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US not interested in trade pact

General Studies – 3

Topics covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment


Context: Recent comment by Minister of Commerce and Industry about the prospects of US-India bilateral free trade agreement being very bleak now

Other key highlights of the speech

  •       This is the first time the position of the new administration has been made official by both the government
  •       Despite this, both the countries have resolved to step up effort to resolve trade issues between them
  •       Some of the trade issues between the two countries include: non-tariff barriers, entering mutual recognition agreements, aligning of quality international standards
  •       The minister also hoped a bilateral FTA would be signed with Bangladesh soon
  •       He also expressed confidence that India would soon be signing ‘Early harvest deal’ with Australia soon
  •       Similar treaty is expected to signed between UK, UAE and other Gulf Cooperation Council (GCC) in due course of time

Key terminologies to be understood and remembered:

  1.     Free trade agreement
  • A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them.
  • Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
  • The benefits of free trade were outlined for the first time in On the Principles of Political Economy and Taxation, published by economist David Ricardo in 1817.
  • According to the Asian Development Bank Institute, as of now, India has 42 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed.

Figure: Various stages of trade integration

  1.  Early harvest deal: 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.
  2. Tariff and non-tariff barriers
  • Tariff barriers are the tax or duty imposed on the goods which are traded to/from abroad. On the contrary, non-tariff barriers are the obstacles to international trade, other than tariffs.
  • These are administrative measures implemented by the country’s government to discourage goods brought in from foreign countries and promote domestically produced items.
  •  Tariff barriers is imposed through Taxes and Duties
  • Non-tariff barriers are imposed through Regulations, Conditions, Requirements, Formalities, etc.