In a volatile world, India’s trade agreements need sunset clauses—we mustn’t get locked in by past pacts

This momentum reflects its intent of deeper integration with global markets and trusted partners. It makes eminent economic sense. India needs export opportunities, technology inflows, supply-chain openings and strategic diversification.

Nevertheless, as our trade pacts multiply, it is worth pausing to examine if the terms of our agreements are resilient in a world that is witnessing unprecedented upheavals, from an upturned trade order to geopolitical turmoil.

An important development in recent times is the US’s evolving stance on trade with its largest trade partners, Mexico and Canada. Without formally abandoning existing arrangements, the message from the White House is blunt: trade agreements are conditional, not permanent. Should domestic priorities change, deals will be revisited.

So US trade pacts are transforming from one-time settlements into living instruments. For example, the US-Mexico-Canada Agreement (USMCA) of 2018, which replaced the NAFTA that had operated for 25 years, is reviewable.

This draws attention to traditional trade agreements between countries that have no expiry date or reset provision inked in and holds an important lesson for India. Going forward, we should craft trade accords that do not assume permanence and have expiry or review clauses.

In an era of fast-moving technology, geopolitical shocks and constantly reshaped supply chains, rigidity does not necessarily portend stability. It could turn hard-earned competitive edges blunt by locking in yesterday’s efficiencies while tomorrow’s technologies and market structures race ahead.

Legacy agreements provide an instructive benchmark. Take the case of the World Trade Organization’s (WTO) Information Technology Agreement (ITA-1) of 1996. India signed up in 1997and it served India’s economic interests well for a while. Eliminating tariffs on computers and IT components dramatically lowered costs, enabling faster growth in our fledgling software and IT services sector. Cheap hardware supported offshore delivery models and helped Indian firms scale globally.

Few policy decisions have paid such visible dividends. The agreement built for the 1990s, however, didn’t keep pace with the global technological changes. Here’s why.

Over the next two decades, the electronics sector gained strategic importance. Smartphones, semiconductors and embedded systems replaced desktop computers as the backbone of the global digital economy. Supply chains clustered across East Asia as these countries adopted aggressive policies to attract investments in electronics manufacturing.

India, however, remained locked into zero tariffs across a broad range of electronic products since the ITA-1 had no sunset clause, mandatory review or mechanism for recalibration. What began as an enabler has developed branches that are burdensome. Our electronics manufacturing struggles to scale up and tariff-jumping investments have drifted elsewhere.

The problem was not the openness of that trade engagement, but its rigidity. A similar pattern is observed in several of the country’s free trade agreements (FTAs).

India’s trade agreement with Japan signed in 2011 has left the Indian side clamouring for a review following complaints by domestic industry. Over the last several years, India has consistently ended up with an annual trade deficit of a shade above $10 billion. The tariff preferences under this FTA have not translated into commensurate export growth for India due to structural inequities and rigid ‘rules of origin’ clauses.

India has no cards to play here, since the agreement’s re-opener clause is relatively weak: it is triggered only if both parties agree to revisit terms and our discomfort over the growing deficit does not qualify.

Our FTA signed with South Korea in 2010 offers further insight. In contrast with Japan, India did not provide Korea equally deep tariff concessions on many overlapping product ‘lines’ such as steel, chemicals and manufactured goods.

This constrained Korea’s preferential access relative to that enjoyed by Japan. Despite Korea’s trade surplus, Seoul agreed to engage on a revision, largely driven by competitive pressure from Japanese imports in Indian markets—highlighting how external competitive dynamics pushed Korea to take Indian demands for renegotiations seriously.

Globally, the case of the USMCA that replaced NAFTA is instructive. Its terms include a 16-year sunset clause with mandatory reviews every six years. In other words, its continuation requires affirmative political consent among all parties. Far from destabilizing trade, this design enforces accountability. Problems can be addressed early, leverage is preserved and agreements remain sustainable.

Sunset clauses in trade deals are often portrayed as protectionist or disruptive by free-trade purists and some export-driven multinational lobbies. It can well be argued that they are instruments of good governance. They force governments to periodically justify their trade policy on the basis of evidence rather than ideology. They create predictable moments for course correction, instead of pushing countries into crisis-driven renegotiations.

For India, this matters immensely. Our economy is currently in the throes of a structural transformation. Industrial policy, digital regulation, climate standards and supply-chain strategies are evolving rapidly. Trade agreements must hence evolve alongside them.

As India signs its next generation of trade agreements, the real test will not be how quickly deals are concluded, but how well they age.

The author is former additional secretary and lead negotiator for bilateral agreements with the US, Canada, Japan and Korea, ministry of commerce.