What is Free Trade Agreement? All you need to know

India and the United Kingdom announced last month that the majority of the talks on a “comprehensive and balanced” FTA between the two countries will conclude by October end this year. Furthermore, negotiations are also on an advanced stage regarding a free trade agreement with the European Union. As the term is increasingly making its way into the headlines, it’s worth looking at some pointers- what exactly is a free trade agreement and why do countries choose to negotiate such pacts?

What is a Free Trade Agreement?

First, let’s come down to what FTAs are. A Free Trade Agreement is a deal between two or more nations to reduce or eliminate import-export tariffs among them. Under a FTA, goods and services can be traded between the concerned countries with little or no tariff barriers. Basically, it liberalises trade and removes protective barriers on industry and manufacturing.

FTAs are different from Preferential Trade Agreements, which reduce tariffs on a certain number of tariff lines only.

Why do countries opt for FTAs?

FTAs have a number of benefits. The trade pact leads to the members of the agreement getting preferential treatment over non-member nations. Furthermore, elimination of tariffs means that the countries get easier access to other markets. FTAs can boost trade and investment opportunities in the countries.

As per data by the Commerce Ministry, India had “preferential access, economic cooperation and Free Trade Agreements (FTA) with about 54 individual countries” in 2020. It has also signed Comprehensive Economic Partnership Agreements (CEPAs)/ Comprehensive Economic Cooperation Agreements (CECAs)/FTA/Preferential Trade Agreements (PTAs) with 18 countries.

The country has recently signed trade pacts with Australia and the United Arab Emirates. The agreements are expected to cover a wide range of goods and services including alcohol, automobiles, pharmaceuticals and more.

However, India has not always been agreeable to such pacts. In 2019, the country had walked out of the Regional Comprehensive Economic Partnership (RCEP), which included China and 14 other Asian countries, over concerns that it would widen India’s trade imbalance and make domestic producers unable to compete with foreign ones.

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