Understanding FTAs and India's Trade Pacts With Different Countries

Since 2014, India has entered into three trade agreements with Mauritius, the UAE, and Australia, and most recently with EFTA. These FTAs establish preferential relationships with 94 nations

India signed the trade pact, titled the Trade And Economic Partnership Agreement (TEPA) with the European bloc, EFTA

Source : PTI

India signed 14 free trade agreements (FTAs) and six preferential pacts on Sunday with the European Free Trade Association (EFTA) bloc which includes Iceland, Liechtenstein, Norway, and Switzerland. This pact aims to encourage exports and ensure improved access to markets for domestic goods and services. 

As per PTI reports, Since 2014, the nation has entered into three such agreements with Mauritius, the UAE, and Australia, with the most recent addition being EFTA.

Collectively, these trade agreements establish preferential relationships with 94 countries. Upon concluding its ongoing FTA negotiations, India is poised to establish some form of preferential relationship with over 120 countries.

What Is FTA?

A free trade agreement (FTA) is a pact between two or more countries where they mutually agree to eliminate or reduce customs duties on a wide range of goods traded between them. Additionally, these agreements aim to alleviate non-trade barriers on a significant portion of imports from partner countries and simplify regulations to foster services exports and bilateral investments.

The topics covered under these agreements typically range from 10 to 30. Currently, there are over 350 FTAs in effect worldwide, with most nations having signed one or more such agreements.

Types Of Trade Pacts:

Terms such as FTA, PTA, or RTA are often used reciprocally to describe these agreements.

The term "Regional Trade Agreement," or RTA for short, is used by the World Trade Organization (WTO) to refer to all forms of preferential trade agreements. The 166-member organisation is situated in Geneva and serves as the worldwide export- and import-related watchdog. Since 1995, India has been a member.

When two or more countries agree to reduce or eliminate duties on specified goods, it constitutes a preferential trade agreement (PTA) or Early Harvest Scheme (as seen in the case of India-Thailand).

Certain agreements are also referred to as CECA (Comprehensive Economic Cooperation Agreement - as seen in the case of India-Singapore) or CEPA (Comprehensive Economic Partnership Agreement - as seen in the case of India-Korea), BTIA (Bilateral Trade and Investment Agreement - as seen in the case of India-EU), or TEPA (Trade and Economic Partnership Agreement).

These comprehensive or modern agreements encompass various subjects such as goods, services, investments, intellectual property rights, government procurement, trade facilitation, trade remedies, and customs cooperation.

Benefits Of FTAs:

According to a report by the economic think tank GTRI, countries around the world negotiate these trade deals for several reasons:

• Zero-duty entry into partner country markets aids in the diversification and expansion of export markets.
• Establishes a level playing field compared to competitors who may have already established FTAs with partner countries.
• Provides preferential treatment in the partner country market over competitors from non-FTA member countries.
• Attracts foreign investment to stimulate domestic manufacturing.
• Facilitates access to raw materials, intermediate products, and capital goods for value-added manufacturing.
• Aligns with long-term efficiency and consumer welfare objectives.

India’s FTAs:

India has forged trade agreements with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, UAE, Mauritius and the 10-nation bloc ASEAN (Association of Southeast Asian Nations).

Furthermore, India is currently negotiating trade agreements with several of its trading partners. The negotiations are still in process with the UK, Oman, the European Union (EU), Peru, and Israel.

Talks with Canada for a similar pact were paused due to certain political issues.

According to an official, negotiations with Oman are in the final stages. The 14th round of talks between India and the UK is ongoing.

It is estimated that talks between India and the UK will conclude after the Lok Sabha general elections, as both sides have yet to resolve differences in key areas of goods and services.

Meaning Of Zero Duty In FTA:

Does a product entering India under an FTA automatically enter duty-free if zero duty is notified? No. Here, zero duty refers to the baseline customs duty. Nonetheless, other levies must be paid; they are primarily domestic taxes. "IGST" (integrated goods and services tax) and "Special welfare cess" are two examples of these.

Each FTA includes a list of items on which no duty reduction applies. These lists are known as exclusion, negative, or sensitive lists. This list varies for each agreement.

There are a few more items that are added to the list of India’s FTAs such as vegetables, fruits, spices, dairy, and auto.

FTAs necessitate periodic reviews after implementation to address key issues among signatory parties. Currently, review discussions are ongoing between India and Korea.

FTAs and the WTO FTAs give favorable treatment to partner countries than to other WTO members.

Ajay Srivastava, Founder of GTRI, noted that as FTAs became increasingly prevalent in global trade, with most developed and developing countries entering into them, the WTO had no choice but to acknowledge and legitimize their existence.

"Everyone wants to do an FTA with India. The main reason for this is India’s import duties, which make it difficult for these countries to access India’s large and rapidly growing market. By forming FTAs with India, they can access the Indian market without these import duties on substantial trade," remarked GTRI Founder Ajay Srivastava.