Trade Agreements: PTAs vs FTAs

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Questions and Answers

What is a key characteristic of a Preferential Trade Agreement (PTA)?

It covers all trade between member countries.

It usually eliminates tariffs on both goods and services.

It mandates a common external tariff for all members.

It has a positive list of products with reduced duties. (correct)

Which of the following statements accurately describes a Free Trade Agreement (FTA)?

It requires all trade barriers to be removed.

It primarily covers only goods.

It eliminates tariffs on some items but not others. (correct)

It maintains independent trade policies with non-member countries. (correct)

What distinguishes a Comprehensive Economic Cooperation Agreement (CECA) from a Comprehensive Economic Partnership Agreement (CEPA)?

CECA is more commonly utilized than CEPA.

CECA covers only services, while CEPA covers goods.

CECA includes a wider range of investments than CEPA.

CEPA encompasses areas such as IPR, making it broader in scope. (correct)

What is the primary benefit of a customs union?

It imposes a common external tariff on non-member countries. Signup and view all the answers

What characterizes a Single Market in comparison to a Customs Union?

It eliminates internal trade barriers and allows free movement of resources. Signup and view all the answers

Which statement best reflects the nature of tariffs in a Free Trade Agreement?

Tariffs on some products may be reduced, while others remain unchanged. Signup and view all the answers

Which type of agreement primarily focuses on phased tariff reductions on listed items?

Comprehensive Economic Cooperation Agreement (CECA) Signup and view all the answers

Which of the following agreements requires members to have a common external tariff on imports from non-members?

Customs Union Signup and view all the answers

What is the primary reason India has been reluctant to discuss government procurement in trade agreements?

To protect domestic firms that rely on government contracts Signup and view all the answers

Which contracts will be available to UAE-based companies under the recent agreement?

Contracts worth more than Rs 200 crore Signup and view all the answers

Which sectors are expected to benefit from preferential market access under the agreement with India?

Sectors including Gems and Jewellery, Textiles, and Pharmaceuticals Signup and view all the answers

How many broad service sectors will Indian service providers gain enhanced access to under the new agreement?

11 Signup and view all the answers

What is one main objective of the South Asian Free Trade Area (SAFTA)?

To eliminate trade barriers among SAARC member countries. Signup and view all the answers

Which new feature has been included in the Trade Agreement for the first time?

A separate Annex on Pharmaceuticals Signup and view all the answers

What distinguishes the European Union (EU) in the context of global trade?

It is the largest trade bloc and significant exporter of manufactured goods. Signup and view all the answers

Which agreement was signed in 2014 to address trade in services among ASEAN countries?

ASEAN-India Trade in Services Agreement Signup and view all the answers

What does the ETCA agreement primarily focus on?

Establishing an agreement on trade in services and technological exchange. Signup and view all the answers

How many of the EU member countries currently use the Euro as their national currency?

19 Signup and view all the answers

Which of the following countries is NOT currently using the Euro?

Sweden Signup and view all the answers

Which countries are signatories of the SAFTA agreement?

India, Nepal, Maldives, Bhutan, Pakistan, Sri Lanka, Bangladesh, Afghanistan Signup and view all the answers

What was a reason for the suspension of the India-Australia FTA negotiations in 2015?

Disagreements over market access and agricultural exports. Signup and view all the answers

What does SAFTA presuppose regarding trade and tariff restrictions?

Abolition of all types of trade and tariff restrictions. Signup and view all the answers

When was the ASEAN-India Trade in Goods Agreement signed?

2010 Signup and view all the answers

What is one of the aims of SAFTA?

To promote fair competition in the free trade area. Signup and view all the answers

Which statement accurately describes a financial market?

It involves the creation and exchange of financial assets. Signup and view all the answers

What is a primary characteristic of bonds?

They are a debt instrument that may provide fixed or floating returns. Signup and view all the answers

Which of the following correctly identifies attributes of bonds?

Bonds are similar to non-tradeable loans. Signup and view all the answers

Which option correctly lists the constituents of the Financial Market in India?

Money market, capital market, and derivative instruments. Signup and view all the answers

Which of these statements is true regarding debentures?

Interest on debentures is paid only after dividends. Signup and view all the answers

How many statements about bonds are correct: A bond is a debt instrument; A bondholder might receive fixed returns; A bondholder might receive variable interest rates?

All three statements are correct. Signup and view all the answers

Which of the following is incorrect regarding financial markets?

They trade only established companies' shares. Signup and view all the answers

Which statement best describes the relationship between bonds and capital raising?

Bonds are a method used by firms to raise capital. Signup and view all the answers

How many statements regarding Plain Vanilla Bonds are correct?

Only three Signup and view all the answers

Which option correctly describes the statements regarding Zero coupon bonds?

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I Signup and view all the answers

Which of the following statements about Foreign Currency Convertible Bonds (FCCB) is true?

All Statements 1, 2, 3, and 4 are correct Signup and view all the answers

What advantages do Inflation-Indexed Bonds (IIBs) provide?

All of the above Signup and view all the answers

Which statement about preference shareholders is true?

They get precedence over equity shareholders in dividend distribution Signup and view all the answers

What is a characteristic of Equity shares?

They are considered ordinary shares Signup and view all the answers

Which types of payments are associated with Foreign Currency Convertible Bonds (FCCB)?

Both principal and interest payable in rupees Signup and view all the answers

What is false regarding Zero coupon bonds?

They are issued at a premium to their face value Signup and view all the answers

Study Notes

Preferential Trade Agreements (PTAs)

PTAs do not extensively cover all trade sectors.
A positive list identifies products for reduced duties agreed upon by trade partners.
Examples include India and Mercosur, India and Chile.

Free Trade Agreements (FTAs)

FTAs are improvements over PTAs, eliminating tariffs on a broader range of items.
Cover both goods and some services.
Members keep distinct trade policies for non-member countries.
May include a negative list, indicating items where tariffs are not reduced.
Examples: India-Sri Lanka FTA, India-ASEAN FTA, USMCA (formerly NAFTA).

Comprehensive Economic Cooperation Agreements (CECA)

CECA focuses on phased tariff reductions or eliminations on specified items, excluding a negative list.
It can include goods, services, or investments.
Offers legal certainty for foreign entities in India, mitigating unpredictable policy changes.
Examples: India-Malaysia CECA, India-Singapore CECA.

Comprehensive Economic Partnership Agreements (CEPA)

CEPA encompasses a broader spectrum including goods, services, investments, and areas like Intellectual Property Rights (IPR).
CEPA has a wider scope than CECA.
Examples: India-Japan CEPA, India-Korea CEPA.

Customs Unions

A customs union allows member states to remove customs duties on internal trade and simplify administrative processes.
Members implement a common external tariff on imports from non-members.
Example: Southern African Customs Union (SACU) comprising South Africa, Lesotho, Namibia, Botswana, and Eswatini.

Common/Single Markets

A common market enables deeper integration than a customs union, eliminating internal barriers and harmonizing technical standards.
Allows free movement of labor and capital among member states.

Economic and Technology Cooperation Agreement (ETCA)

ETCA focuses on trade in services and technology exchange, targeting cooperation in technical expertise and research.
Addresses gaps not covered by CEPA.

ASEAN-India Free Trade Agreement (AIFTA)

The AIFTA in Goods was initiated in 2010, followed by the Trade in Services Agreement in 2014.
The Investment Agreement ensures fair treatment and protection for investors.

South Asian Free Trade Area (SAFTA)

Established among the eight SAARC member countries, SAFTA came into effect on January 1, 2006.
Aims to enhance trade and economic cooperation by removing trade barriers and fostering equitable benefits among members.
Members: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

India-Australia Economic Cooperation and Trade Agreement (ECTA)

Negotiations began in 2010 but were paused in 2015 due to disagreements on market access and agricultural exports.
The deal aims to provide preferential access to labor-intensive sectors and includes a dedicated section on pharmaceuticals for Indian products.

European Union (EU) Trade

The EU is the largest global trade block, leading in manufacturing exportation and importation.
Economic policies among members are coordinated, with 19 of the 27 nations using the Euro.

Eurozone

The Eurozone includes 20 out of 27 EU countries that utilize the Euro as their official currency.
Members include Austria, Belgium, Cyprus, Estonia, France, Germany, Greece, Italy, Spain, and others.

Financial Markets Overview

Financial markets facilitate the creation and exchange of financial assets, including stocks and bonds.
In India, constituents of financial markets include money market instruments, capital market instruments, and derivative instruments.

Key Concepts in Bonds and Shares

Bonds are debt instruments offering fixed or floating interest at set intervals.
Debentures are long-term debt instruments typically secured by company assets with limited voting rights for holders.
Plain Vanilla Bonds have fixed prices, coupon rates, and tenure.
Zero Coupon Bonds are sold at a discount and redeemable at face value upon maturity.
Foreign Currency Convertible Bonds (FCCBs) can be converted into shares and are traded in foreign stock exchanges.
Inflation-Indexed Bonds (IIBs) protect investors from inflation fluctuations and may not be taxable.
Equity shares represent ownership in a company, while preference shares provide fixed dividends and limited voting rights.

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Description

This quiz explores the fundamental differences between Preferential Trade Agreements (PTAs) and Free Trade Agreements (FTAs). It focuses on the structure, scope, and examples of these agreements, offering insights into how they operate in international trade.