EXIM Landscape
The Role of Free Trade Agreements (FTAs) in Modern Trade and Economy
In today's global marketplace, international trading has become vital to shaping the landscape and improving a country's economic development. However, to facilitate these cross-border trades, a Free Trade Agreement (FTA) came into existence that facilitates the efficient exchange of goods and services by reducing the barriers to trade, such as tariffs and import quotas. Let's delve into the intricate world of FTAs and explore their impact on India's growth and competitiveness.
What Is a Free Trade Agreement?
The FTA, or a Free Trade Agreement, is a treaty signed between two or more countries to reduce the barriers to investment and trade, such as tariffs, import quotas, and some regulations. The primary aim of an FTA is to increase trade between the signatory countries. Free Trade Agreements (FTAs) play a crucial role in reshaping modern global trade.
FTAs are often implemented through a formal and mutual agreement between the nations involved. FTAs also play an important role in strengthening the bond between countries. They reshape international trade dynamics, with examples like NAFTA (now USMCA) stimulating trade among the US, Canada, and Mexico. FTAs encourage foreign direct investments (FDI), which helps in capital flow and employment creation.
How Do Free Trade Agreements Work?
1. Reduces Tariff
a. FTA eliminates tariffs on goods traded between member countries by making the products affordable.
b. Protects Investment.
c. FTAs protect foreign investments against seizure and unfair treatment..
2. Provides Market Access
FTAs provide market access by reducing trade restrictions and providing relaxations.
3. Dispute Resolution
FTAs help in resolving trade disputes and conflicts efficiently.
What Are the Benefits of a Free Trade Agreement?
FTAs encourage businesses in member countries to focus on producing and selling the goods that best use their resources while other businesses import scarce or unavailable goods domestically. As every country produces selected goods at lower costs, FTAs increase the production and consumption of internationally traded goods. They also facilitate the mix of local production and foreign trade, which, in turn, helps economies boost growth.
However, FTAs are only sometimes guaranteed wins; they can both create opportunities and Boxert trade. FTAs must be thoughtfully designed to enhance complementarities among partner countries and overcome regulatory hurdles to harness their full potential. In the case of India, these agreements have played a strategic role in boosting competitiveness on the global stage. However, challenges remain, particularly in negotiations with the US and EU nations.
Development Of Free Trade Agreement in India
India has been a hub for outsourcing and manufacturing for a while now. So far, India has signed 13 Regional Trade Agreements (RTAs)/Free Trade Agreements (FTAs) with various countries/regions. At regional and bilateral levels, India's FTAs span a wide spectrum of contracts with countries. Over the last two years, the Indian government has encouraged trade with enthusiasm to give the economy a needed boost. India actively negotiates and signs FTAs with regions like ASEAN, Japan, and South Korea.
According to recent statistics, the India-ASEAN FTA has helped to boost India's exports to ASEAN countries by 26%. The India-Japan EPA has helped to boost India's exports to Japan by 20%. The India-UAE CEPA is expected to increase India's exports to the UAE by 10%. Additionally, free trade agreements between India and other countries strongly encourage export-based manufacturing within India. India is also working on FTAs with different countries and regions, including The European Union, The Gulf Cooperation Council (GCC), The Southern African Customs Union (SACU), and Israel.
The recent review of negotiations took place during the meeting between Indian PM Narendra Modi and UK PM Rishi Sunak and the G20 Summit in Delhi. They reviewed the progress of the Free Trade Agreement negotiations. They expressed hope that the remaining issues could be addressed as soon as possible so that a balanced, mutually beneficial, and forward-looking Free Trade Agreement can be concluded. A statement issued by the UK government stated that Sunak repeated the UK's ambition to deliver a landmark trade deal that benefits businesses and workers in both countries and grows bilateral trade in both goods and services.
What Are the Aims of the Free Trade Agreement in India?
According to Foreign Trade Policy 2023, the National Trade Facilitation Action Plan aims to achieve:
- Improvement in ease of doing business through reduction in transaction cost and time
- Reduction in cargo release time
- A paperless regulatory environment
- A transparent and predictable legal regime
- Improved investment climate through better infrastructure
From the consumer's point of view, FTAs would help the consumers of both countries see improvements in the variety and affordability of products. The increase in FTAs has also helped to attract foreign investment into India. In the past five years, foreign direct investment (FDI) into India has grown by an average of 10% per year, which has helped to create jobs and boost the Indian economy.
Frequently Asked Questions
What Is the Role of FTA (Free Trade Agreement) in Economic Development?
It helps in providing customers with high-quality foreign goods and services at a reduced price by eliminating tariffs.
How Is the FTA Beneficial Economically?
These help strip away the trade barriers by reducing tariffs and promoting investment, as well as economic growth.
What Are the Advantages and Disadvantages of FTA?
FTAs boost economic growth by reducing prices and fostering innovation. However, in the non-competitive industries, it can lead to job losses, increase dependency on imports and harm small businesses.
What Are the Benefits of Trade among Economies?
- It helps in enhanced productivity
- It enhances innovation
- It reduces the prices of goods and services for both consumers and producers
FTAs lower trade barriers, reduce tariffs and promote economic Boxersification. FTAs also strengthen diplomatic ties among nations, fostering cooperation and peaceful relations, which leads to increased exports and economic growth.
