Foreign Policy Watch: India-Australia

India-Australia soon to have FTA


From UPSC perspective, the following things are important :

Prelims level: Free Trade Agreements

Mains level: Various bilateral trade instruments

India and Australia are expected to complete negotiations for an interim free trade agreement (FTA) soon, a move aimed at boosting economic ties between the two countries.

Comprehensive Economic Cooperation Agreement (CECA)

  • The final agreement is officially dubbed as the CECA is expected to be completed by the end of 2022.
  • The pact covers areas such as goods, services, investment, rules of origin, customs facilitation, legal and institutional issues.
  • This new strategic economic agreement is expected to increase bilateral trade in goods to $100 billion within five years.

What is a Free Trade Agreement (FTA)?

  • A FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
  • Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
  • The concept of free trade is the opposite of trade protectionism or economic isolationism.

Key benefits offered by FTA

  • Reduction or elimination of tariffs on qualified: For example, a country that normally charges a tariff of 12% of the value of the incoming product will rationalize or eliminate that tariff.
  • Intellectual Property Protection: Protection and enforcement of intellectual property rights in the FTA partner country is upheld.
  • Product Standards: FTA enhances the ability for domestic exporters to participate in the development of product standards in the FTA partner country.
  • Fair treatment for investors: FTA provides treatment as favorably as the FTA partner country gives equal treatment for investments from the partner country.
  • Elimination of monopolies: With FTAs, global monopolies are eliminated due to increased competition.

How many FTAs does India have?

  • India has signed it’s first Free Trade Agreement (FTA) with Sri Lanka in 1998.
  • Likewise, India had FTAs with: Nepal, Bhutan, Thailand, Singapore, ASEAN, Japan and Malaysia.
  • India has signed Preferential Trade Agreements such as:
  1. Asia Pacific Trade Agreement (APTA) with Bangladesh, China, India, Lao PDR, Republic of Korea, and Sri Lanka
  2. Global System of Trade Preferences (GSTP)
  3. India – MERCOSUR PTA etc. with South American countries

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.

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