India’s free trade agreements

New Delhi: India has signed as many as 14 free trade agreements (FTAs), including with the four-nation European bloc EFTA on Sunday, and six preferential pacts with its trading partners to promote exports and ensure greater market access for domestic goods and services. Since 2014, the country has signed three such agreements with Mauritius, the UAE and Australia, and the latest edition in the list is EFTA.

The European Free Trade Association (EFTA) members are Iceland, Liechtenstein, Norway, and Switzerland. Together, these trade pacts ensure preferential relationships with 94 countries. When India completes its ongoing FTA negotiations, it will have some kind of preferential relationship with over 120 countries.

What is an FTA?

A free trade agreement is an arrangement between two or more countries where they agree either to end or reduce customs duties on the maximum number of goods traded between them, besides cutting down non-trade barriers on a significant value of imports from partner countries and easing norms to promote services exports and bilateral investments. The subjects covered under these pacts range between 10 to 30. Across the globe, over 350 FTAs are currently in force and most of the nations have signed one or more such agreements.

Types of trade pacts:

Terms like FTA, PTA or RTA are sometimes used interchangeably to describe these agreements. The WTO (World Trade Organisation) uses the abbreviation RTA (Regional Trade Agreement) to denote all types of preferential economic engagements. The 166-member Geneva-based organisation is the global watchdog for exports and imports-related issues. India has been a member since 1995.

If two or more countries agree to reduce or eliminate duties on a specified number of goods, it is termed a preferential trade agreement (PTA) or Early Harvest Scheme (India-Thailand).

Certain agreements are also named CECA (Comprehensive Economic Cooperation Agreement - India-Singapore) or CEPA (Comprehensive Economic Partnership Agreement - India-Korea) or BTIA (Bilateral Trade and Investment Agreement - India-EU) or TEPA (Trade and Economic Partnership Agreement).

These comprehensive or new-age agreements include subjects like 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 across the world negotiate these trade deals for several reasons. Zero-duty entry into partner country markets helps in the diversification and expansion of export markets. Level playing field vis-a-vis competitors who may have already entered FTAs with partner countries. FTAs enable preferential treatment in the partner country market over non-FTA member country competitors. Attracting foreign investment to stimulate domestic manufacturing. Access to raw materials, intermediate products and capital goods for value-added manufacturing. Long-term efficiency and consumer welfare goals.

India's FTAs:

India has inked trade deals with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, UAE, Mauritius and the 10-nation bloc ASEAN (Association of Southeast Asian Nations). In addition, India is negotiating trade agreements at present with a number of its trading partners. The negotiations are underway with the UK, Oman, the European Union (EU), Peru, and Israel. Talks with Canada for a similar pact were put on hold due to certain political issues. According to an official, talks with Oman are in the final stages. The 14th round of talks are underway between India and the UK. The conclusion of talks between India and the UK is expected after general elections, as both sides have yet to iron out differences in key areas of goods and services.

Meaning of Zero Duty in FTA:

If zero duty is notified for a product under an FTA, does it mean it will enter India without paying any duty? No. Zero duty here means zero basic customs duty. However, other applicable duties, which are mostly in the nature of domestic taxes are to be paid. These may include ‘IGST' (integrated goods and services tax) and ‘Special welfare cess'.

Each FTA contains a list of items on which no duty is reduced. Such lists are known as exclusion, negative or sensitive lists. This list is different for each agreement. A few items that figure in these lists of many of India's FTAs are select vegetables, fruits, spices, dairy and auto. Free trade agreements provide for a periodic review after their implementation to sort out key issues among the signatory parties. At present, review talks are on between India and Korea. FTAs and the WTO FTAs give more preference to partner countries than to other WTO members.

GTRI Founder Ajay Srivastava said that as the FTAs became a dominant trend in global trade with most developed and developing countries signing them, the WTO had no option but to recognise and legalise 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," he said.