Free Trade Agreements

To achieve the export target of $2 trillion by 2030, India needs comprehensive free trade agreements (FTAs).

India is negotiating FTAs with countries such as the European Union, Canada, the U.K., and Israel.
These FTAs cover a wide array of topics, such as tariff reduction impacting the entire manufacturing and the agricultural sector; rules on services trade; digital issues such as data localisation; intellectual property rights that may have an impact on the accessibility of drugs; and investment promotion, facilitation, and protection.

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports.

In a PTA, two or more partners agree to reduce tariffs on an agreed number of tariff lines.
For example, India MERCOSUR PTA.
Bilateral Investment Treaty (BIT)
A Bilateral Investment Treaty (BIT) provides investors with various guarantees when investing in the country of the treaty partner.
Economic Partnership Agreement (EPA)
EPA is an agreement that is comprehensive in scope, covering such fields as trade in goods, trade in services, investment, and economic cooperation.
Custom Union
In a Customs union, partner countries may decide to trade at zero duty among themselves; however, they maintain common tariffs against the rest of the world.
Common Market
A common market is a Customs Union with provisions to facilitate free movements of labour and capital, harmonise technical standards across members etc.
Partnership Cooperation Agreement
The Partnership and Cooperation Agreement (PCA) aims to encourage political, commercial, economic, and cultural cooperation.

India-ASEAN Free Trade Agreement
The ASEAN-India Trade in Goods Agreement was signed and entered into force in 2010.
South Asia Free Trade Agreement (SAFTA)

It is the South Asian Association for Regional Cooperation (SAARC) free trade arrangement.
The South Asian Free Trade Area is a 2004 agreement that created a free-trade area among Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka with the vision of increasing economic cooperation and integration.
SAFTA came into effect in 2006.
FTAs in operation

Global competitiveness
FTAs with developed and developing countries help to increase global competitiveness.
Significant increase in trade and investment
For example, Trade between India and SAFTA members increased from USD 6.8 billion in 2005-06 to USD 28.5 billion in 2018 -19.
Diversification of India’s export basket

FTAs are one of the reasons for the diversification of the export basket.
FTAs open a broad market for Indian products globally.
Strengthening of the manufacturing sector
India experienced a trade surplus for manufactured products with the help of FTAs.
Imports of enhanced technology

FTAs with countries like Japan and South Korea have improved access to advanced technologies.
For example, The growing electronic manufacturing firms in India.

Surge in imports
Imports have increased at a faster pace as compared to India’s exports to FTA countries.
Affect domestic manufacturers

Domestic manufacturers were the worst affected as FTA made imports cheaper.
For example, India – Japan FTAs affect the metallurgy sector in India.
Violations of FTA rules
Imports from non-FTA countries are labelled as originating from FTA countries.
Low transparency in the negotiation
India negotiates most FTAs behind closed doors with little information about the objectives and processes followed and little scrutiny.
Low quality of trade
FTAs with ASEAN results in low-quality trade, such as low-quality oils and food grains.

Relatively low market share
India has a relatively low market share compared to FTA partners.
Supply-side constraints
India cannot provide efficient support mechanisms such as logistics, energy and transportation infrastructures.
Low awareness among producers
Failure to disseminate information, primarily to the Micro, Small and Medium Enterprises (MSMEs), affects the success of FTAs.
Poor clearance and handling standards

In the U.K., for example, several robust mechanisms foster a certain degree of transparency in the FTA negotiations.
Furthermore, there are institutional apparatuses that enable the scrutiny of the actions of the executive during and after the signing of the FTA.
Adequate infrastructures
Creation of adequate infrastructures to deal with trade, such as new ports, freight corridors, energy supply etc.
Strengthening customs
Strengthening customs management will help in dealing with administrative bottlenecks.
Renegotiating existing FTAs

Negotiating new FTAs and renegotiating existing FTAs.
FTAs with countries like UK and USA would help India to improve its trade surplus.
High standard of compliance
Maintaining a high standard of compliance towards agreements helps increase India’s the trade and investment profile.

Content Source: The Hindu