Why in News?
India and the European Union have concluded negotiations for a long-pending Free Trade Agreement (FTA); announcement expected at the India–EU Summit in New Delhi, with final text subject to legal scrubbing.
Description:
About FTA:
A Free Trade Agreement (FTA) is a pact between two or more nations to reduce or eliminate barriers to imports and exports. The primary goal is to allow goods and services to be traded across borders with the same ease as they are within a single country.
How FTAs Work?
FTAs are legal contracts that focus on several key levers:
- Tariff Elimination: Removing or lowering customs duties (taxes) on imported goods.
- Removal of Non-Tariff Barriers: Standardizing regulations, quotas, and “red tape” that might slow down trade.
- Rules of Origin (RoO): Critical criteria used to determine where a product was made. This prevents a third-party country from “tunneling” goods through an FTA partner just to avoid taxes.
- Intellectual Property (IP) Protections: Ensuring that patents, trademarks, and copyrights are respected across borders.
- Legal Basis: Permitted under World Trade Organization (WTO) rules (Article XXIV of GATT)
Types of FTAs:
| Type | Description |
| Bilateral | Between two countries. |
| Multilateral | Between three or more countries |
| Unilateral | When one country lowers barriers without a reciprocal agreement. |
Types of trade agreements:
- Preferential Trade Agreement (PTA): An agreement where member countries grant reduced tariffs on selected goods only, not on all products.
- Free Trade Agreement (FTA): An agreement that eliminates or significantly reduces tariffs on most goods traded between member countries.
- Customs Union (CU): An FTA plus a common external tariff on imports from non-member countries.
- Common Market: A Customs Union that also allows free movement of goods, services, capital, and labour.
- Economic Union: A Common Market with harmonised economic and fiscal policies, often with a common currency.
- Comprehensive Economic Partnership Agreement (CEPA): A deeper FTA covering goods, services, investment, IPR, and regulatory cooperation.
- Comprehensive Economic Cooperation Agreement (CECA): A trade pact broader than a basic FTA, covering goods, services, and economic cooperation, but generally less deep than CEPA.
- Trade Facilitation Agreement (TFA): An agreement focused on simplifying customs procedures to reduce trade costs.
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