Free Trade Agreements (FTAs)

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    • 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.

    India’s FTAs

    • India has signed 13 Free Trade Agreements (FTAs) with its trading partners, including the 3 agreements:
      • India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA).
      • India-UAE Comprehensive Partnership Agreement (CEPA).
      • India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA).
    • The list of FTAs signed by India is as under:

    1

    India-Sri Lanka Free Trade Agreement (FTA)

    2

    Agreement on South Asian Free Trade Area (SAFTA) 

    (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, the Maldives and Afghanistan)

    3

    India-Nepal Treaty of Trade

    4

    India-Bhutan Agreement on Trade, Commerce and Transit

    5

    India-Thailand FTA – Early Harvest Scheme (EHS)

    6

    India-Singapore Comprehensive Economic Cooperation Agreement (CECA)

    7

    India-ASEAN CECA – Trade in Goods, Services and Investment Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)

    8

    India-South Korea Comprehensive Economic Partnership Agreement (CEPA)

    9

    India-Japan CEPA

    10

    India-Malaysia CECA

    11

    India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA)

    12

    India-UAE CEPA

    13

    India-Australia Economic Cooperation and Trade Agreement (ECTA)

    Source: IE