India-UK Free Trade Agreement Explained: Benefits, Models & Pros/Cons

India-UK Free Trade Agreement:

All about Free Trade agreement (FTA)

Things are moving fast globally and India is growing exponentially. India and the UK recently concluded a free trade agreement deal. As per the records, few of the sectors which benefit from this deal are textiles, auto parts, pharma, IT services, precious gems and ornaments, leather and engineering products. This bilateral trade can go over $120 billion by 2030.The 14 rounds of negotiations does not take few months but it took 3 years to comes to the conclusion And the news is hyped up among all media channels. But do you know what a free trade agreement is? How it works, what are the key factors in it, what are the benefits and limitations? If not, then I have covered it all for you in this article.

What is free trade Agreement

Think of it as two friends making deals with each other without charging extra fees or interests. A free trade agreement is a deal among two countries which makes it easier for them to sell and buy from each other at a cheaper and affordable price.

The concept is in contrast with Trade Protectionism, where a country puts high tariffs and hard rules to sell their goods in a foreign country.

How does the FTA work?

Basically, it means the trade between two countries is simpler with no extra tariffs and lesser rules. It is generally implemented by the mutual agreement of the nations involved. There is a term called laissez-faire trade, which means trade liberalisation. In this a governing body does not necessarily have to take certain action to advocate for free trade. The countries with free trade agreements don't give up all control. It helps them to keep the goods coming inside the country in check. To promote their local businesses, they look out for —

Charge taxes or tariffs on particular goods, to protect farmers and factories.
Keep a limitations of foreign goods coming in
Having certain exceptions to protect local industries.

Free Trade Economics

As it has been explained earlier, the FTA is a lot like a trade between two shopkeepers. For example, one is selling electronic items like torches, bulbs, etc. and the other shopkeeper sells grocery items. The same concept applies while doing business with 2 countries. For example, a country is good at growing tea and the other country is good at providing good technologies. So they trade tea with technology. In this way both the company is fulfilling their citizens needs easily and at affordable prices.

The concept helps a nation to make the best use of their resources, helps in growing the economies and gives their citizens goods of their choice at affordable costs. The idea of FTA was given by David Recardo.and it became famous in 1817 . His ideology was if every nation became experts at their strong speciality and made a business out of it, then everyone would benefitted. Their citizens will get varieties in goods, better prices and a strong economy.

Models of FTA

The 2 models are Mercantilism and Comparative Advantages. Let me brief you about what these 2 modals are.

Mercantilism

In this modal, the main idea is to sell more, less buy. The focus was not into free trade in that scenario.

In 1800, the major purpose of the country was to sell more to get richer and have more gold or silver in their kingdom.
To restrict the import they used to impose high tariffs, strict rules and encourage people to depend more on local products.

Comparative Advantages

This modal tells us to be best at your specialization and make a business out of it. For example, country A is good at agriculture and country B is good at making clothes. Here, David Ricardo tells us—

Instead of Country A to focus on making clothes and country B on cultivating. They should trade grains with clothes.
This ideology benefits both of them, the production increases and both nations get the benefits.

Pros & Cons for Free Trade Agreement

Pros

Countries with FTA benefits their citizens with cheaper imported goods.
Free trade permits the countries with less labour costs and resources, which ultimately creates employment and help the country.
By following Ricardo's ideology, every country will make more goods at their best quality and the whole world will benefit from that.

Cons

Local industries may suffer losses due to the import of the foreign goods in the market.
Relocating of factories in different countries may cause a problem because of less rules regarding labour treatments and environmental safety.
Free trade may result in getting too dependent on other countries for their basic needs like food, medicines. It may result in becoming a weakling at the time of global crisis.

Conclusion

All the hype about the India-UK trade agreement is real. But also getting to know the details on this 3 important word (Free Trade Agreement) is also necessary to know what goes behind the scenes. Free Trade

should be used as a weapon or it could make you dependent too much for your basic needs. In the above article, I have mentioned all about the advantages and where we should draw the lines.