Figure 3: No Copyright Infringement Intended

Context:

• India will most likely conclude the free trade agreement with UAE by March.

About Free Trade Agreement:

• A Free Trade Agreement is an agreement between countries to reduce or eliminate barriers to trade.Trade barriers include tariff barriers like taxes and nontariff barriers like regulatory laws.
• Trade barriers include tariff barriers like taxes and nontariff barriers like regulatory laws.

Reasons behind FTA:

• By eliminating tariffs and some non-tariff barriers, FTA partners get easier market access into one another's countries.
• Exporters prefer FTAs to multilateral trade liberalization because they get preferential treatment over non-FTA member country competitors.
• Possibility of increased foreign investment from outside the FTA.

Criticism of FTA:

• India’s exports to FTA countries has not outperformed overall export growth or exports to rest of the world.
• FTAs have led to increased imports and exports, although the former has been greater.
• FTAs have had a bigger impact on metals on the importing side and textiles on the exporting side.Utilisation rate of FTAs by exporters in India is very low (between 5 and 25%).
• Diversification of India’s export basket is more responsible for India’s export surge than RTAs.
• Bilateral trade increased post signing of all the above FTAs
• As imports from Korea, Japan and ASEAN have shot up after the respective agreements came into force, India’s trade deficit with these countries has increased since then. Only exports to Sri Lanka have increased much more than imports into India from Sri Lanka.
• Overall trade deficit with ASEAN, Korea and Japan doubled.Quality of trade has also deteriorated under India ASEAN FTA.
• In 2005, 98% of Sri Lankan exports availed the FTA route. This has declined to about 50% in recent years. On the other hand, only 13% of India’s exports are routed through FTA.

Way Forward:

• Review and assess its existing FTAs in terms of benefits to various stakeholders and changing trade patterns, before signing new ones.
• Negotiate bilateral FTAs with countries where trade complementarities and margin of preference is high.
• Reduce compliance cost and administrative delays is extremely critical to increase utilisation rate of FTAs.
• Proper safety and quality standards should be set to avoid dumping of lower quality hazardous goods into the Indian market. Circumvention of rules of origin should be strictly dealt with by the authorities.

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