What is Free Trade Agreement: #
A Free Trade Agreement (FTA) is an agreement between two or more countries where they agree to reduce or eliminate barriers to trade across international borders. These barriers can include tariffs, quotas, subsidies, or prohibitions that affect trade in goods and services, as well as protections for investors and intellectual property rights.
The main purpose of FTAs is to expand business opportunities, increase competition, lower prices, and promote economic integration among the participating countries. However, FTAs also come with some challenges, such as trade deficits, job losses, environmental issues, or regulatory differences.
There are two types of FTAs: bilateral and multilateral. Bilateral FTAs are agreements between two countries, while multilateral FTAs are agreements among three or more countries. Multilateral FTAs are more difficult to negotiate and implement than bilateral FTAs.
India’s Free Trade Agreement #
India has been involved in various Free Trade Agreements (FTAs) with different countries and regions, such as Sri Lanka, ASEAN, MERCOSUR, SAARC, etc1. These FTAs have had mixed impacts on India’s exports, depending on the sectors, products, and markets involved.
Some positive impacts are:
- FTAs have helped India increase its exports to FTA partners by reducing or eliminating tariffs and other trade barriers.
- FTAs have also helped India diversify its export basket by accessing new or emerging markets with high demand potential.
- FT diversify its export basket by accessing new or emerging markets with high demand potential.
- FTAs have also enabled India to participate in regional value chains and enhance its export competitiveness by improving quality, efficiency, innovation, and standards.
Some negative impacts are:
- FTAs have exposed India’s exporters to more competition from FTA partners who may have lower costs, better technology, or higher standards.
- FTAs have also led to trade diversion, which means that some of India’s exports may be replaced by imports from FTA partners at the expense of non-FTA countries.
- FTAs have also affected India’s export quality or quantity by altering the incentives or regulations for environmental protection, labor rights, intellectual property rights, or public health.
These impacts may vary depending on the type of FTA (unilateral, bilateral, or multilateral), the level of trade liberalization (partial or comprehensive), and the sectors involved (agriculture, manufacturing, services).
How India’s FTA with ASEAN impacts textile exports #
India signed an FTA with ASEAN members on 13th August 2009, which came into effect from 1st January 2010. This FTA aimed to eliminate tariffs on most goods traded between India and ASEAN countries, such as Indonesia, Malaysia, Singapore, Thailand, Vietnam, etc.
The impact of this FTA on India’s textile exports has been mixed. Some positive impacts are:
- India’s total bilateral trade with ASEAN increased by 25% from US$44.6 billion in 2009-10 to US$55.8 billion in 2010-11.
- India’s textile exports to ASEAN also increased by 27% from US$1.08 billion in 2009-10 to US$1.37 billion in 2010-11.
- India gained market access for some textile products that were previously subject to high tariffs or quotas, such as cotton yarn, fabrics, garments, etc.
Some negative impacts are:
- India’s trade deficit with ASEAN widened by 41% from US$10.9 billion in 2009-10 to US$15.4 billion in 2010-11.
- India’s textile imports from ASEAN also increased by 65% from US$0.36 billion in 2009-10 to US$0.59 billion in 2010-11.
- India faced more competition from ASEAN countries that have lower costs, better technology, or higher standards, such as Vietnam or Indonesia.
These impacts may vary depending on the type of textile product (yarns, fabrics, garments), the destination country (Singapore, Thailand), and the level of value addition (raw materials, intermediates).
How India’s FTA with Japan impacts automobile exports #
India signed an FTA with Japan, called Comprehensive Economic Partnership Agreement (CEPA), on 16th February 2011, which came into effect from 1st August 2011. This FTA aimed to eliminate tariffs on most goods traded between India and Japan, as well as liberalize trade in services, investment, intellectual property rights, etc.
The impact of this FTA on India’s automobile exports has been mixed. Some positive impacts are:
- India’s total bilateral trade with Japan increased by 17% from US$18.3 billion in 2010-11 to US$21.5 billion in 2011-12.
- India’s automobile exports to Japan also increased by 28% from US$0.05 billion in 2010-11 to US$0.06 billion in 2011-12.
- India gained market access for some automobile products that were previously subject to high tariffs or non-tariff barriers, such as motorcycles, auto parts, etc.
Some negative impacts are:
- India’s trade deficit with Japan widened by 19% from US$5.2 billion in 2010-11 to US$6.2 billion in 2011-12.
- India’s automobile imports from Japan also increased by 18% from US$2.8 billion in 2010-11 to US$3.3 billion in 2011-12.
- India faced more competition from Japan’s automobile industry that has lower costs, better technology, or higher standards.
These impacts may vary depending on the type of automobile product (passenger cars, commercial vehicles), the destination market (urban, rural), and the level of value addition (assembled, manufactured).