Free Trade Agreements(FTAs):

• Free Trade Agreements(FTAs) are arrangements between two or more countries or groups of countries that primarily agree to reduce or eliminate customs tariff and non tariff barriers on trade between them. 
• FTAs normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc.). 
• FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy, etc.

Preferential Trade Agreement (PTA): 

• In a PTA, two or more partners agree to reduce tariffs on an agreed number of products. 
• The list of products on which the partners agree to reduce duty is called a positive list. In general PTAs do not cover substantially all trade. 
• India MERCOSUR PTA is such an example. 
• The key difference between an FTA and a PTA is that 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 products on which duty is to be reduced. 

Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA): 

• These terms describe agreements which consist of an integrated package on goods, services and investment along with other areas including IPR, competition etc. 
• The India Korea CEPA is one such example and it covers a broad range of other areas like trade facilitation and customs cooperation, investment, competition, IPR etc. 

Custom Union: 

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

Common Market: 

• 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. 
• The European Common Market is an example. 

Economic Union: 

• Economic Union is a Common Market extended through further harmonisation of fiscal/monetary policies and shared executive, judicial & legislative institutions. 
• The European Union (EU) is an example. 

India- EFTA Trade deal:

• India signed a historic trade deal, in March 2024, with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland. 
• This deal named as Trade and Economic Partnership Agreement between India and EFTA is expected to give a much-needed leg-up to the low levels of extant trade between the two sides.

New Dimensions in India-EFTA Trade Deal

• Inclusion of Environment and Labour Issues: For the first time, India has agreed to incorporate environment and labour provisions in an FTA, which it has traditionally opposed.
• Investment Chapter: The India-EFTA FTA features a detailed investment chapter focusing on investment facilitation rather than protection.
• Obligation of Conduct:
  • FDI Commitment: EFTA countries have committed to aim to increase foreign direct investment (FDI) to India by $50 billion within the first 10 years and an additional $50 billion in the subsequent five years.
  • Job Creation: EFTA states have committed to aim to facilitate the creation of one million jobs in India.
• Reintegration of Trade and Investment Rules: Unlike recent FTAs with Australia, UAE, and Mauritius, which decoupled trade from investment rules, the India-EFTA FTA integrates these aspects within a single agreement.

India and FTAs:

• At present, India has the following FTAs.
  • India-ASEAN FTA, also CECAs with Singapore and Malaysia
  • India-Japan CEPA
  • India-S. Korea CEPA
  • SAFTA of all SAARC countries- along with separate FTAs with Sri Lanka, Nepal, Bhutan
  • India-Mauritius CECPA
  • India-UAE CEPA, implemented in 2022
  • India-EFTA FTA, expected to be implemented in 2025.
• FTA negotiations are going on with the following countries
  • India-UK FTA.
  • India-Canada CEPA
  • India-Oman FTA
  • India-Gulf Cooperation Council FTA
  • India-European Union BTIA
  • India-Eurasian Economic Union (EAEU) FTA

Reasons for Slow Progress in India’s FTA Negotiations:

• Agricultural Protectionism: India’s protective stance on the agricultural sector, a sensitive issue in FTAs, complicates negotiations as most FTAs leave agriculture out entirely.
• Concerns about Chinese Goods: India’s concerns about Chinese goods flooding its markets via FTAs with third countries necessitate strong Rules of Origin clauses, adding complexity to negotiations.
• Intellectual Property Rights: Increasing pressure to accept more international patents as countries prioritise research and development (R&D) impacts India’s negotiating stance, especially in sectors like pharmaceuticals.
• Make In India Policy: India’s focus on promoting domestic manufacturing and self-reliance (Atmanirbhar Bharat) runs counter to the principles of free trade without subsidies, slowing negotiations.
• Democratic Freedoms and Human Rights: Perceived issues related to democratic freedoms, human rights, and transnational operations are becoming significant in negotiations with countries like the EU, EFTA, and Canada, causing delays.
• Challenges to WTO: FTAs are seen as challenges to the global economic order under the WTO, bypassing global mechanisms for free trade, leading to cautious negotiations.

What can India Do?

• Comprehensive FTA Policy: Develop a clear and comprehensive FTA policy that aligns with broader economic goals and strategies. This policy should integrate trade and investment negotiations, ensuring coherence and synergy in negotiations.
• Balanced Approach to Trade and Investment: Negotiate trade and investment as part of one comprehensive economic treaty, using each aspect to achieve desired outcomes. This balanced approach allows for the extraction of concessions in trade in return for offers on investment and vice versa.
• Incorporate Social and Environmental Standards: Include provisions on environmental protection, labour rights, and sustainable development in FTAs, aligning with global trade practices and sustainable development goals.
• Enhanced Investment Protection: Investments through FTAs should be given effective protection, including workable dispute settlement mechanisms under international law. Providing enforceable legal protection to foreign investors boosts confidence and encourages higher investment flows.
• Promote MSME Participation: Ensure that FTAs include provisions to facilitate the participation of micro, small and medium-sized enterprises (MSMEs) in international trade. Simplified trade procedures, capacity-building initiatives, and access to information can help SMEs benefit from FTAs.
• Strengthen Institutional Capacity: Build institutional capacity within government agencies responsible for negotiating and implementing FTAs. Invest in training programs, research, and data analysis capabilities to enhance the effectiveness of FTA negotiations and implementation.
• Strategic Alliances and Partnerships: Form partnerships with like-minded countries and regional groups to strengthen India’s bargaining power in FTA negotiations. Collaborate on common objectives, share best practices, and coordinate positions to achieve mutually beneficial outcomes.

Conclusion: 

• Free Trade Agreements are not just about tariff reductions and transactional approaches of give and take on market access or IPR, these are an outcome of mutual trust between two countries or regions, and in effect a commitment to give each other’s businesses and investments domestic-like treatment.