From UPSC perspective, the following things are important :
Prelims level : Various types of trade agreements
Mains level : Free Trade Agreement (FTA)
India and Australia have agreed to conclude a Free Trade Agreement (FTA) by the end of 2022.
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 favourably 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:
- Asia Pacific Trade Agreement (APTA) with Bangladesh, China, India, Lao PDR, Republic of Korea, and Sri Lanka
- Global System of Trade Preferences (GSTP)
- 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.