For Prelims: Trade among the nations 

For Mains: Free trade agreement, benefits of nations' ties, and disadvantages of interim trade agreements. 

Why in the news?

  • The proposed India-United Kingdom Free Trade Agreement (FTA) will enter into formal negotiations on November 1 according to a statement from the Union government.

What is Free Trade Agreement?

  • An agreement to lower import and export tariffs between two or more countries is known as a free trade agreement. 
  • A free trade policy allows for the purchase and sale of goods and services across international borders with little to no restrictions from the government in the form of tariffs, quotas, subsidies, or prohibitions.


  • Free trade policies are frequently put into practice in the modern world through a formal, mutual agreement of the participating countries. 
  • A free-trade policy, however, sets limitations for trade. 
  • To encourage free trade, a government need not take any particular measures. Laissez-faire trade or trade liberalization are terms used to describe this approach.
  • Governments that have implemented free-trade policies or agreements do not automatically give up all import and export regulations or do away with all protectionist measures. 
  • Few free trade agreements (FTAs) in contemporary global trade lead to completely free trade.
  • Laissez-faire: A laissez-faire economic system prohibits all forms of economic interventionism, such as subsidies coming from special interest groups, from being used in private group transactions.

 Economics of Free Trade

  • Free trade among neighbors, towns, and states is essentially the same as free trade on an international scale. 
  • On the other hand, it enables companies in each nation to concentrate on creating and marketing goods that make the best use of their respective resource bases. While other companies import products that are hard to find or unavailable domestically. 
  • With a balance of domestic and international trade, economies can grow more quickly while also better serving the needs of their consumers.
  • A country's domestic resources, expertise, and knowledge are better utilized through free trade, which increases product diversity and drives down prices.

Public Opinion on Free Trade

  • Free trade is one of the topics that divides economists and the general public the most. 
  • Public support for free-trade policies has been lower than expected with the public. 
  • The main problems are foreign manufacturers taking away well-paying jobs, and unfair competition from nations with lower labor costs that allow for price cutting.

What do we need to know about the India-United Kingdom Free trade agreement (FTA)?


Early harvest agreement:

  • An interim "early harvest" agreement would be the first step in the India-United Kingdom Free Trade Agreement (FTA), which would ensure quick progress in trade negotiations. 
  • By March 2022, this contract will finish.
  • It would entail the formation of trade working groups to aid both parties in understanding one another's viewpoints on issues like tariffs, standards, IP protection, and data regulation. 
  • Early tariff or market access concessions on a few high-priority goods and services would be part of the interim trade agreement.

Issues to be addressed:

  • India wants improved access for its service trade with the UK given its strength in the services sector. 
  • In order to promote trade in goods, India has also pushed for the reduction of non-tariff trade barriers by harmonizing standards, streamlining time-consuming customs procedures, and taking action to safeguard intellectual property and harmonize data protection laws.
  • The United Kingdom is advocating for lower tariffs on alcoholic beverages, automobiles, and medical equipment, among other things.

What are the expected benefits of the India-United Kingdom Free Trade Agreement?

  • "The proposed FTA between the UK and India is anticipated to open up remarkable business opportunities and create jobs.
  •  According to India's Commerce and Industry Ministry, both countries would gain benefit from this trade ties. 


  • An early trade agreement serves the geopolitical and economic interests of the two nations because trade between India and the UK is highly complementary.
  • There is a need to strike a delicate balance between the interests of the two countries through appropriate concessions in goods and services trade given that the proposed trade agreement between India and the U.K. would help unlock business opportunities and generate jobs.