Sansad TV Perspective: Free Trade Agreement

In the series Sansad TV Perspective, we bring you an analysis of the discussion featured on the insightful programme ‘Perspective’ on Sansad TV, on various important topics affecting India and also the world. This analysis will help you immensely for the IAS exam, especially the mains exam, where a well-rounded understanding of topics is a prerequisite for writing answers that fetch good marks.

In this article, we feature the discussion on the topic:  Free Trade Agreement

Anchor: Vishal Dahiya

Participants: 

1. Dr. Ajay Sahai, DG & CEO, FIEO
2. Rajeev Kher, Former Commerce Secretary, GoI
3. Prof. Abhijit Das, Head, Centre for WTO Studies, IIFT 

Context: 

Free trade agreements are emerging strategies that are gathering considerable momentum in India’s trade policy. Over the years, the free trade agreements have facilitated India to compete at a global level and enhance its growth. At present, there are 12 free trade agreements or regional trade agreements that engage India with other countries. 

What are Free Trade Agreements?

• Agreements involving two or more countries where they agree on certain terms and conditions that influence the trade in goods and services are referred to as free trade agreements. 
• These agreements deal with the determination of the tariffs and duties that are imposed by the countries on import and export with the intention of reducing trade barriers and thereby strengthening the bilateral or multilateral trade relations. 
• It is implemented by a formal and mutual agreement between the participating nations. 
• A government need not take specific action to promote free trade and is free from stringent regulations and interference which is often referred to as laissez-faire trade or trade liberalisation. However, in the US and European Union, free trade agreements do not come without regulations and oversight.
• In the modern-day practice of international trade, few trade agreements result in completely free trade. 
• The US has a number of free trade agreements such as  NAFTA and Central American Free Trade Agreement. 

Exploring FTA: The Advantages and Disadvantages

The Advantages:

• The Free trade agreements encourage different countries to produce the goods in which they have advantage resulting in the specialisation of the country on specific products. Without such international specialisation many countries would have to stay without certain products for example, Iceland would have no coal, Nepal without oil and so on. 
• FTAs increase the production and consumption of the internationally traded goods as selected goods are produced by every country at lower costs. 
• The practice of free trade is an efficient way to break domestic monopolies narrowing the scope of a competitive market. 
• It paves the way for interchange of knowledge, ideas and culture between different geographies. 
• FTAs are beneficial in enhancing the understanding among the countries reducing commercial rivalry and war. 
• It offers an advantage of higher earnings from the factors of production.
• The consumers are provided with a wide range of products of good quality and at low prices by virtue of the free trade policy. 
• It has the potential to remove bitter consequences of protectionism such as high prices, growth of monopolies, corruption and bribery along with the creation of vested interests which act as the salient features of protectionism.

The Disadvantages:

• It increases the dependence of trade in goods and services on other countries.
• The free movement of foreign goods might create obstacles for the domestic goods incurring losses for the indigenous industries. 
• It has a tendency to give rise to colonialism and imperialism as the dominant traders may try to expand its trade interests. 
• Even though it is asserted that free trade minimises rivalry, there is an existing tendency to create commercial rivalries which might take the form of war. 

India’s Free Trade Agreements in the recent times: 

1. India – UK Free Trade Agreement Negotiations

Context: The ambitious launch of a free trade agreement negotiations between India and the United Kingdom took place with the objective of doubling the bilateral trade.  

Highlights of the Agreement:

• The eventful agreement aims to double the bilateral trade by 2030 and it has been considered as a partnership that is built on shared history and rich culture. 
• This free trade agreement has been recognised, so far, as the deepest trade deal.
• The bilateral partners agreed to collaborate on the areas such as the service sectors, innovation and technology.
• There were discussions on transitions from fintech to green-tech and automation to Artificial Intelligence. 
• India expects to gain from tariff reduction in labour-intensive sectors such as textiles, leather, jewellery apart from cereals and pharmaceuticals.
• The discussions touched upon enhancing the free movement of people.
• This negotiation will create new opportunities for growth and employment as the bilateral trade expands further. 

2. The India- UAE free trade Agreement

Context: India has stepped ahead on a new journey with a renewed approach to indulge in Free Trade Agreements (FTA) with its trade partners.

The Shift in Approach:

• With revamped objectives and renewed aspirations, India is eager to focus on gaining market access that shall facilitate Indian Industry’s integration into the global value chain. 
• It has been iterated that the signing of FTA by India will no longer be confined within the intention to join a group but it will also address the new dynamics of international trade and Indian economy. 

Countries in focus: 

• Under the new FTA strategy, the Government of India has offered priority to six countries to deal with, among which the United Arab Emirates is at the top of the list for an early harvest deal.  
• Other countries in the list include the United Kingdom, the European Union, Australia, Canada, Israel and a group of countries in the GCC. 

Rays of Positivity:

• The revisited and refurbished FTA strategy is a welcoming move by India to promote its trade interests in important regions that will overall contribute to the economic growth.
• The fresh negotiations along with the government’s willingness to indulge in interim and mini-trade deals will provide impetus to the entire gamut of India’s trade. 
• In September 2021, UAE expressed its intention to enter into bilateral economic agreements with eight countries and India was one among them. 
• Over the progressive rhythm of time, UAE has emerged as a major economic hub in the world due to its strategic location. UAE, with its ‘Vision 2021’, has emphasized on diversification of its economy with enormous importance to the hydrocarbon sector followed by services and manufacturing. 

Tales of India-UAE Relationship:

• The diplomatic relationship between the two countries flourished in 1972. 
• The relationship has been boosted with the visit of the Indian Prime Minister to UAE in 2015 that marked the onset of a strategic partnership between the two countries.
• The Crown Prince of Abu Dhabi was invited as the chief guest at the Republic Day celebrations of 2017 transforming the bilateral relation to comprehensive strategic partnership. 
• In September 2021, the India-UAE comprehensive economic partnership agreement was launched. 
• Time has witnessed the deepening of India’s trade relations with UAE. This makes UAE as the third largest trading partner of India. 
• With the new FTA, this relationship will be further strengthened. 
• This will be an enabler of two-way investment that is anticipated to benefit India’s export targets. 
• UAE offers an attractive market for Indian electronics, automobiles and other engineering products. 
• This partnership will also invite multinational investments from other geographies that will expand the business of both India and UAE. 

3. The Parliament Standing Committee on Commerce in its report suggested resolving the issues that obstruct the signing of FTA with the US and the European Union in order to benefit the domestic manufacturers. 
4. India has bilateral trade agreements with Japan, South Korea, Malaysia, Thailand, Singapore, Sri Lanka, Nepal, Bhutan and Mauritius. 
5. India has a trade agreement with the ASEAN which is a group of the South Asian Free Trade Agreement.  
6. Recently, India signed an FTA with UAE and is on the verge of signing FTA with Australia, the UK, Canada, Israel and the EU.

Way Ahead:

• It is suggested that the FTA agreement must try to introduce more transparency and predictability in terms of Non-Tariff Barriers to ensure a less cumbersome compliance procedure. 
• Government must put efforts to explore more regions which are willing to trade with India and there is umpteen scope to broaden India’s market access to those regions like countries of Africa, Central Asia and so and so forth. 
• The geopolitical issues are required to be resolved and the process of selection of trade partners must be reformed in order to expand the free trade policy. 
• There needs to be proper channels of negotiations pertaining to digital trade and to the issue of IPR. 
• Therefore, it is envisaged by the experts that the FTAs, if strategically executed with a compatible and appropriate partner, will contribute towards a robust economic growth expanding the reach of India’s trade across geographies.

Read more summaries of Perspective in the link.

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