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India-EFTA Trade and Economic Partnership Agreement

Context: India signed a free trade agreement (FTA) with four European countries — Iceland, Liechtenstein, Norway, and Switzerland.

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  • TEPA is India’s second comprehensive Free Trade Agreement (FTA), following the one with the United Arab Emirates.
    • It involves significant tariff reductions, expanded market access, and streamlined customs processes.
  • Unlike previous FTAs, this agreement with the European Free Trade Association (EFTA) countries introduces a dedicated chapter on human rights and sustainable development commitments.

What is Free Trade Agreement (FTA)?

  • FTAs are arrangements between two or more countries or trading blocs that agree to reduce or eliminate customs, tariff and non tariff barriers on substantial trade between them.
  • FTAs typically address trade in goods, including agricultural and industrial items, and trade in services, such as banking, construction, and trading.
    • Beyond goods and services, FTAs often extend to Intellectual Property Rights (IPRs), investment, government procurement, and competition policy.
  • This concept of free trade is the opposite of trade protectionism.
  • Trade Pact Terminology: Terms such as FTA (Free Trade Agreement), PTA (Preferential Trade Agreement), and RTA (Regional Trade Agreement) are often used interchangeably to describe trade agreements.
  • RTA Definition by WTO: The World Trade Organization (WTO) uses “RTA” to encompass all forms of preferential economic agreements among regions.
  • WTO’s Role: As a 166-member institution based in Geneva, the WTO oversees global issues related to exports and imports.
  • India’s Membership: India has been a participating member of the WTO since 1995.
  • PTA Explained: A Preferential Trade Agreement (PTA) or Early Harvest Scheme, like the one between India and Thailand, involves countries agreeing to reduce or eliminate tariffs on selected goods.
  • Other Agreement Types:
    • CECA: Comprehensive Economic Cooperation Agreement, e.g., India-Singapore.
    • CEPA: Comprehensive Economic Partnership Agreement, e.g., India-Korea.
    • BTIA: Bilateral Trade and Investment Agreement, e.g., India-EU.
    • TEPA: Trade and Economic Partnership Agreement, a broad term for such agreements.
Facts
  • First Trade Agreement: India’s initial trade agreement was a Preferential Trade Agreement (PTA) known as the Bangkok Agreement in 1975, which was renamed the Asia-Pacific Trade Agreement in 2005.
    • In a PTA, tariffs are reduced but not completely removed, offering preferential access to goods from the participating countries.
  • India-Sri Lanka FTA, 1998: Marking India’s first agreement where duties were entirely eliminated on a significant number of tariff lines/goods.
  • Post-‘Look East Policy’: The announcement of the Look East Policy led to a series of agreements with East Asian nations, enhancing India’s trade relationships in the region.
  • India has signed as many as 14 free trade agreements (FTAs), including with the four-nation European bloc EFTA, and six preferential pacts with its trading partners to promote exports and ensure greater market access for domestic goods and services.
  • Since 2014, the country has signed three such agreements with Mauritius, the UAE and Australia, and the latest edition in the list is EFTA.

Benefits OF FTAs

  • Market Access: Negotiating trade deals allows for zero-duty entry into markets of partner countries, facilitating the diversification and expansion of exports.
  • Competitive Equality: Trade agreements level the playing field with competitors who may benefit from existing FTAs with those countries.
  • Preferential Treatment: FTAs grant favourable treatment in partner markets over competitors from non-FTA countries.
  • Investment Incentive: Such agreements draw foreign investment, boosting domestic manufacturing.
  • Resource Access: They provide access to essential raw materials, intermediate products, and capital goods necessary for value-added manufacturing.
  • Long-term Goals: Trade agreements aim for long-term efficiency and enhance consumer welfare.

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What is the European Free Trade Association (EFTA)?

  • About: The European Free Trade Association (EFTA) consists of Iceland, Liechtenstein, Norway, and Switzerland.
  • Establishment: In 1960 through the Stockholm Convention.
  • Aim: To promote free trade and economic integration among its members.
  • Relationship with EU: EFTA operates alongside the European Union (EU), with all members participating in the European Single Market and the Schengen Area but not in the EU Customs Union.
  • Main Objectives:
    • To maintain and develop the EFTA Convention, which governs economic relationships among the EFTA states.
    • To manage the European Economic Area (EEA) Agreement, integrating the EU and three EFTA states (Iceland, Liechtenstein, Norway) into a single market.
    • To expand EFTA’s global network of free trade agreements.
Facts
  • Switzerland is India’s largest EFTA trading partner, followed by Norway.
  • India-EFTA two-way trade was USD 18.65 billion in 2022-23.

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