Discuss how Free Trade Agreements can create unintended disadvantages for domestic manufacturing despite tariff liberalisation being consumer-friendly. Illustrate with a recent example.

Free Trade Agreements lower tariffs to widen consumer choice and cut prices, but their benefits depend on symmetry — domestic producers must face costs comparable to their foreign rivals. Where the tax and tariff architecture is misaligned, an FTA can invert the advantage against domestic industry, as India's notebook sector currently illustrates.

How tariff liberalisation turns against domestic manufacturers

• Duty inversion: finished goods enter at zero duty while inputs still bear taxes, making imports cheaper than local assembly.
• Blocked input taxes: under Section 17 of the CGST Act, credit is unavailable on inputs used for exempt supplies, so domestic producers absorb embedded taxes that imports never carry [2].
• Routing and origin leakage: weak rules of origin allow third-country goods to enter through FTA partners — an issue India has itself flagged in the ongoing ASEAN–India Trade in Goods Agreement review, which covers duty discrepancies, rules of origin and non-tariff barriers [3].
• Asymmetric remedies: MSME-heavy sectors lack the capacity to petition the Directorate General of Trade Remedies (DGTR), India's single-window trade defence authority, for anti-dumping or safeguard action [4].

Recent illustration: the notebook industry

• The 56th GST Council meeting (September 2025) placed exercise books at a nil rate to make education cheaper — a genuinely consumer-friendly move [1].
• But exemption blocked input tax credit on paper, raising effective costs, while finished notebooks from ASEAN members entered at zero duty [2][5].
• The All India Notebook Manufacturers Association has consequently sought a Minimum Import Price, an anti-dumping probe into Indonesian imports, and easier export refunds [5].

The episode shows that consumer relief and producer viability are not automatically aligned; tariff policy, GST design and trade remedies must be sequenced together. Refundable or zero-rated treatment instead of blanket exemption, tighter rules of origin in the AITIGA review, and easier DGTR access for MSMEs can preserve affordability while keeping domestic manufacturing competitive — the true test of a liberalisation that serves both consumer and producer.