Free Trade Agreements (FTAs)

In News

• Non-tariff issues have recently flagged concerns in the ongoing FTA negotiations with the UK, the European Union, as well as the India-Australia Comprehensive Economic Co-operation Agreement (CECA).
  • Some of the non-tariff issues are carbon emission norms, climate action, labour and gender balance standards.

Background

• There are significant differences between the old FTAs negotiated prior to 2015 and the new FTAs under discussion currently. 
  • Earlier: predominantly trade-related issues used to dominate.
  • Now: non-trade issues such as gender balance, labour standards, environment and climate issues dominate these FTAs. 

What is a Free trade agreement?

• A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. 
• 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 Challenges in finalising FTAs

• Demographic dividend: These Non-tariff issues could pose hurdles for India in reaping the gains of its comparative labour advantage.
• Shift of focus: Wrapping up these FTA talks could narrow soon given that India’s focus would shift to the series of events linked to India’s G20 Presidency.
• Influential lobbies can delay it more: Political lobbying from influential lobby groups such as farmer unions and the auto sector could intensify.
• Priority to non-tariff issues: In much of the negotiations currently under discussion, climate action, carbon emissions and labour issues are taking precedence over trade issues.
• Recessionary conditions: These could potentially offer partner countries a handle to trigger non-tariff protectionist measures as developed nations stare at recessionary conditions. 
• Environmental issues: Developed countries such as the US have brought up the issue of carbon emissions in the process of manufacturing melted steel as a non-tariff-related issue.
  • India mostly produces steel generated from iron ore which comes from mining.
  • Most developed countries have resorted to methods to generate it from scrap which results in lower carbon emissions.
  • Thus, there may be a levy of carbon adjustment tax.
• GSP (Generalised System of Preferences): Currently, we may benefit from the GSP but if they come in a non-tariff barrier by citing labour or environment, then it becomes an issue citing standards, adjustments, child labour as reasons.
  • India had been a beneficiary of the US’ GSP programme since November 1975, under which beneficiary countries are allowed to export thousands of products to the US without the added burden of duties. 
• Carbon Border Adjustment Mechanism: The European Union has proposed CBAM to tax carbon-intensive products, such as iron and steel, cement, fertiliser, aluminium and electricity generation from 2026. 
  • Here, EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules.

Way Forward

• In favour:
  • Free trade is favoured by some advocates of free market economics because they say it increases access to high-quality, low-price goods; promotes economic growth; improves efficiency and innovation; drives competitiveness and promotes fairness.
• Critics:
  • They argue that free trade areas threaten domestic jobs and industries by allowing production to migrate overseas, can make an economy too dependent on just a few products, prevent the growth of infant industries that need economic protection, endanger security if a country becomes too dependent on imports of vital resources, and can force countries to lower environmental standards to compete.

Source: IE