From UPSC perspective, the following things are important :
Prelims level : FTA
Mains level : India-UK FTA
India and the UK recently revived talks for a Free Trade Agreement (FTA) to encourage trade and investment. The FTA between India and UK is expected to be signed by October.
What is a Free Trade Agreement (FTA)?
- It is an agreement between two or more countries to minimize barriers to imports and exports of products and services among them.
- It includes reducing tariffs, quotas, subsidies or prohibitions which could limit exchange of goods and services across borders.
- The FTA might allow free trade among the two nations with a few exceptions.
- This involves a formal and mutual agreement signed between two or more countries.
- The agreement could be comprehensive and include goods, services, investment, intellectual property, competition, government procurement and other areas.
What is the status of the India-UK FTA?
- India and the United Kingdom have a multi-dimensional strategic partnership and are actively engaged in bilateral trade.
- The two countries agreed to begin formal negotiations for an FTA in January 2022, aiming to advance trade and investment relations between them.
- The fifth round of FTA talks concluded on 29 July, and the expectation is that negotiations would be completed and the stage set for the FTA by October.
- The FTA is important for both countries as it would provide a boost and create a robust framework of overall trade and investment between the two countries.
Which are the countries with which India has FTAs?
- As of April 2022, India had 13 FTAs, including the South Asian Free Trade Area, and with Nepal, Bhutan, Thailand, Singapore, Japan and Malaysia.
- The 13 also include the agreements with Mauritius, UAE and Australia signed during the last five years.
- Additionally, India has also signed six limited Preferential Trade Agreements.
What is the level of India-UK trade?
- Bilateral trade stands at $50 billion (ie approx. $35 billion in services and $15 billion in merchandise).
- India is UK’s 12th largest trading partner and accounts for 1.9% of UK’s total trade in four quarters to the end of 2022.
- UK is the seventh largest export destination for India.
- The trade balance maintained by India with UK has largely been a surplus.
- Top three services exported from India to UK are technical, trade-related and other business services, professional and management consulting services and travel.
How will an FTA with UK benefit India?
- Apart from reducing tariffs, the FTA also looks at lowering non-tariff barriers, particularly technical barriers to trade around rules of origin, investor protection and IPR.
- MoUs on joint recognition of certain educational qualifications and an outline pact on healthcare workforce have already been signed.
- Also, both UK and India have set up panels for a totalization deal being advocated by India and permitting Indian legal services for the UK.
Back2Basics: Types of Trade Agreements
(1) Free Trade Agreement – discussed above
(2) Preferential Trade Agreement
- In this type of agreement, two or more partners give preferential right of entry to certain products.
- This is done by reducing duties on an agreed number of tariff lines.
- Here a positive list is maintained i.e. the list of the products on which the two partners have agreed to provide preferential access.
- Tariff may even be reduced to zero for some products even in a PTA.
- India signed a PTA with Afghanistan.
(3) Comprehensive Economic Partnership Agreement
- Partnership agreement or cooperation agreement are more comprehensive than an FTA.
- CECA/CEPA also looks into the regulatory aspect of trade and encompasses and agreement covering the regulatory issues.
- CECA has the widest coverage. CEPA covers negotiation on the trade in services and investment, and other areas of economic partnership.
- It may even consider negotiation on areas such as trade facilitation and customs cooperation, competition, and IPR.
- India has signed CEPAs with South Korea and Japan.
(4) Comprehensive Economic Cooperation Agreement
- CECA generally cover negotiation on trade tariff and Tariff rate quotas (TRQs) rates only.
- It is not as comprehensive as CEPA.
- India has signed CECA with Malaysia.
(5) Framework Agreement
- Framework agreement primarily defines the scope and provisions of orientation of the potential agreement between the trading partners.
- It provides for some new area of discussions and set the period for future liberalisation.
- India has previously signed framework agreements with the ASEAN, Japan etc.
(6) Early Harvest Scheme
- An Early Harvest Scheme (EHS) is a precursor to an FTA/CECA/CEPA between two trading partners. For example, early harvest scheme of RCEP has been rolled out.
- At this stage, the negotiating countries identify certain products for tariff liberalization pending the conclusion of actual FTA negotiations.
- An Early Harvest Scheme is thus a step towards enhanced engagement and confidence building.