Tuesday's Talking Points
Free Trade Agreements – From Tariffs to Triumphs!
What’s the Point? (A Brief Summary)
On March 10, 2024, the Union Cabinet chaired by the Hon’ble Prime Minister approved the signing of the Trade and Economic Partnership Agreement (TEPA) with European Free Trade Association (EFTA) countries comprising Switzerland, Iceland, Norway and Liechtenstein. The agreement, one of the largest in history for India, with a binding commitment of $100 billion and 1 million direct jobs in the next 15 years, is a major positive for India. It is expected to give a boost to the Make in India program, provide employment opportunities to the nation’s young workforce and a window to Indian exporters to access large European and global markets.
Numbers in Perspective
Source: Centre for Monitoring Indian Economy (CMIE)
What are FTAs?
FTAs are treaties between two or more countries designed to reduce or eliminate certain barriers to trade and investment, and to facilitate stronger trade and commercial ties between participating countries. Trade agreements occur at varying degrees of openness. While preferential trade agreements (PTAs) involve the lowest level of integration, which are limited to reductions in tariffs for a select list of goods, FTAs offer a deeper form of integration through tariff reductions in larger classes of goods.
India has been attempting to forge FTAs with several partners – both bilateral and regional – that cover tariff reduction impacting the entire manufacturing and the agricultural sectors, rules on services trade, digital issues such as data localization, intellectual property rights that may have an impact on the accessibility of pharmaceutical drugs, and investment promotion, facilitation, and protection.
Economic Impact of FTAs for India
Over the years, India has entered into different kinds of trade agreements. These agreements, in addition to preferential rates of tariff, provide deeper integration in areas such as services, investment, and intellectual property. India’s foray into trade agreements began in 1975 when it signed the Bangkok agreement. As of now, there are a total of 20 agreements in place, 14 of which are FTAs, and 6 are PTAs.
The country / region-wise merchandise exports delineated below signals to the positive impact of FTAs on India’s economy:
Source: Press Information Bureau (PIB), CMIE, ^RTA: Regional Trade Agreement, *ASEAN: Includes Exports to Singapore, Myanmar, Thailand, Indonesia, Philippines, Vietnam and Malaysia, #CECA: Comprehensive Economic Cooperation Agreement, **SAFTA: South Asian Free Trade Area, $w.e.f.: with effect from, @CEPA: Comprehensive Economic Partnership Agreement
Conclusion
For supporting its mission of Aatmanirbhar Bharat, the Government has been stepping up its capex, announcing a slew of supportive policies like conducive tax environment and Production-Linked Incentives (PLI) for different sectors to provide impetus to diversification of supply chain operations by multinational companies to India.
Among these initiatives by the Government, FTAs are significant because they tend to boost export-oriented domestic manufacturing, which helps in creation of job opportunities, rise of exports, and reduction in import dependency on other countries. While India has been cautious about signing FTAs in order to prevent subsidised goods from being dumped in India, the Government has demonstrated growing engagement and renewed commitment to bilateral trade deals. Furthermore, recent agreements indicate the nation’s ambition to become more global as opposed to being primarily with Asian countries, and bode well for the Government’s vision to make India an economic powerhouse.
Sources: CMIE, PIB, and other publicly available information
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