India-EFTA Trade and Economic Partnership Agreement

Table of Contents

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

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.