TRADE AGREEMENTS – THE INDIAN PERSPECTIVE
ADVANTAGES OF TRADE AGREEMENTS
Broad overview of the benefits provided by trade agreement to Indian exporters are as follows:
1. Tariff reduction – Widely known benefit of an FTA or PTA is reduced tariff for the offered product list for example in India-MERCOSUR PTA, MERCOSUR offered preferential tariff reduction ranging from 10% to 100% on 450 listed products. It allows exporters to access the market at lower tariff hence provides competitive final prices for the exporters of a partner country.
2. Access to new markets – Trade with MERCOSUR saw a significant growth post the FTA. The FTAs give easier and competitive access to the exporters as well as importers in the partner countries. For example copper wires import from Malaysia saw a sudden spike post the signing of India –ASEAN FTA in 2010. It not just leads to trade creation as in the case of bituminous coal import from Indonesia but also causes trade diversion from one country to other.
3. Trade risk diversification – Increasing the diversification in terms of product basket and diversification countries help in hedging the unfavourable consequences on global and national trade due to geopolitical turmoil e.g. Oil crisis after Iran imbroglio, rift in GCC and incidental issues that are on rise in 21st century.
4. Innovation and competition – Generally better market integration tend to enhance competition thereby it pushes the industry towards innovation benefitting consumers in long run.
5. Technology transfer and increased integration – Increased trade leads to better integration of market and also facilitate transfer of skills and technology.