Major Free Trade Agreements (FTAs) of Asia
- Scales and States Team
- Jul 21, 2020
- 7 min read
India has benefitted overall from the free trade agreement signed with its trade partners from the perspective of trade as well as improving the relations amongst the various nation states. Here's more on the Major Free Trade Agreements (FTAs) of Asia.
As per the Economic Survey 2019-20 “From the perspective of trade balance, India has gained in terms of 0.7 per cent increase in the trade surplus per year for manufactured products and 2.3 per cent increase in trade surplus per year for total merchandise.”
Be it Regional Comprehensive Economic Partnership, the trading bloc which India had actively pursued its membership in, until recently when it chose to withdraw citing that India runs a large trade deficit with RCEP countries and was expecting specific protection for its industries and farmers from a surge in imports, especially from China, or other bilateral deals, India has had a history of long drawn Preferential and even Free Trade Agreements with its neighbours. Time and again it has been seen that amongst corridors of global diplomacy, money and muscle have had the last word. And it becomes all the more relevant, given the context of recent clashes at Galwan Valley.
Let us take a look at some of the prominent Free Trade Agreements that India entered into:
1. South Asian Free Trade Agreement
South Asian Free Trade Agreement signed between Bangladesh Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka was brought into effect on 1st January, 2006 with the desire to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.
SAFTA agreement has been in effect since 2006 but with little success. The basic principles underlying the SAFTA were as follows:
Overall reciprocity and mutuality of advantages so as to benefit equitably all Contracting States, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems;
Negotiation of tariff reform step by step, improved and extended in successive stages through periodic reviews;
Recognition of the special needs of the Least Developed Contracting States and agreement on concrete preferential measures in their favour;
Inclusion of all products, manufactures and commodities in their raw, semi-processed and processed forms.
Purpose of the agreement was to promote competition in the area and to provide equitable benefits to the countries involved.
It has been observed and has been opposed by the Solvent Extractor’s Association of India that traders use the SAFTA to reroute palm oil through Bangladesh and Nepal into India. The Solvent Extractors’ Association of India (SEA), the apex body of the vegetable oil trade, has called upon the government to look for ways to end indirect sourcing of palm oil and soy oil from Nepal and Bangladesh under cover of the South Asian Free Trade Agreement (SAFTA).
2. Indo - Sri Lankan Free Trade Agreement
The Indo-Sri Lanka Free Trade Agreement (ISFTA), which was signed on 28th December 1998 and entered into force with effect from 1st March 2000, provided duty free concessions to a wide range of products traded between the two countries.
Sri Lanka’s final tariff liberalisation commitment under ISFTA came into effect since November 2008 and with this completion of the commitment had been fully implemented. However, Sri Lanka has already got a fully duty-free access to the vast Indian market under the ISFTA since the end of March 2003. Thus, the entrepreneurs based in Sri Lanka were able to export more than 4000 product lines to the Indian market on duty free basis.
The objective of the agreement was to:
(i) To promote through the expansion of trade the harmonious development of the economic relations between India and Sri Lanka.
(ii) To provide fair conditions of competition for trade between India and Sri Lanka.
(iii) In the implementation of this Agreement the Contracting Parties shall pay due regard to the principle of reciprocity.
(iv) To contribute in this way, by the removal of barriers to trade, to the harmonious development and expansion of world trade.
The agreement was implemented as the existing preferential trade agreements, such as the Asia-Pacific Trade Agreement (APTA), SAPTA and Generalized System of Trade Preferences (GSTP) did not prove to be effective in facilitating trade between both the countries as both were based on commodity-to-commodity based negotiations and were not deep enough to stimulate flows of traded goods. Rather the agreement was based on ‘negative-list’ approach, where all tariff lines apart from those listed in the negative list were subject to zero-duty at the end of implementation.
3. India- Bhutan Agreement on Trade, Commerce and Transit
Under this Agreement, India provided transit facilities to landlocked Bhutan to facilitate its trade with third countries. The agreement was signed in 2006 and was valid for a period of ten years. In July, 2016 the agreement was mutually extended, right before it was about to expire. Later a new agreement on Trade, Commerce and Transit came into force with effect from 29th July, 2017. The major items exported from Bhutan to India are electricity, base metals, minerals, chemicals, cement and wood. On the other hands, major exports from India are petroleum products, minerals products, machinery, automobiles, vegetables, nuts, species, processed food and animal products.
4. Revised Indo-Nepal Treaty of Trade
The Treaty aimed at improving bilateral trade between the two countries by increasing the mutually agreed points of trade, expansion in the list included for preferential trade, simplification of trade, procedures, improving Nepalese supply capacities, provision of two-level institutional mechanism for problem resolution etc. The revised trade treaty, valid for seven years, was signed on October 27, 2009. It was automatically renewed for an additional period of seven years in October, 2016.
For Nepal, the trade deficit has been continuously increasing with India. Nepal’s trade deficit with India was about 60% of its total trade deficit, in the first ten months of fiscal year 2019-20. India covers for over two-third’s of Nepal’s merchandise trade, about one third of trade in services, one third of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners, professionals and workers in India.
5. India - Thailand FTA
India and Thailand had signed protocol to implement Early Harvest Scheme under India-Thailand Agreement. The two countries had already abolished duties on 82 items under an 'Early Harvest Scheme' launched in 2004, which included products like fruits, processed food, gems and jewellery, iron and steel, auto parts and electronic goods.
Thailand is the second largest economy in the association of Southeast Asian Nations and Greater Mekong Subregion. Two-way trade in 2016 totalled US$ 7.72 billion, with about US$ 5.15 billion in Thai exports to India and US$ 2.57 billion in Indian exports to Thailand. A target of increasing bilateral trade from $8.5 billion in 2015-16 to $16 billion by 2021 has been set by businesses from both countries.
6. India - South Korea Comprehensive Economic Partnership Agreement
Both countries committed to lower and eliminate import on a wide range of goods, for 10 years and expansion of opportunities for investments and exchanging services. Further agreement were to provide better access to service industry such as Information Technology, Engineering, Finance, and Legal Field.
In 2017-18, India exported goods worth US$ 4.4 billion to South Korea while the imports from South Korea were worth US$ 16.3 billion. South Korea’s main export items include automobile parts, telecommunication equipment, hot-rolled iron products, petroleum refined products, base lubricating oils, nuclear reactor equipment, mechanical and electrical appliances. In 2018, both the countries agreed to tariff concession on 11 additional items.
7. India - Singapore Comprehensive Economic Cooperation Agreement
India-Singapore CECA was the first comprehensive FTA India signed with any country. It eliminated tariff barriers, double taxation, duplicate process and regulation and provided unhindered access and collaboration between the financial institutions of Singapore and India. It focused on enhanced bilateral collaboration related to education, technology and intellectual property.
In the fiscal 2017-18, the bilateral trade between Singapore and India amounted to US$ 25.2 billion and India was Singapore’s largest trading partner in South Asia, while Singapore was India’s second-largest trading partner within the ASEAN (Association of South East Asian Nations)
8. India - Malaysia Comprehensive Economic Cooperation Agreement
Under the CECA, India and Malaysia had offered commitments over and above the commitments offered by them under ASEAN -India Trade in Goods Agreement. Key items on which Malaysia had offered market access to India are basmati rice, mangoes, eggs, trucks, motorcycles and cotton garments which are all items of considerable export interest to India.
The CECA also facilitated the temporary movement of business people including contractual service suppliers, and independent professionals in commercially meaningful sectors including accounting and auditing, architecture, urban planning, engineering services, medical and dental, nursing and pharmacy, Computer and Related Services (CRS), and Management Consulting Services.
9. India - Japan Comprehensive Economic Partnership Agreement
The India-Japan Comprehensive Economic Partnership Agreement (CEPA) was signed in February 2011 and came into effect on 1 August 2011. The agreement was arrived at after four years of extended negotiations and basically consisted of agreed measures on liberalisation of bilateral trade in goods, trade in services and investment. Japan and India are the second and the third largest economies in Asia. The CEPA between them was founded on the basis of complementarities of their economies.
India’s share in Japan’s total FDI stock worldwide is, however, only 1.14 per cent as per JETRO statistics. India’s share in Japan’s total FDI stock worldwide is, however, only 1.14 per cent while China (8.69 per cent) and smaller ASEAN economies like Thailand (4.36 per cent), Singapore (3.80 per cent), and Indonesia (1.97 per cent) have far higher shares according to the JETRO statistics.
Globally, FTAs have become important vehicles to build partnerships for greater trade and investment cooperation. Even as we seek to craft new FTAs, optimising benefits from existing FTAs should be an important objective. More outreach efforts are certainly needed domestically not only for a better understanding of FTAs and its various provisions among all the stakeholders, but also how to utilise them for greater benefit.
References/ Further Readings:
Know more:
This story is part of a four part series on the the Free Trade Agreements in place in Asia and how they factor into the India-China Trade Policy conundrum.
Do more:
Have a look at this piece about India's trade connectivity in South Asia, or reach out to us at submissions.scalesandstates@gmail.com for feedback, queries, and sharing your thoughts.
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