From UPSC perspective, the following things are important :
Prelims level : Various types of trade agreements
Mains level : Free Trade Agreements
India and the United Kingdom have launched formal Free Trade Agreement (FTA) negotiations with the aim of concluding an early harvest trade agreement over the next few months.
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.
- The discussion is going for an FTA with Australia.
- 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.
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