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Foreign Trade Policy and Trade Agreements

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Foreign Trade Policy and Trade Agreements

What is Foreign Trade Policy (FTP)?

The Foreign Trade Policy (FTP) is a comprehensive framework of rules, incentives, and strategies formulated by the Ministry of Commerce and Industry to boost exports, manage imports, and enhance India’s global trade competitiveness. The current FTP covers 2023-2028.

Objectives of Foreign Trade Policy

  1. Enhance export competitiveness by simplifying procedures and reducing costs.
  2. Diversify exports in terms of products and markets.
  3. Promote ease of doing business for exporters.
  4. Attract foreign investment and integrate Indian firms into global value chains.
  5. Promote services exports and e-commerce exports.

Key Components of India’s Foreign Trade Policy

Export Promotion Schemes

  • Remission of Duties and Taxes on Exported Products (RoDTEP) – Refunds embedded taxes (not covered under GST) on exported goods.
  • Export Promotion Capital Goods (EPCG) – Allows duty-free import of capital goods for exporters.
  • Special Economic Zones (SEZs) – Industrial clusters with tax benefits for export-oriented industries.

Ease of Doing Business for Exporters

  • Online paperless trade facilitation via DGFT portal.
  • Automatic approvals for various licenses.
  • Districts as Export Hubs Initiative – Promotes local product exports (ODOP – One District One Product).

Sector-Specific Focus

  • Special focus on:
    • Gems and Jewellery
    • Textiles and Apparel
    • Pharmaceuticals
    • IT and ITeS (Information Technology enabled Services)

Trade Agreements

Types of Trade Agreements

  1. Free Trade Agreement (FTA)
    • Countries eliminate or significantly reduce tariffs and trade barriers.
    • Example: India-UAE CEPA (Comprehensive Economic Partnership Agreement).
  2. Preferential Trade Agreement (PTA)
    • Partial tariff reduction on selected goods.
    • Example: India-Mercosur PTA.
  3. Comprehensive Economic Partnership Agreement (CEPA)
    • Broader than FTA, covers trade in goods, services, investments.
    • Example: India-Japan CEPA.
  4. Regional Trade Agreements (RTA)
    • Agreements between a group of countries within a region.
    • Example: ASEAN-India Free Trade Agreement.

India’s Major Trade Partners

  • Top Export Destinations: USA, UAE, China, Bangladesh, Netherlands.
  • Top Import Sources: China, USA, UAE, Saudi Arabia, Switzerland.

Challenges in India’s Foreign Trade

  • High logistics costs.
  • Dependence on low-value-added exports (textiles, gems & jewellery).
  • Non-tariff barriers in major markets.
  • Global trade disruptions (COVID-19, Ukraine war).

Statement-based MCQs

MCQ 1
Which of the following are objectives of India’s Foreign Trade Policy 2023-2028?

  1. Enhancing export competitiveness.
  2. Promoting ease of doing business for exporters.
  3. Promoting only merchandise exports, not services exports.

Select the correct answer using the code below:
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

Tap here for Answer
Answer: a) 1 and 2 only
Explanation:

  • Merchandise and services exports both are promoted under the policy, so Statement 3 is incorrect.
  • Statements 1 and 2 are correct — enhancing competitiveness and ease of doing business are key FTP goals.

MCQ 2
Which of the following trade agreements involves a comprehensive agreement covering goods, services, and investments?
a) Free Trade Agreement (FTA)
b) Preferential Trade Agreement (PTA)
c) Comprehensive Economic Partnership Agreement (CEPA)
d) Regional Trade Agreement (RTA)

Tap here for Answer
Answer: c) Comprehensive Economic Partnership Agreement (CEPA)
Explanation:

  • CEPA covers goods, services, and investments, while FTAs focus mostly on goods trade.

MCQ 3
Which of the following schemes refunds embedded taxes and duties that are not covered under GST, to boost exports?
a) EPCG Scheme
b) SEZ Scheme
c) RoDTEP Scheme
d) Duty Drawback Scheme

Tap here for Answer
Answer: c) RoDTEP Scheme
Explanation:

  • RoDTEP (Remission of Duties and Taxes on Exported Products) reimburses embedded taxes that were not refunded under GST.

MCQ 4
India’s Districts as Export Hubs Initiative aims to:

  1. Identify unique products in each district.
  2. Provide market linkages and export infrastructure.
  3. Shift all industrial activity to rural areas.

Select the correct answer using the code below:
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

Tap here for Answer
Answer: a) 1 and 2 only
Explanation:

  • Statements 1 and 2 are correct — The initiative promotes district-level product identification and export support.
  • Statement 3 is incorrect — It does not aim to shift all industries to rural areas.

MCQ 5
Which of the following is a bilateral trade agreement between India and a single partner country?
a) India-ASEAN FTA
b) India-UAE CEPA
c) SAARC Preferential Trading Arrangement
d) Regional Comprehensive Economic Partnership (RCEP)

Tap here for Answer
Answer: b) India-UAE CEPA
Explanation:

  • Bilateral agreements involve two countries (India-UAE), while others (like ASEAN FTA) are regional or plurilateral.

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