Types of Trade Agreements

Table of Contents

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.