Free Trade Agreements

Review of the existing free trade agreement (FTA) and quick implementation of the social security agreement are some of the key suggestions made by Indian businesses to boost economic ties between India and Japan. The suggestion of free trade pact review assumes significance as the domestic steel producers have complained of surge in imports of steel products like hot-rolled steel and other variants from China, Korea and Japan.

A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers—import quotas and tariffs— and to increasetrade of goods and services with each other.

At present India has signed and implemented about 16 FTAs , with about 20 FTAs in the pipeline and are at different stages of negotiation. Industry needs to be aware of various parameters associated with trade agreements, and should be able to utilize the benefits of trade agreements to a greater extent, while also looking at various injury removal mechanisms.

In a Preferential Trade Agreement, two or more partners agree to reduce tariffs on agreed number of tariff lines. While in a PTA there is a positive list of products on which duty is to be reduced; in an FTA there is a negative list on which duty is not reduced or eliminated. Thus, compared to a PTA, FTAs are generally more ambitious in coverage of tariff lines (products) on which duty is to be reduced.

In a Customs union, partner countries may decide to trade at zero duty among themselves, however they maintain common tariffs against rest of the world. An example is Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana and Swaziland. European Union is also an outstanding example.

Integration provided by a Common market is one step deeper than that by a Customs Union. A common market is a Customs Union with provisions to facilitate free movements of labour and capital, harmonize technical standards across members etc. European Common Market is an example. Economic Union: Economic Union is a Common Market extended through further harmonization of fiscal/monetary policies and shared executive, judicial & legislative institutions. European Union (EU) is an example.