Free Trade Agreements (FTAs)

  • IASbaba
  • July 14, 2022
  • 0
Economics, Governance
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Context: Concerns of Indian players should be taken care of while crafting FTAs

  • In recent months, India has signed trade agreements with Australia and the UAE.
  • In the last week of June, New Delhi began talks for a similar agreement with the EU.
  • Before entering into trade agreements, India needs to take care of a few key concerns.

To ensure that the domestic industry is not made to compete on unequal terms with the partner countries

  • It has been observed that when India is an importer, the preferential tariffs that accrue as a result of trade agreements are significantly lower than the rates charged from countries given Most Favoured Nation (MFN) status by New Delhi.
  • But when the partner country is the importer, preferential tariffs on Indian goods, in most cases, are closer to the MFN tariffs.
  • As a result, Indian exporters do not get the same returns as their counterparts in the partner countries.

Offset clauses

  • Offset clauses— where the exporter is obliged to undertake activities that directly benefit the importing country’s economy — should be built into trade agreements, especially for technology intensive sectors.

An emergency action plan

  • In February 2020, the US made India ineligible for claims under GSP, America’s oldest preferential trade scheme.
  • A contingency plan should be in place to tackle such situations.

Sunset clause

  • India should also take a cue from the US-Mexico-Canada Agreement, to incorporate a “sunset” clause in trade agreements.
  • The pact should include periodic reviews and should end on agreed year.

Parity between services and merchandise

  • India should negotiate for parity between services and merchandise.
  • India’s trade in services is low.
  • There is significant room for expansion of trade in the banking, financial services industry, legal and accounting services.

A well-crafted trade agreement could help India enhance its share in global trade and help attain the government’s target of making the country a $5-trillion economy.

Source: Indian Express

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