Simplified: Different Types of Trade Agreement
What is a Trade Agreement?
As defined by the Trade Promotion Council of India, a trade agreement is an accord between countries for specific terms of trade, commerce, transit or investment. A trade agreement may be between two or more countries (e.g. India & China) or a country and a regional trading bloc (e.g. India & European Union, India & ASEAN, etc.) Trade agreements usually involve mutually beneficial concessions.
Based on the terms and concession agreed on by the countries or participating bodies, there are classified into different types of trade agreements as mentioned below:
- Preferential Trade Agreement (PTA)
- Free Trade Agreement (FTA)
- Comprehensive Economic Cooperation Agreement (CECA)
- Comprehensive Economic Partnership Agreement (CEPA)
Preferential Trade Agreement (PTA)
- In PTA, two or more partners/countries agree to preferential right of entry to certain products by reducing duties on an agreed number of tariff lines.
- In PTA, partners maintain a positive list of goods i.e. the list of the goods on which the two partners have agreed to provide preferential access. Tariff for certain goods may even be reduced to zero even in a PTA.
- For example, India signed a PTA with Afghanistan and India MERCOSUR PTA.
Free Trade Agreement (FTA)
- In FTA, two or more countries agree to reduce or eliminate customs tariff and non-tariff barriers on
substantial trade between them. - In FTA, partner countries maintain a negative list of products and services on which the terms of FTA are not applicable.
- Hence FTA is more comprehensive than a PTA, i.e. the coverage of tariff lines (products) on which duty is to be reduced is more ambitious in FTA.
- India has negotiated FTA with several countries e.g. Sri Lanka, Singapore, Malaysia, Japan and Korea and various trading blocs as well e.g. India ASEAN FTA.
Comprehensive Economic Cooperation Agreement (CECA)
- CECA is a FTA between two or more countries but more comprehensive and ambitious than FTA. CECA generally covers negotiation on trade tariff and Tariff-Rate Quota (TRQ) only.
- That means, it is a cooperation between partner countries to eliminate tariffs on all items of negative list and implementation of TRQ rates.
- For example, India has signed CECA with Malaysia.
Comprehensive Economic Partnership Agreement (CEPA)
- CEPA is more comprehensive than CECA.
- CEPA is a FTA that also covers negotiation on the trade in goods, services and investment and other areas of economic partnership- negotiation on areas such as trade facilitation and customs cooperation, competition, and Intellectual Property Rights (IPR).
Early Harvest Scheme (EHS)
During this stage, the negotiating countries/partners identify certain products for tariff liberalization/reduction pending the conclusion of actual FTA negotiations. Hence, EHS is called a precursor to FTA.
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