Free Trade Agreements (FTAs)

Free Trade Agreements (FTAs)

Subject – Economy

Context – Exports on track for FY22, aim $450-500 bn next year: Piyush Goyal

Concept –

• A free trade agreement 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.
• Major FTAs of India: India ASEAN Trade in Goods Agreement, South Asia Free Trade Agreement (SAFTA), India Korea CEPA, Japan India CEPA, India Singapore CECA, Indo Malaysia CECA and so forth.

• India is negotiating free trade agreements (FTAs) with various countries and blocs, including the United Kingdom, Oman, Australia, Canada, Russia, the United Arab Emirates, the European Union, and the Southern African Customs Union comprising Botswana, Lesotho, Namibia, South Africa, and Swaziland.

Economic Integration –

1. Preferential trade agreement
   • A preferential trade agreement, is a trading bloc that gives preferential access to certain products from the participating countries.
   • This is done by reducing tariffs but not by abolishing them completely.
   • A PTA can be established through a trade pact. It is the first stage of economic integration.
   • Examples – Asia-Pacific Trade Agreement (APTA), India-Mercosur Preferential Trade Agreement (PTA)
2. Free trade agreement
   • A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.
   • Examples – Evolution of SAPTA to SAFTA (South Asian PTA to FTA)
3. Comprehensive Economic Cooperation Agreement (CECA)
   • When the countries go beyond FTA and agree for a greater degree of economic integration which includes improving the attractiveness to capital and human resources, and to expand trade and investment, it would result in CECA or CEPA (Comprehensive Economic partnership Agreement).
   • While CECA comes first with elimination of tariffs, CEPA comes later including trade in services and investments. CEPA has a bit wider scope than CECA.
4. Customs Union
   • An agreement among countries to have free trade among themselves and to adopt common external barriers against any other country interested in exporting to these countries.
   • Examples – Gulf Cooperation Council (GCC)
5. Common Market
   • A type of custom union where there are common policies on product regulation, and free movement of goods and services, capital and labour.
6. Economic Union
   • An economic union is a type of trade bloc which is composed of a common market with a customs union.
   • The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy.
7. Economic and monetary union
   • When an economic union involves unifying currency it becomes a economic and monetary union.
   • Example – Euro.