Explained | All you need to know about India's free trade agreements

New Delhi: India finalised a free trade agreement with the UK, its 16th so far as the country aimed at boosting bilateral trade and investments.

The other regions and countries with which India has signed such agreements include the four-nation European bloc EFTA, Japan, Korea and Australia.

Since 2014, the country has signed five such agreements with Mauritius, the UAE, Australia, EFTA and the UK.

Together, these trade pacts ensure preferential relationships with over 90 countries.

What is an FTA?

A free trade agreement is an arrangement between two or more countries where they agree either to end or reduce customs duties on the maximum number of goods traded between them, besides cutting down non-trade barriers on a significant value of imports from partner countries and easing norms to promote services exports and bilateral investments.

The subjects covered under these pacts range between 10 to 30. Across the globe, over 350 FTAs are currently in force and most of the nations have signed one or more such agreements.

Types of trade pacts:

Terms like FTA, PTA or RTA are sometimes used interchangeably to describe these agreements.

The WTO (World Trade Organisation) uses the abbreviation RTA (Regional Trade Agreement) to denote all types of preferential economic engagements. The 166-member Geneva-based organisation is the global watchdog for exports and imports-related issues. India has been a member since 1995.

If two or more countries agree to reduce or eliminate duties on a specified number of goods, it is termed a preferential trade agreement (PTA) or Early Harvest Scheme (India-Thailand).

Certain agreements are also named CECA (Comprehensive Economic Cooperation Agreement - India-Singapore) or CEPA (Comprehensive Economic Partnership Agreement - India-Korea) or BTIA (Bilateral Trade and Investment Agreement - India-EU) or TEPA (Trade and Economic Partnership Agreement).

These comprehensive or new-age agreements include subjects like goods, services, investments, intellectual property rights, government procurement, trade facilitation, trade remedies and customs cooperation.

Benefits of FTAs:

Zero-duty entry into partner country markets helps in the diversification and expansion of export markets.

Level-playing field vis-a-vis competitors who may have already entered FTAs with partner countries.

FTAs enable preferential treatment in the partner country market over non-FTA member country competitors.

Such pacts attract foreign investment to stimulate domestic manufacturing.

They allow access to raw materials, intermediate products and capital goods for value-added manufacturing.

Help achieve long-term efficiency and consumer welfare goals.

India's FTAs:

India has inked trade deals with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, UAE, Mauritius, the 10-nation bloc ASEAN (Association of Southeast Asian Nations), and four European nations' bloc EFTA (Iceland, Liechtenstein, Norway, and Switzerland).

In addition, India is negotiating trade agreements at present with a number of its trading partners. The negotiations are underway with the US, Oman, the European Union (EU), Peru, and Israel.

Talks with Canada for a similar pact were put on hold due to certain political issues.

Meaning of zero duty in FTA:

If zero duty is notified for a product under an FTA, does it mean it will enter India without paying any duty? No. Zero duty here means zero basic customs duty. However, other applicable duties, which are mostly in the nature of domestic taxes are to be paid. These may include 'IGST' (integrated goods and services tax) and 'Special welfare cess.

Each FTA contains a list of items on which no duty is reduced. Such lists are known as exclusion, negative or sensitive lists. This list is different for each agreement.

A few items that figure in these lists of many of India's FTAs are select vegetables, fruits, spices, dairy and auto.

Free trade agreements provide for a periodic review after their implementation to sort out key issues among the signatory parties. At present, review talks are on between India and Korea.