Brief Introduction to Free Trade Agreements (FTAs)
A free trade agreement refers to a trade agreement that occurs between two or more countries on the terms of trade. Tariffs on imports and exports related to international are decided in this agreement. Goods and services that are produced or manufactured in a foreign country and is brought into the home country are known as imports. Goods and services produced in the home country and sold to other countries are called exports. Trade agreements can be further categorized into unilateral, bilateral and multilateral trade agreements. A unilateral agreement occurs when one country imposes rules on its own trading industry and other country is allowed to make any negotiations. A bilateral agreement usually happens between two countries and this agreement is signed based on conditions. These conditions include alleviation of trade limitations. The objective of these agreements is usually to find opportunities to create business opportunities between the two countries. Certain industries such as oil production or the automobile industries are usually the targeted industries in discussion during this type of agreement. The third type of trade agreement the multilateral trade agreement is an agreement made among three nations or more. Since this agreement involves more than 2 countries, its geographical influence from the decisions made would be of a larger scale. Free Trade Agreements consist of 3 areas: Trade in goods, Trade in Service as well as Investments. FTAs can also hep companies by reducing the cost of exports, enabling Singapore-based countries to enter export markets easier. FTAs also ensures the security of businesses.
Overview of the ASEAN-India Free Trade Area
The ASEAN-India Free Trade Area (AIFTA) involves India as well as 10 countries that are part of the Association of Southeast Asian Nations which is also known as ASEAN. AIFTA was founded and created due to corresponding interests between ASEAN and India regarding its trading industry. Many ASEAN countries wanted to further expose their trade industry to the Indian markets. Similarly, India wanted to establish its place in ASEAN countries. This thus gave both ASEAN and India a reason to have the FTA. One of the bigger reasons is to increase and flourish the trade industries of both ASEAN and India as certain countries in ASEAN were know to have close economic ties with India which in return may create many opportunities for the blooming of the industry. Home to a population of 1.3 billion with a GDP figure of S$2.6 trillion as at year 2014, the India market is constantly growing at a astounding rate. Involving approximately 90% of tariffs on products in both ASEAN and India, these two parties share a bilateral trade influx of S$22.51 billion per year as at 2015.
Areas on how the ASEAN-India Free Trade Area has helped make Singapore companies more competitive
Elimination/reduction of Tariffs
The AIFTA is a free trade agreement between ASEAN and India. One of the objective of this agreement is to eliminate or reduce tariffs on imports. The AIFTA is reported to extend to over 90% of the tariff lines involved between India and ASEAN. Up to about 4,000 products will or has experience tariff reductions. Products involved in trade between ASEAN and India are as follow:
Main products ASEAN exports to India
Main products India exports to ASEAN:
-gems and jewelry
-cotton , yarn and wool
-machinery and instruments
-unfinished versions of iron and steel
The elimination or reduction of tariffs can lead to many benefits. Firstly, the elimination or reduction of tariffs can lead to the existence of more trade opportunities. Markets will experience a drop in prices for consumer goods as the reduction of tariffs mean that prices of goods will be cheaper as it would be cheaper to ship certain produce to another country. The elimination of tariffs will make Singapore companies more competitive as the elimination of tariffs would mean that more imports might happen. When there is more imports, this will cause competition. Thus in other to keep up with the economy, Singapore companies must find ways to improve their competitive edge by coming up with new products or ways to entice consumers.
Rules of Origin
Rules of origin refers to a set of