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:

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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