[Editorial Analysis] Reaping the early harvest

Mains Paper 3: Economy
Prelims level: Free Trade Agreement
Mains level: India and its FTAs Mechanism

Context:

• To fast-track, its Free Trade Agreement (FTA) negotiations with several nations, India is keen to conclude an early harvest trade deal with few countries by liberalizing tariffs on select goods.

• This FTA rethink policy of India has been welcomed by many experts because it marks India’s departure from India’s trade protectionism.

Why good move?

• It will end the high tariff regime that has been following for the last 5 years.

• Which revitalizes India’s tariff liberalization policy.

• It will end the protectionism and help India to reap the FTAs benefits.

What is Free Trade Agreement:

• A Free Trade Agreement is an agreement between countries to reduce or eliminate trade barriers. Trade barriers include tariff barriers like taxes and non-tariff barriers like regulatory laws.

• Trade barriers include tariff barriers like taxes and non-tariff barriers like regulatory laws.

• A Free Trade Agreement or FTA is an agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights, among other topics.

FTAs and WTO System:

• FTAs are deal with both the economics and International law aspect.

• Though any Country can sign FTA with any other country based on their mutual interests, but this freedom is circumscribed by the international rules contained in the WTO.

• On this front, WTO created a Most Favoured Nation(MFN) system to prohibit countries from discriminating between their trading partners.

• So, an FTA is inconsistent with the MFN rule because it gives preferential treatment to one trading partner at the cost of other trading partners.

• Also, WTO has allowed FTAs on the following condition:

1. To eliminate customs duties and other trade barriers on substantially all the trade between the FTA member countries.

2. This substantially all trade cover a high proportion of trade between the FTA member countries.

3. The rationale for this requirement is to make FTAs departure from the MFN principle difficult.

Early harvest and its significance:

• An early harvest deal is a precursor to a free trade agreement (FTA), in which trading partners reduce tariff barriers on limited goods to promote trade.

• The early harvest deals are highly significant for India’s Free Trade Agreements because it helps in focus on selective tariff liberalisation that could be potentially challenged.

• For instance, many recent early harvest deals of India such as Australia’s would cover half of the goods trade which is way below the legal agreement of WTO’s Substantially rule and is vulnerable to the legal challenge at the WTO’s dispute settlement mechanism.

• However, the early harvest trade deals are saved from those challenges because they are designed and presented as interim agreements of the potential FTA.

Also, WTO rules allow Early harvest trade deals subject to the following conditions:

• Countries can enter into an interim agreement provided it is necessary for the free trade area formation.

• In other words, for the early harvest deal to be consistent with the WTO requirements, it needs to pass the necessity test.

• The deal should include a plan for the formation of an FTA within a reasonable period.

• The interim agreement should be notified to the WTO members to make recommendations on it.

Conclusions:

• The early harvest deals are India’s ticket to full-fledged FTAs and India should pursue it to revitalize the tariff liberalization policy of the 1990s.

• However, India needs to be cautious of all the legal requirements regarding the strategy of arriving at early harvest trade deals before signing a full FTA.

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Prelims Questions:

Q.1) With reference to the Singapore-India Maritime Bilateral Exercise (SIMBEX), consider the following statements:

1. It was taken place in the southern fringes of the South China Sea.

2. Initiated in 2000, SIMBEX is the Indian Navy’s longest uninterrupted bilateral maritime exercise with any foreign navy.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: A

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