Types of Trade Agreements

Regional Trade Agreements

The UPSC aspirants often come across with words like FTA, PTA, CEPA, etc while reading newspapers. These similar-sounding words often confuse the aspirants, and hence this article is to assist you in your preparation and help you achieve your goal of clearing UPSC CSE 2022.

What is a trade agreement?

• Trade agreements is an agreement between two or more countries for specific terms of trade, commerce, transit or investment. They mostly involve mutually beneficial concessions, including both trade and non-trade concessions.

Types of Trade Agreements

• There are a few types of trade agreements, depending on the terms and concession agreed on by the participating bodies.

Framework agreement

• Framework agreement primarily defines the scope and provisions of orientation of the potential agreement between the trading partners.
• Framework agreement provides for some new area of discussions and set the period for future liberalisation.
• India has previously signed framework agreements with the ASEAN, Japan etc.

Early Harvest Scheme

• An Early Harvest Scheme (EHS) is a precursor to an FTA/CECA/CEPA between two trading partners.
• For example: early harvest scheme of RCEP has been rolled out. At this stage, the negotiating countries identify certain products for tariff liberalization pending the conclusion of actual FTA negotiations.
• An Early Harvest Scheme is thus a step towards enhanced engagement and confidence building.

Preferential Trade Agreement (PTA)

• PTA is a type of agreement in which two or more partners give preferential right of entry to certain products. This is done by reducing duties on an agreed number of tariff lines.
• In this trade agreement, a positive list is maintained i.e., the list of the products on which the two partners have agreed to provide preferential access.
• Tariff may even be reduced to zero for some products even in a PTA.
• For example: India signed a PTA with Afghanistan and MERCOSUR–a South American trade bloc.

Free Trade Agreement

• A free trade agreement (FTA) is an agreement where two or more countries agree to provide preferential trade terms, tariff concession etc. to the partner country.
• In this agreement, a negative list of products and services is maintained by the negotiating countries on which the terms of FTA are not applicable hence it is more comprehensive than preferential trade agreement.
• India has signed FTA with many countries e.g., Sri Lanka, along with some trading blocs like ASEAN (Association of Southeast Asian Nations).

Comprehensive Economic Partnership Agreement (CEPA)

• Partnership agreement or cooperation agreement are more comprehensive than an FTA.
• CECA/CEPA also looks into the regulatory aspect of trade and encompasses and agreement covering the regulatory issues.
• CECA have the widest coverage. CEPA covers negotiation on the trade in services and investment, and other areas of economic partnership.
• CEPA may even consider negotiation on areas such as trade facilitation and customs cooperation, competition, and IPR (intellectual property rights).
• For example: India has signed CEPAs with South Korea and Japan.

Comprehensive Economic Cooperation Agreement (CECA)

• CECA generally cover negotiation on trade tariff and TQR rates only. It, however, is not as comprehensive as CEPA. India has signed CECA with Malaysia.

Customs Union

• A customs union is an agreement between two or more countries to remove trade barriers and lower or eliminate tariffs. Members of a customs union generally apply a common external tariff on imports from non-member countries.

Economic Union

• An economic union is an agreement between two or more nations to allow goods, services, money and workers to move over borders freely.
• The countries may also coordinate social and financial policies to support this common market. The European Union (EU) is an example of an economic union.

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