India’s Free Trade Agreements (FTA)
An FTA is a legally binding pact that creates a free-trade area where member countries agree to give preferential treatment to each other’s goods and services compared to those from countries outside the agreement.
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The Core Mechanism: Eliminating Trade Barriers
The most significant aspect of an FTA is the removal of the following obstacles:
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Tariffs (Import Duties): This is the main focus. An FTA generally commits countries to reduce or completely eliminate taxes (tariffs) on products imported from the partner country.
Example: If India has an FTA with Country X, and Country X normally charges a 10% tariff on imported cars, under the FTA, that tariff might drop to 0% for cars made in India. This makes Indian cars cheaper and more competitive in Country X’s market.
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Quotas: Restrictions on the volume (quantity) of specific goods that can be imported are also often eliminated or substantially raised.
2. Beyond Goods: A “Comprehensive” Approach
Modern trade agreements (often called CEPA or CECA, like India uses) go far beyond just goods.
Example:
CEPA – Comprehensive Economic Partnership Agreement
CACA – Comprehensive Economic Cooperation Agreement
In short, both CECA and CEPA are terms India uses to signify a trade agreement that is much wider in scope than a simple FTA that only deals with merchandise trade.
CEPA or CECA typically include provisions on:
Why Countries Sign FTAs
- Economic Growth: By removing tariffs, trade volume increases, which can boost exports, manufacturing, and overall economic activity.
- Lower Prices & Greater Choice: Consumers benefit from a wider variety of imported goods at lower prices due to reduced taxes.
- Increased Competition: Domestic companies must become more efficient and innovative to compete with cheaper, tariff-free imports.
- Better Market Access: FTAs provide businesses with stable, preferential access to a larger pool of international customers.
Types of FTAs
- Bilateral: An agreement between two countries (e.g., India-Japan CEPA).
- Multilateral: An agreement among three or more countries or a trade bloc (e.g., ASEAN-India FTA).
- PTA: It is the most basic form of a trade pact where member countries agree to reduce (but not eliminate) tariffs on a limited list of products traded among them, granting preferential treatment over non-member countries. It is generally less comprehensive than a Free Trade Agreement (FTA) or a CEPA.
FTAs are a crucial tool in international trade, allowing countries to customize trade rules and gain a competitive edge in specific markets.
India has a mix of Bilateral Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) with individual countries, as well as multilateral agreements with trade blocs.
Here is a list of India’s major Bilateral and Multi-lateral Free Trade and Economic Cooperation Agreements in force:
India’s Bilateral Trade Agreements (FTAs/CEPA/CECA/PTA)
These agreements are typically with a single country, though the names can vary: FTA, CECA, CEPA, PTA
India’s FTA negotiations are going on with the below listed countries:
- Oman
- Canada
- New Zealand
- S.A.
- Peru
- Israel
- European Union (one agreement with 27 countries
- SECU (South African Countries Union – 5 countries)
In conclusion, India’s approach to Free Trade Agreements (FTAs) has fundamentally shifted, moving from cautious engagement to an aggressive and strategic push for deep economic integration with major global markets.
India is focusing on barrier free trade and foreign Direct Investments also.
The new India is now focusing on developing more crucial strategic ties with nations of the world.