INTRODUCTION:
Free trade agreements essentially are agreements between two or more nations to curtail the plethora of trade barriers to imports and exports. Free trade agreements help in reducing governmental barriers including but not limited to tariffs, subsidies, restrictions, and prohibitions. The European Union is a good example of free trade in the present world. Albeit a union of significant nations, the European Union has incorporated free trade, which has ultimately led to the currency barrier being rendered ineffective, as the majority of free trade engaging nations of the EU have had to adopt Euro as their currency. However, the biggest disadvantage of the free trade agreements is its incongruency with other treaties of International Trade. Additionally, there is no specific regulation governing free trade agreements, which makes regulating free trade further unpredictable. But nations like the USA and the European have been trying to curb these problems by ensuring that they carry out free trade with other nations keeping their policies, restrictions, and prohibitions congruent with the free trade agreements.
MULTILATERAL AND BILATERAL TRADE AGREEMENTS:
Free trade agreements may be carried out either through the multilateral negotiation route, or through the bilateral negotiation route. Multilateral negotiations are those which take place between three or more nations. These agreements are particularly difficult to negotiate, enter into and execute due to the large number of parties, therefore increasing the regulatory challenges, as well as other barriers affecting foreign trade and exchange. However, if executed properly, these negotiations prove to be a very powerful tool, as they help in increasing the trade in terms of covering vast geographical area. Furthermore, a well-executed multilateral free trade agreement affects the economy positively on a global scale and promotes healthy global competition, especially among the developing nations. Currently, the largest multilateral free trade agreement in existence is the NAFTA- North American Free Trade Agreement, between the USA, Canada and Mexico.[1]
Whereas a bilateral trade agreement is an agreement which involves only two countries. The countries herein mutually agree to decrease their tariffs and reduce regulatory restrictions and prohibitions to increase cross border transactions[2]. This leads to great economic growth of the parties entering into the agreement. These agreements are comparatively easier to negotiate, enter into and execute than multilateral free trade agreements. The largest bilateral agreement currently in existence is the one between the European Union and Japan.
FREE TRADE AGREEMENTS-THE INDIAN SCENARIO:
India is a part of multiple FTAs, however, recent studies have shown that foreign trade in India is majorly conducted on the basis of WTO’s most favoured nation (MFN) principle[3]. This is due to the fact that a majority of the FTAs that India has entered into is with developing nations, and/or India’s other Asian competitors, which has led to a shortfall in trade for India. In light of such developments, the Indian government is now reviewing and re-negotiating the existing FTAs[4] with Korea, Japan, ASEAN.
Recently, India has also entered into negotiation talks with the US, UK, Australia, Canada and the EU to enable smooth free trade and exchange of technologies between the countries. In November 2019, India had pulled out from the Regional Comprehensive Economic Partnership (RCEP), which was led by China, owing to a plethora of ambiguous and unresolved matters. The RCEP negotiations ran a whopping eight years and ultimately post India’s withdrawal from the negotiations, China, Japan, South Korea, New Zealand, and Australia became parties to the RCEP on 15th November 2020. Major issues that remain unresolved for India, was the possibility of circumvention of the ‘rules of origin’, huge decrease in custom duties, invocations for carving out from MFN obligations. However, keeping in mind India’s potential and its market, members of the RCEP have included a special fast track accession provision, in the event that India has a change of heart and decides to join the RCEP.
On the 2nd of April 2022, India and Australia have signed a landmark bilateral trade pact known as the Economic Cooperation and Trade Agreement (ECTA). In the year 2022, this agreement is the second biggest FTA that India has indulged in post the FTA with United Arab Emirates in February of this year. It has been projected that both parties of ECTA would be increasing trade to a massive $45-50 billion and would create 10 lakh additional employment opportunities. It has been decided that under this agreement tariff on 85% of Australian goods would be exempted. The important and unfortunate thing to note here is that India and Australia had been in discussion over the FTA since 2011, however negotiations could not be restarted until recently in 2021. Owing to ECTA, Australia shall now be providing preferential access to all the labour intensive sectors, of items which shall be exported from India. Price of coal shall be cut down in favour of India as well.
COVID-19 has played a huge factor in bringing in heavy traffic in form of bilateral FTAs with India, as the nation has proved itself to be tantamount to China in terms of the market and supply chain.
RECENT DEVELOPMENTS- FTA NEGOTIATIONS BETWEEN INDIA AND UK:
India and the UK have indulged into institutionalized bilateral negotiations. Furthermore, there have been meticulous trade review conducted by India and UK. Consequently, India and UK entered into the ETP- Enhanced Trade Partnership. Both the nations have jointly invested around GBP 1 billion and have facilitated immediate export of food, drink, fruits etc. India, in furtherance to the ETP has agreed to lower tariffs for medical devices, food and supplies, and fruits as well. Not only have India and UK entered into the ETP, but they have also been in the process of signing various Memorandum of Understandings (MOUs), in order to facilitate technology exchange, investments, innovation, telecommunication, defence, security, IPR, and data protection.
However, there are a number of barriers affecting the ETP. For instance, India and UK currently do not have a treaty or understanding on bilateral investment protection. UK has been insisting India to decrease tariff regarding various goods and services, including food, alcoholic beverages, pharmaceutical products and in return, India is expecting better market access vis-à-vis, engineering, jewels, agricultural products etc. However, India is currently unwilling to make huge cuts in the tariffs.
CONCLUSION:
Entering into an FTA can significantly increase India and UK’s economic growth as well as strengthen their bonds, especially post Brexit. This is because a partnership with India will provide the UK to gain access to a vast market space and therefore add more strength to their political power. On the other hand, entering into an FTA with the UK, will significantly lead to the betterment in India’s trade and investment environment. Currently, India and the UK are looking forward to implementing the FTA model to facilitate the collaboration of Serum Institute of India and Oxford-Astra Zeneca, so that there can be further innovation and betterment in the COVID-19 vaccines produced by both institutions. This will help increase the manufacture of both the Covishield and Astra Zeneca vaccines in India and would lead to ease of distribution.
[1] INC, North American Free Trade Agreement (NAFTA), https://www.inc.com/encyclopedia/north-american-free-trade-agreement-nafta.html/.
[2] M.S. Bushra Tungekar, Free Trade Agreements blueprint for future multilateral trade rules and negotiations, https://blog.ipleaders.in/free-trade-agreements-blueprint-for-future-multilateral-trade-rules-and-negotiations/.
[3] Vijay Pratap Singh Chauhan, Analysing India’s Potential Free Trade Agreements with the UK and the EU Part-1, https://competition.cyrilamarchandblogs.com/2021/06/analysing-indias-potential-free-trade-agreements-with-the-uk-and-the-eu-part-1/.
[4] The Economic Times, India ASEAN trade ministers call for starting discussions to determine FTA review scope, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-asean-trade-ministers-call-for-starting-discussions-to-determine-fta-review-scope/articleshow/77833011.cms.
Author: Karan Upadhyaya (B.B.A. LLB) | Corporate Counsel | Accentus Consulting Private Limited
