategic importance as smartphones, semiconductors and embedded systems replaced desktop computers. Supply chains clustered across East Asia, but India remained locked into zero tariffs across electronic products without any recalibration mechanism.

Bilateral FTA Performance Analysis

India's experience with bilateral free trade agreements reveals mixed results and highlights the need for flexibility mechanisms:

The Japan FTA has consistently resulted in trade deficits exceeding $10 billion annually for India. Tariff preferences have not translated into commensurate export growth due to structural inequities and rigid rules of origin clauses. The agreement's re-opener clause proves inadequate as it requires both parties to agree to revisit terms.

In contrast, the South Korea FTA demonstrates how external competitive dynamics can facilitate renegotiations. Despite Korea's trade surplus, Seoul agreed to engage on revisions largely due to competitive pressure from Japanese imports in Indian markets, showing how market forces can drive policy changes.

The USMCA Model for Future Agreements

The US-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2018, offers an instructive framework for India's future trade negotiations. The agreement includes several accountability mechanisms:

• 16-year sunset clause requiring affirmative political consent for continuation
• Mandatory reviews every six years
• Built-in opportunities for course correction
• Prevention of crisis-driven renegotiations

This design enforces accountability while maintaining trade stability, allowing problems to be addressed early and preserving negotiating leverage for all parties.

Strategic Rationale for Flexible Trade Agreements

The former trade negotiator argues that sunset clauses represent good governance rather than protectionism. These mechanisms force governments to periodically justify trade policy based on evidence rather than ideology, creating predictable moments for course correction.

For India, this approach holds particular relevance given the country's ongoing structural economic transformation. Industrial policy, digital regulation, climate standards and supply-chain strategies continue evolving rapidly, requiring trade agreements that can adapt alongside domestic priorities.

Implementation Considerations

The article suggests that India's future trade agreement strategy should prioritize sustainability over speed. Key considerations include:

• Incorporating mandatory review periods
• Building in recalibration mechanisms for technological changes
• Ensuring balanced leverage for all parties
• Aligning trade terms with evolving domestic priorities

As India continues expanding its trade partnership network, the emphasis should shift from how quickly deals are concluded to how well they age and adapt to changing global economic conditions.