India’s tryst with trade agreements first started in 1975 with the signing of the Asia Pacific Trade Agreement or APTA. The country emerged into more comprehensive FTA in the SAARC region through small bilateral trade treaties with Nepal and Bhutan. The first proper FTA signed by India was with Sri Lanka in 1998. Since then the country has been engaged in a number of FTAs which are listed in the table below

Some observations on India’s FTA engagements: As of May, 2022, India is a part of 12 FTAs and four PTAs which are listed in the table below

Source: ADB

Apart from the above, India is also currently negotiating FTAs with some of its major partners including Canada, United Kingdom (UK), European Union (EU) and Israel.

While India does not specifically focus on LDCs due to various issue, they can become important markets. Infact Some LDCs such as Bangladesh and Nepal already feature in the top 25 destinations for India’s engineering exports. ASEAN LDCs including Myanmar, Cambodia and Lao PDR offer great potential for India’s engineering exports. Furthermore various other LDCs such as Ethiopia, Tanzania, Senegal, Lesotho, Djibouti and Liberia can become potential markets for India. Given the importance of LDCs during the 2008 WTO Ministerial and their need for assistance, all developed and developing countries pledged to extend Duty Free Quota Free (DFQF) benefits whereby products from the LDCs can be exported duty free. India also extends such scheme to its LDC partners. Extension of DFQF scheme can enable the Indian exporters export their products from the LDCs to other markets duty free under the DFQF scheme. Since independence, India’s total as well as engineering exports have exhibited significant growth. Engineering exports grew from only USD 0.01 billion in 1955-56 to USD 112 billion in 2021-22.

India has adopted a more open and aggressive stance on FTAs. The government’s current FTA strategy is focusing on peaceful nations with whom India does not have significant trade deficit and which have major demand for Indian exports.

India signed the CEPA with UAE on 18th February, 2022 and is also India’s first comprehensive agreement signed in over a decade. The CEPA was operationalised on 1st May 2022. As per our analysis the CEPA would be instrumental in taking India’s engineering exports to UAE to USD 9.2 billion in the next five years or so from the current 5.5 billion. The India -UAE CEPA is also expected to further India’s chance to have expected to pave the way for a more comprehensive trade agreement with the entire GCC or Gulf Cooperation Council. It needs to be mentioned here that GCC has already launched FTA negotiations with China, Japan, Korea and ASEAN. In fact the GCC-South Korea trade deal is expected to be concluded in just six months. The CEPA with UAE therefore is expected to provide level playing field for Indian exporters in the UAE market. Another important aspect of this CEPA is that it would act as a gateway for India to several regions of the world that had not yet been so smooth for India to penetrate. UAE is called the capital of the mid-east for its geographical location. Its proximity to central Asia, Africa and other gulf countries would help India expanding its businesses in those regions. The CEPA, therefore, along with the other benefits would act as a gateway for India in expanding businesses in Gulf region, Central Asia and a part of Africa.

India signed the Economic Cooperation and Trade Agreement (ECTA) with Australia on 2nd April 2022. While the FTA will take some time for implementation given the upcoming Australian election, we are expecting approximately 10% growth in engineering exports to Australia in the first two years and 15% thereafter. Engineering exports has been projected to grow to USD 2230 million in the next five years or so. Under this ECTA, Australia will provide duty-free access in its market for over 95 percent tariff lines exported by India including textiles, leather, furniture, jewellery, machinery and select medical devices. On the other hand, India’s offer includes immediate tariff elimination on 40 percent of its tariff lines comprising 85 percent of Australia’s exports in value terms to India and another 30.3 percent of its tariff lines for elimination or reduction of tariffs in 3, 5, 7 and 10 years’ time period. Engineering is one of the major sectors that will be benefited due to tariff rationalization.

Some of the benefits of FTA are:

• It enhances trade as a whole as the participating nations get the benefit of reduced or zero tariff to export to partner countries.
• It facilitates international specialization as it enables countries to produce goods in which they have a comparative advantage.
• FTA encourages industries to take advantage of economies-of-scale and helps increasing production in turn. Global production and hence, consumption increases at a rapid pace.
• FTA enhances competition and reduces the scope of monopoly in industries.
• FTA opens market access and deepen international linkages for the participating nations not only in the partner countries but also in other countries that are located surrounding the partner countries or in that region.
• FTA increased productivity and also ensures higher earnings of the factors of production.
• It ensures optimum utilization of resources. Under free trade, each country produces those goods in which it has the best advantages, the resources of each country are utilized in the best possible manner.
• It brings benefits to consumers as the market size for all the goods traded under an FTA increases.

Preferential Trade Agreement (PTA): In a PTA, two or more partners agree to reduce tariffs on agreed number of tariff lines. The list of products on which the partners agree to reduce duty is called positive list. India MERCOSUR PTA is such an example. However, in general PTAs do not cover substantially all trade. 

Free Trade Agreement (FTA): In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries; however each maintains individual tariff structure for non-members. India Sri Lanka FTA is an example. The key difference between an FTA and a PTA is that while in a PTA there is a positive list of products on which duty is to be reduced; in an FTA there is a negative list on which duty is not reduced or eliminated. Thus, compared to a PTA, FTAs are generally more ambitious in coverage of tariff lines (products) on which duty is to be reduced.

Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA): These terms describe agreements which consist of an integrated package on goods, services and investment along with other areas including IPR, competition etc. The India Korea CEPA is one such example and it covers a broad range of other areas like trade facilitation and customs cooperation, investment, competition, IPR etc.

Custom Union: In a Customs union, partner countries may decide to trade at zero duty among themselves, however they maintain common tariffs against rest of the world. An example is Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana and Swaziland. European Union is also an outstanding example.

Common Market: Integration provided by a Common market is one step deeper than that by a Customs Union. A common market is a Customs Union with provisions to facilitate free movements of labour and capital, harmonize technical standards across members etc. European Common Market is an example.

Economic Union: Economic Union is a Common Market extended through further harmonization of fiscal/monetary policies and shared executive, judicial & legislative institutions. European Union (EU) is an example.

For the purposes of FTAs, the "base rate" is the critical element in all aspects of negotiations/phasing that are carried out. The base rate is the applied MFN duty of any year which is decided mutually. In an FTA tariff reduction is generally undertaken with reference to the base rate i.e. from the applied MFN tariffs. However, the WTO negotiations are always based on "bound duty rates" and not the MFN applied duties.

A Comprehensive Economic Cooperation Agreement (CECA) or a Comprehensive Economic Partnership Agreement (CEPA) is different from a traditional Free Trade Agreement (FTA) on two counts.

Firstly, CECA/CEPA are more comprehensive and ambitious that an FTA in terms of coverage of areas and the type of commitments. While a traditional FTA focuses mainly on goods; a CECA/CEPA is more ambitious in terms of a holistic  coverage of many areas like services, investment, competition, government procurement, disputes etc.

Secondly, CECA/CEPA looks deeper at the regulatory aspects of trade than an FTA. It is on account of this that it encompasses mutual recognition agreements (MRAs) that covers the regulatory regimes of the partners. An MRA recognises different regulatory regimes of partners on the presumption that they achieve the same end objectives.

India has preferential access, economic cooperation and Free Trade Agreements (FTA) with about 54 individual countries. India has signed bilateral trade deals in the form of Comprehensive Economic Partnership Agreement (CEPA)/Comprehensive Economic Cooperation Agreement (CECA)/FTA/Preferential Trade Agreements (PTAs) with some 18 groups/countries. India is a late, and cautious, starter in concluding comprehensive preferential tariff agreements covering substantially all trade with some of its trading partners.

Rules of origin (ROO) are the criteria needed to determine the country of origin of a product for purposes of international trade.Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports. Rules of origin are used:

• To implement measures and instruments of commercial policy such as anti-dumping duties and safeguard measures;
• To determine whether imported products shall receive most-favoured-nation (MFN) treatment or preferential treatment;
• For the purpose of trade statistics;
• For the application of labelling and marking requirements; and
• For government procurement.

The criteria in the rules of origin sets out specific and detailed conditions on the level of processing that an imported item from a non FTA partner country must undergo in the FTA partner country (or other eligible countries in the region) before being eligible to be called an originating product of a FTA partner country. Some of the common criteria used are

• Change in tariff classification (this could be at the tariff chapter, tariff heading or tariff sub heading level)
• Regional value addition
• Substantial manufacturing or processing by excluding some minimal operations.

The criteria in the rules of origin sets out specific and detailed conditions on the level of processing that an imported item from a non FTA partner country must undergo in the FTA partner country (or other eligible countries in the region) before being eligible to be called an originating product of a FTA partner country. Some of the common criteria used are

• Change in tariff classification (this could be at the tariff chapter, tariff heading or tariff sub heading level)
• Regional value addition
• Substantial manufacturing or processing by excluding some minimal operations.

The rules of origin are enforced through a certificate of origin that is issued by authorised agencies of the trading partner. An exporter cannot avail of the customs tariff preferences under the FTA without submitting this certificate of origin from the authorised agency.

Details can be viewed in the link given below.

The exporters would need to apply to the authorised agencies for issuance of the certificate of origin. The fee structure i.e. for the sale of blank form, certification fee and other charges (such as tatkal services) are available on the website of Export Inspection Council (EIC) at www.eicindia.gov.in.

For the purposes of claiming the preferential tariff treatment for an originating good of the exporting Party, a certificate of origin is submitted to the customs authority of the importing Party by the importer, together with the documents required for the importation of the good in accordance with the laws and regulations of the importing Party. The details regarding certification and verification are set out in the individual FTA provisions.

SPS measures is an acronym for “sanitary and phytosanitary” measures and broadly includes measures for the protection of plant, animal and human health. S.No 1 of Annex A of the World Trade Organisation’s (WTO’s) SPS Agreement describes these measures in detail. TBT is an acronym for “technical barriers to trade” and broadly includes standards, technical regulations and conformity assessment procedures as defined in WTO’s TBT Agreement. Since SPS and TBT could be barriers to trade, many FTAs deal with them.

Some of the non-tariff measures that feature in FTA chapters are:

• Customs procedures
• Import licencing procedures
• Trade documentation
• Pre-shipment inspections

The Mutual recognition relates with qualifications, academic certifications and experience requirements in services. A Mutual Recognition Agreement (MRA) is an agreement by which two or more countries agree to recognize one another's conformity assessments. In Services, these are applied on the recognition of professional qualifications.

Regulatory bodies of various professional services like engineering, accountancy, architecture etc. are encouraged to enter into a mutual recognition agreement (Article VII: 4b) with their counterparts