Are Trade Agreements beneficiary for exporters and importers?

So we all hear about trade agreements & deals between countries so often. As an Exporter or Importer you might be wondering, are these Trade Agreements beneficiary for exporters and importers?

In our blog, How can trade agreements lower import / export prices?, we talked about the ABC’s of free trade along with an example that how they can help Indian exporters and importers.

Today we will have a detailed look at the benefits offered by Trade agreements for both the country as well as its traders. And then we shall look over the potential of Indian goods.

Benefits of Free Trade Agreement

Exporters prefer FTAs to multilateral trade liberalization because they get preferential treatment over non-FTA member country competitors. For example in the case of ASEAN, ASEAN has an FTA with India but not with Canada. ASEAN's custom duty on leather shoes is 20% but under the FTA with India it reduced duties to zero. Now assuming other costs being equal, an Indian exporter, because of this duty preference, will be more competitive than a Canadian exporter of shoes. Secondly, FTAs may also protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs.
Possibility of increased foreign investment from outside the FTA. Consider 2 countries A and B having an FTA. Country A has high tariff and large domestic market. The firms based in country C may decide to invest in country A to cater to A's domestic market. However, once A and B sign an FTA and B offers better business environment, C may decide to locate its plant in B to supply its products to A.
Such occurrences are not limited to tariffs alone but it is also true in the case of non-tariff measures. Especially when a Mutual Recognition Agreement (MRA) is reached between countries A and B.

After a free trade agreement was signed between India and Sri Lanka, the total market size in GDP terms was increased from US$491 billion in 2000 to US$ 1907 billion in 2011 which is quite a huge growth. It created a great market for Indian products and helped in job and business creation for Indian exporters.

# Indian Exports, Which sectors we Lead with

India is a leading exporter of following products in the mentioned nations where it gets preferential benefits due to the trade agreements –

Tea and spices to Australia and New Zealand and other countries falling in Oceania region.
Indian grown spices are in huge demand all over the world.
Marine products, fruits and vegetables, cereals (excluding rice), processed food, organic chemicals, pharmaceuticals etc to Indonesia, Malaysia and Thailand.
Jewellery, precious stones etc to American as well as European countries.
Textiles such as cotton and silk to Americas and Europe.
India also exports leather for huge luxury brands such as Hermes, Louis Vuitton.

# Few important points for exporters

RULES OF ORIGIN(ROO)

Rules of Origin (ROO) – An exporter cannot avail of the customs tariff preferences under the FTA without submitting this certificate of origin from the Authorised agency

PRODUCT RECOGNITION

Recognizing products under the lists. Exclusion list or Negative list is a list of items on which no tariff concessions are offered. There is also a list of Highly Sensitive Products for which tariffs are reduced to pre-determined levels.

To know if or not the countries you are trading your goods and services with have trade agreement(s) with India and to reap benefits send your queries, our experienced staff will get you through the proceedings & help you optimizing your business. For more content and updates follow us on LinkedIn, Twitter and Facebook; our handle is Bizbrains Advisors. Get a heads up on various schemes on export-import activity and let us know your thoughts in comment section!