Several experts believe that Britain’s exit from the European Union in 2016 is one of the reasons for the ongoing economic crisis. Businesses in the UK lost full access to European markets, resulting in huge losses. It also caused the pound to depreciate and inflation to rise.
The European Union is a shining example of free trade. Its countries have almost made borders in trade redundant. And the single currency, the euro, has made trade easier.
India and the UK have been in intensive negotiations on free trade agreements for some time. The agreement was due to be completed by Diwali but the deadline was missed due to some friction, including services. Talks are set to gain momentum with new Prime Minister Rishi Sunak, and Downing Street recently announced that Sunak is committed to a balanced deal.
What is a Free Trade Agreement?
But what exactly is a free trade agreement? It is a pact between two or more countries, the aim of which is to remove trade barriers to imports and exports and to ensure the smoothest possible trade relations. As part of a free trade agreement, countries offer each other preferential trading conditions and tariff concessions.
With which countries has India signed FTAs?
India has so far signed a total of 13 FTAs with its trading partners such as Japan, South Korea, ASEAN region countries, etc. India has signed three free trade agreements in the past five years. Free trade agreements are also agreed between countries to boost their respective trade. For example, India’s exports to Japan under the India-Japan Agreement have improved from US$5.6 billion in 2011 to US$6.1 billion in 2021.
Free trade agreements can be bilateral or multilateral. For example, India has signed an agreement called South Asia Free Trade Area with South Asian countries including Nepal, Sri Lanka, Bangladesh, Bhutan, etc.
Why does India need free trade agreements?
The main objective of the Indian free trade negotiations is to diversify and expand export markets. Some of the other factors that India considers when opting for FTAs are cheaper access to raw materials, attracting foreign investment, increasing competitiveness and other geopolitical reasons.
In addition to free trade agreements, India has also signed six preferential trade agreements. The main difference between the two is that a free trade agreement broadly covers different areas, while a PHA is limited to trade in goods only and seeks only tariff elimination in terms of a margin of preference.
