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The article delves into the intricacies of the Free Trade Agreement (FTA) being negotiated between India and the United Kingdom, highlighting the potential benefits and challenges for both nations. It begins by defining what a Free Trade Agreement entails, emphasizing its role in reducing or eliminating import duties on a significant portion of traded goods, typically ranging from 90% to 95%. Beyond tariff reduction, FTAs also aim to minimize non-trade barriers and facilitate service exports and investments, fostering deeper economic cooperation between participating countries. The article also explains that FTAs can be referred to by different names such as PTA (preferential), RTA (regional) or BTA (bilateral), depending on the scope and depth of economic cooperation. WTO uses the abbreviation RTA to denote all types of such economic engagements. The article highlights the comprehensive nature of trade agreements like CECA (Comprehensive Economic Cooperation Agreement – India-Singapore), CEPA (Comprehensive Economic Partnership Agreement — India-Korea, Japan) or TEPA (Trade and Economic Partnership Agreement). These agreements cover a wider range of economic activities and cooperation areas compared to basic FTAs.
The article further elaborates on the mechanics of how an FTA operates, emphasizing the role of mutual agreement between nations to facilitate trade without imposing restrictions. While FTAs aim to create a more liberalized trade environment, they do not necessarily eliminate all protectionist policies or relinquish all control over imports and exports. The concept of free trade dates back to the early 19th century, with economist David Ricardo's arguments in favor of free trade gaining prominence. Ricardo posited that free trade expands the diversity of available goods, lowers prices, and enables countries to leverage their resources, knowledge, and skills more effectively. The core benefits of FTAs are outlined as promoting economic growth by boosting exports and attracting foreign investment, leading to higher-paying jobs for local workers. The competitive environment fostered by free trade can drive down global prices, enhancing consumers' purchasing power. Zero-duty access to partner country markets helps in the diversification and expansion of export markets. Furthermore, FTAs provide a level playing field for countries that may already have agreements with partner countries.
The article acknowledges that FTAs are not without potential drawbacks. One significant concern is the potential for unemployment in domestic industries that struggle to compete with foreign competitors. Large-scale industries may relocate to countries with more flexible environmental and labor laws, leading to issues like child labor and pollution. Over-reliance on global markets can also pose risks, particularly during times of crisis such as wars or natural disasters, when countries may face challenges in rebuilding domestic industries from scratch. The article provides examples of existing FTAs around the world, including the European Union, which functions as a borderless entity for trade, and the United States, which has 14 FTAs with 20 countries. China's establishment of free trade zones around key ports and coastal areas since 2013 is also mentioned. India itself has signed trade deals with various countries and blocs, including Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, the UAE, Mauritius, ASEAN, and EFTA. Currently, India is prioritizing FTAs with the UK, EU, and US to bolster exports and strengthen trade ties.
Focusing specifically on the India-UK FTA, the article outlines India's demands, which include greater access for its students and workers in the UK, a social security agreement, and the elimination of customs duties on certain goods. The UK, on the other hand, is seeking lower import duties on products like scotch whisky, electric vehicles, and chocolates, as well as expanded market access for services such as telecommunications, legal services, and financial services. The India-UK FTA aims to stimulate trade and investment by lowering tariff and non-tariff barriers and fostering cooperation in areas like technology, healthcare, and education. In FY24, India's merchandise exports to the UK were valued at $12.9 billion. While the impact of the FTA on these exports is expected to be limited due to existing low or zero tariffs on a significant portion of Indian goods, certain sectors like textiles, apparel, footwear, and marine products are likely to benefit from duty reductions. On the import side, India's merchandise imports from the UK amounted to $8.4 billion in FY24, with a large percentage facing medium to high tariffs, particularly on items like cars and scotch whisky. The UK is seeking tariff reductions for these products.
The article concludes by highlighting the UK's perspective on the FTA with India, emphasizing the significance of India's growing economy and its potential as a major trading partner. The UK views a deal with India as a significant post-Brexit opportunity to drive growth and opportunity. However, it's also acknowledged that achieving a truly ambitious deal requires addressing India's high barriers to entry in sectors like whisky, automotives, and legal services. Therefore, a comprehensive agreement is seen as crucial to facilitating greater trade between the two nations. The potential benefits include increased investment, boosted exports, and enhanced economic cooperation, but the success of the FTA will depend on navigating the complexities and addressing the specific demands and concerns of both India and the UK. Ultimately, the FTA represents a significant opportunity to strengthen the economic ties between India and the UK, but its realization requires careful negotiation and a commitment to addressing the challenges and maximizing the benefits for both countries.
In essence, the article provides a well-rounded overview of the India-UK FTA, covering its definition, benefits, potential drawbacks, and the specific demands and expectations of both countries. By presenting both sides of the story and considering the broader context of global trade agreements, it offers a comprehensive understanding of the complexities and opportunities associated with this important economic partnership. The ongoing negotiations hold the key to unlocking the full potential of the FTA, paving the way for enhanced trade, investment, and cooperation between India and the UK in the years to come.
Source: What Is Free Trade Agreement? How FTA With UK Will Benefit India, What’s At Stake? Explained