India-UK relation (Historical Significance)
- East India Company (1600–1857): Trade was established between Tudor England and Mughal India in 1600 when Elizabeth I granted the newly formed East India Company a royal charter.
- Following the Indian Mutiny of 1857, where Indian sepoys rebelled against their British officers, the East India Company was dissolved the following year.
- British Raj (1858–1947): In 1858, the British Government assumed direct control of the territories and treaty arrangements of the former East India Company.
- Opposition to British rule increased, both through violent revolutions and through nonviolent resistance which eventually led to Indian independence in 1947.
- In 1950 India became a Republic and the link with the British crown was severed.
- India decided to remain in the Commonwealth of Nations after becoming a Republic. Both Britain and India have since pursued quite divergent diplomatic paths.
- India is the third largest foreign investor in the UK.
- There are many bilateral trade agreements between the two nations designed to strengthen ties.
- The British government has chosen India as one of its most influential trade partners because it is one of the “fastest growing economies in the world.”
- The upcoming UK’s post-Brexit plan would be substantial scope for further strengthening bilateral cooperation across a range of sectors, including science & technology, finance, trade & investment, and defense & security between the two countries.
- Politically, relations between India and the UK occur mostly through the multilateral organisations of which both are members, such as the Commonwealth of Nations, the World Trade Organisation and the Asian Development Bank.
- After becoming the Prime Minister of the United Kingdom, Cameron was actively involved in enhancing the Indian-British relationship on various dimensions, such as business, energy security, climate change, education, research, security and defense, and international relations.
Free Trade Agreements (FTAs)
- FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them.
- FTAs normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc.)
- FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy, etc.
- 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.
Early harvest scheme
- Early harvest scheme is a precursor to a free trade agreement (FTA) between two trading partners. This is to help the two trading countries to identify certain products for tariff liberalisation pending the conclusion of FTA negotiation.
- It is primarily a confidence building measure.
- A good example of an EHS is between India and Thailand signed in October 2003, wherein 83 products were identified to be reduced to zero in a phased manner.
- The EHS has been used as a mechanism to build greater confidence amongst trading partners to prepare them for even bigger economic engagement.
How is FTA implemented?
- The tariff concessions in an FTA are implemented at the ground level through customs notifications.
- In the case of phased implementation of concessions, the notifications are issued on a yearly basis and are available on the website of the Central Board of Excise and Customs
India’s Position worldwide
- 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
India has FTAs with
- ASEAN (ASEAN–India Free Trade Area)
- European Union (negotiations stalled) & European Free Trade Association (EFTA) (negotiations stalled)
- Sri Lanka
- Thailand (separate from FTA agreement with ASEAN)
- Malaysia (separate from FTA agreement with ASEAN)
- South Korea
- South Asia Free Trade Agreement (SAFTA)
Rules of Origin in FTA context
- Rules of origin (ROO) are the criteria needed to determine thecountry 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
- The Rules of Origin are important in the context of making an assessment on the application of preferential tariff under an FTA.
- Hence, without the rules of origin, the preferential tariffs under an FTA cannot be implemented.
- Moreover, the non-members to the FTA are not provided with the benefit of the preferential tariffs, agreed between the FTA partners.
Benefits of joining FTA
- By eliminating tariffs and some non-tariff barriers FTA partners get easier market access into one another’s markets.
- Exporters prefer FTAs to multilateral trade liberalization because they get preferential treatment over non-FTA member country
- For example in the case of ASEAN, ASEAN has an FTA with India but not with Canada.
- ASEAN’s custom duty on leather shoes is 20% but under the FTA with India it reduced duties to zero.
- Now assuming other costs being equal, an Indian exporter, because of this duty preference, will be more competitive than a Canadian exporter of shoes.
- Also FTAs may also protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs.
- Possibility of increased foreign investment from outside the FTA.
- Consider 2 countries A and B having an FTA. Country A has high tariff and large domestic market.
- The firms based in country C may decide to invest in country A to cater to A’s domestic market.
- However, once A and B sign an FTA and B offers better business environment, C may decide to locate its plant in B to supply its products to A.