Trade Policy and FTAs for UPSC

Tariffs and Non-Tariff Barriers

Tariffs are taxes levied on imported goods. They may be ad valorem, calculated as a percentage of the product's value, or specific, charged per unit of quantity. For decades tariffs have been a principal source of revenue and a shield for nascent industries. Since the economic reforms of 1991 India has gradually lowered average customs duties, joining the World Trade Organisation (WTO) in 1995 and committing to bound rates that act as ceilings. Yet India's applied tariffs remain higher than many peers: the WTO's 2024 World Tariff Profiles show a simple average applied rate of about 16 % across all products, with agricultural goods facing higher duties than industrial goods. The government adjusts tariffs each year through the Union Budget to balance revenue needs, protect sensitive sectors such as electronics and agriculture, and honour trade commitments.

Beyond tariffs, countries use a variety of non-tariff barriers (NTBs) to regulate imports and exports. These include quantitative limits, import licensing, SPS and TBT standards, certification requirements, labelling and packaging rules, state trading monopolies, export subsidies and procedural delays at customs. Some NTBs aim to protect public health and the environment; others serve as disguised protectionism. India has deployed NTBs in several sectors. Quality Control Orders issued by the Bureau of Indian Standards (BIS) mandate domestic and imported products -- from toys to steel and chemicals -- to meet specified benchmarks. The Department of Animal Husbandry imposes stringent sanitary protocols on meat and dairy imports. Since 2019 the Directorate General of Foreign Trade (DGFT) has introduced import monitoring systems for coal, steel, chemicals and paper, requiring importers to register details before shipment. On the other side, Indian exporters often face NTBs abroad, such as strict maximum residue limits on spices and seafood in the European Union and complex compliance procedures for pharmaceuticals in the United States. At the June 2025 mini-ministerial meeting in Paris, Commerce Minister Piyush Goyal urged WTO members to address these restrictive non-tariff measures and restore a robust dispute settlement mechanism.

The table below summarises key differences between tariffs, non-tariff barriers, trade agreements and anti-dumping instruments. Each policy tool has a distinct form and objective but all influence trade flows.

Why India still uses tariffs

Critics often label India a "tariff king" because average duties exceed those of many developed economies. But the context matters. India's manufacturing sector remains nascent in several capital-intensive industries and faces stiff competition from established exporters. Tariffs help domestic firms gain scale and shield sensitive sectors like agriculture, micro-small enterprises and nascent technology segments. Tariffs also compensate for logistics and infrastructure disadvantages by creating a level playing field. However, high duties raise input costs for downstream industries and hinder integration into global value chains. Recent trade pacts like the India-UAE CEPA and the India-Australia Economic Cooperation and Trade Agreement (ECTA) have phased down duties on intermediate inputs such as coal and gold to lower manufacturing costs. The government has signalled that tariffs will be gradually rationalised to align with global supply chains while retaining the flexibility to raise duties for revenue and security reasons.

Non-Tariff Barriers at home and abroad

India's push for quality and safety has led to an explosion of technical regulations. Over 500 products now require a mandatory BIS certification, covering sectors from toys and kitchen appliances to steel, aluminium, chemicals and consumer electronics. The Directorate of Plant Protection, Quarantine and Storage issues import permits for agricultural commodities, ensuring they meet pest-risk standards. The Food Safety and Standards Authority of India enforces labelling and residue requirements for processed foods. While these measures enhance consumer protection and encourage domestic capacity building, they can delay imports and raise compliance costs. Foreign exporters have raised concerns at WTO committees that India's measures sometimes lack adequate notification or transition time.

Indian exporters similarly grapple with NTBs in foreign markets. Farm exports face strict phytosanitary standards in the European Union; basmati rice must meet aflatoxin thresholds and traceability norms. Marine products need Hazard Analysis and Critical Control Point (HACCP) certification to enter the US and EU. Pharmaceuticals must adhere to stringent Good Manufacturing Practice (GMP) guidelines. These compliance costs, combined with limited awareness among small exporters, mean that India's utilisation of existing FTAs has historically been low. To improve uptake, the government is upgrading digital platforms to issue certificates of origin swiftly and conducting outreach programmes through export promotion councils.

Free and Preferential Trade Agreements (FTAs/PTAs)

Trade agreements enable countries to move beyond the most-favoured-nation principle and grant deeper concessions to selected partners. A free trade agreement (FTA) is a legally binding treaty that aims to remove customs duties and quantitative restrictions on most goods traded between the signatories, often alongside rules on services, investment, intellectual property and dispute settlement. A preferential trade agreement (PTA) is narrower: it offers tariff concessions on a limited set of products but does not seek broad tariff elimination. Comprehensive Economic Partnership Agreements (CEPAs) and Cooperation Agreements (CECAs) combine goods, services and investment and go further than traditional FTAs by addressing regulatory cooperation, competition policy and intellectual property.

India's embrace of FTAs evolved gradually. In the 1990s India was cautious, concerned that free trade would overwhelm domestic industries. The South Asian Free Trade Area (SAFTA), operational from 2006, and the India-Sri Lanka FTA were early experiments. In the 2000s India entered into agreements with Thailand (framework agreement), Singapore (CECA 2005), ASEAN (in goods 2010, services 2015), Japan (CEPA 2011) and South Korea (CEPA 2010). These pacts reduced or eliminated tariffs on thousands of tariff lines and opened doors for services and investment. Utilisation remained moderate because of restrictive rules of origin and lack of awareness, but they laid the foundation for deeper integration.

The momentum accelerated after 2020. As global supply chains reorganised in the wake of the pandemic and geopolitical shifts, India sought to secure critical inputs and markets through a string of new accords. The India-United Arab Emirates Comprehensive Economic Partnership Agreement (CEPA) came into force in May 2022. It eliminated or reduced duties on 90 % of bilateral tariff lines, covering sectors such as gems and jewellery, petrochemicals, textiles and agricultural products, and created a fast-track window for services. In December 2022 the India-Australia Economic Cooperation and Trade Agreement (ECTA) entered into force, eliminating duties on over 85 % of Australian exports to India -- especially coal, lentils and wool -- and granting duty-free access to 96 % of Indian exports to Australia, including textiles, gems and jewellery. The ECTA paved the way for a more comprehensive CEPA now under negotiation.

In March 2024 India signed the Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) countries -- Switzerland, Norway, Iceland and Liechtenstein. TEPA is unique because it binds EFTA members to invest US$100 billion in India over 15 years and create one million direct jobs; it covers 92 % of Indian exports and 83 % of imports on a tariff-free basis while preserving protections for sensitive sectors like dairy, pharmaceuticals and coal. After ratification by all parties, TEPA entered into force on 1 October 2025. In July 2025 India and the United Kingdom signed a free trade agreement projected to boost bilateral trade by over US$34 billion annually. Talks with the European Union continued through 2025, with both sides aiming to conclude a comprehensive FTA by year-end. Negotiations are also underway or launched with the EAEU, Canada, Chile, the Gulf Cooperation Council, Oman and Israel, reflecting India's ambition to diversify markets and hedge against tariff realignments by major economies.

Preferential trade agreements remain important stepping stones. India has PTAs with MERCOSUR (operational since 2009) and Chile (expanded in 2017). These accords provide tariff preferences on a few hundred products, benefiting exporters of textiles, pharmaceuticals and engineering goods. The government is upgrading these PTAs into wider CEPAs to encompass services and investment. The India-MERCOSUR PTA, for instance, is being expanded to include digital trade and e-commerce norms.

The table below summarises select FTAs and CEPAs, highlighting the year of entry into force, tariff coverage and notable features. It underscores how India has moved from narrow goods-focused deals to comprehensive partnerships with investment provisions and sustainable development chapters.

Opportunities and challenges under FTAs

Free trade agreements unlock markets for Indian goods and services, reduce input costs and encourage investment. Exporters of textiles, pharmaceuticals, engineering goods and information technology have benefited from preferential access to partner markets. Services chapters open doors for professional mobility, recognition of qualifications and digital trade. Investment provisions and binding targets, as seen in the TEPA, provide long-term capital to support manufacturing and innovation. FTAs also promote regulatory cooperation, helping India align standards with global benchmarks. Importantly, the use of self-certification of origin and digital certificates has streamlined customs procedures, reducing transaction costs.

However, challenges abound. Domestic industries worry about a surge of cheap imports, particularly from countries with deep subsidies or scale advantages. Underutilisation of existing FTAs reveals information gaps and compliance burdens. Rules of origin require specific value addition thresholds and restrict sourcing flexibility, making it hard for firms integrated into complex global value chains. Some agreements, like the ASEAN FTA, led to trade imbalances as imported electronics and palm oil surged while Indian exports lagged. Critics argue that FTAs can constrain policy space, obliging India to freeze tariffs or adopt intellectual property rules that exceed WTO standards. For FTAs to deliver, the government must consult stakeholders, build supply-side capacities through schemes like Production Linked Incentives (PLIs), and provide adjustment support to vulnerable sectors. Simultaneously, the trade agreement strategy must complement, not conflict with, the Atmanirbhar Bharat vision of building domestic capabilities.

Anti-Dumping and Other Trade Remedies

A crucial component of trade policy is protecting domestic industries from unfair trade practices. Dumping occurs when a company exports a product at a price lower than its normal value in the home market or below production cost. This can injure domestic producers by undercutting their prices. To counter this, WTO members, including India, are allowed to impose anti-dumping duties once an investigation establishes dumping and injury. The procedure is codified in the WTO Agreement on Anti-Dumping and mirrored in India's Customs Tariff Act and related rules.

In India, the Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce initiates investigations on the basis of petitions filed by domestic industries. After preliminary evidence of dumping, DGTR notifies the exporting countries and conducts a detailed examination of pricing data and injury to the domestic industry. It may recommend provisional duties during the investigation and final duties for up to five years. The Ministry of Finance then issues a notification to levy the duty. Anti-dumping measures differ from countervailing duties, which offset the benefit of foreign subsidies, and safeguard duties, which respond to sudden import surges irrespective of unfair pricing. India has used all three instruments; it is among the top users of anti-dumping measures globally, with over 900 investigations since the mid-1990s.

Recent cases highlight the scope of these remedies. In April 2025 the DGTR recommended an anti-dumping duty on imports of 4,4-Diamino Stilbene 2,2-Disulphonic Acid (DASDA) from China after finding that low-priced shipments were harming domestic chemical producers. Earlier in 2024 India imposed duties on vinyl flooring from China, Korea and Taiwan, and extended existing duties on certain steel products. Investigations were also initiated into aluminium and copper products, digital offset printing plates and solar glass. At the same time, India terminated several duties where injury no longer persisted, demonstrating that anti-dumping actions are not permanent protection but temporary remedies. The DGTR has become more transparent, releasing public versions of its findings and holding oral hearings. Yet the heavy use of anti-dumping measures invites criticism from trading partners; some argue that it raises costs for downstream industries. A balanced approach is therefore needed: the government must provide timely relief to genuine industries while ensuring that remedies are not misused to shield inefficient firms.

WTO Context and India's Stand

The World Trade Organisation provides the multilateral foundation on which national trade policies operate. Under the WTO, India has bound its tariffs -- the maximum rate it can apply -- at an average of about 50 % overall (with higher ceilings for agricultural goods) while maintaining applied rates well below this level. This gap affords policy flexibility. India invokes the special and differential treatment provisions to protect food security and rural livelihoods, particularly under the Agreement on Agriculture. It also champions the rights of developing countries to use subsidies for public stockholding and rural development. India has used the flexibility under the Trade-Related Investment Measures (TRIMS) to impose local content requirements for solar equipment and manufacturing, although these measures have been challenged by trading partners.

In recent years India has pushed for reforms at the WTO. The United States' blockade of Appellate Body appointments since 2019 crippled the dispute settlement system. India insists on restoring the two-tier mechanism to ensure predictability and enforceability of rules. At the June 2025 mini-ministerial meeting India also called for action against non-tariff barriers that limit market access, urging members to notify and justify their SPS and TBT measures. Along with other developing countries, India opposes bringing new issues like investment facilitation and e-commerce into multilateral negotiations before existing mandates are completed. It argues that joint-statement initiatives should not bypass the consensus-based approach. At the same time, India has actively participated in negotiations on a fisheries subsidies agreement, seeking flexibility to continue small-scale fishing while disciplining harmful subsidies that contribute to overfishing.

India's proactive signing of FTAs complements its multilateral stance. Article XXIV of the General Agreement on Tariffs and Trade allows members to form free trade areas and customs unions covering substantially all trade. India ensures that its bilateral deals do not undermine the multilateral system; they often retain most-favoured-nation clauses and commit to transparency. India also champions the cause of ensuring that developing countries' concerns are addressed in global rules on digital trade, data localisation, environmental standards and labour norms, emphasising the need for policy space to support inclusive development.

For UPSC Prelims vs Mains

Prelims pointers

• Understand basic definitions: tariff, non-tariff barrier, free trade agreement, preferential trade agreement, anti-dumping duty, countervailing duty and safeguard duty.
• Remember India's average applied tariff is around 16 % with higher rates on agricultural products; bound rates average about 50 %.
• Recall key FTAs: India-ASEAN (2010), India-Japan CEPA (2011), India-UAE CEPA (2022), India-Australia ECTA (2022), India-EFTA TEPA (2024, in force 2025) and India-UK FTA (2025).
• Know that FTAs remove tariffs on most goods, whereas PTAs provide concessions on a limited list.
• Identify the DGTR as the authority for anti-dumping investigations; duties last up to five years.
• Recall that India emphasised addressing non-tariff barriers and restoring the WTO dispute settlement mechanism at the June 2025 mini-ministerial meeting.
• Differentiate between SPS and TBT measures: SPS deals with health and safety of humans, animals and plants; TBT covers technical regulations and standards.

Mains notes

• Analyse the trade-offs between protecting domestic industries through tariffs and integrating into global value chains. Discuss whether India's tariff policy aligns with its goal of becoming a global manufacturing hub.
• Evaluate the pros and cons of India's expanding FTA network. How can India maximize benefits while mitigating risks of import surges and erosion of policy space?
• Discuss the role of non-tariff barriers in ensuring quality and safety versus their use as disguised protectionism. Suggest measures to make NTBs more transparent and WTO-compliant.
• Critically examine India's heavy reliance on anti-dumping duties. Propose reforms to make trade remedies swift, fair and supportive of downstream industries.
• Assess India's position in WTO negotiations, especially on agriculture, fisheries subsidies and digital trade. How can India reconcile its developmental needs with pressure from advanced economies?
• Use diagrams such as Venn diagrams or flow charts to illustrate how different trade policy tools intersect and how FTAs influence tariffs and NTBs.

Quick Facts

• India's simple average applied tariff was about 16 % in 2024, with agricultural duties averaging 36.7 % and non-agricultural duties around 13 %.
• The Trade and Economic Partnership Agreement (TEPA) with EFTA, signed in March 2024, commits EFTA to invest US$100 billion in India and create one million jobs over 15 years.
• India issued more than 720,000 certificates of origin in FY 2024-25, signalling growing utilisation of FTAs.
• The India-UAE CEPA covers 90 % of tariff lines, while the India-Australia ECTA provides duty-free access to 96 % of Indian exports.
• India is among the top three initiators of anti-dumping investigations worldwide, with over 900 cases since 1995.
• Under WTO rules, anti-dumping duties are imposed for up to five years and can be reviewed for extension or termination.
• At the June 2025 mini-ministerial meeting, India called for action against non-tariff barriers and restoration of the two-tier WTO dispute settlement system.
• The foreign trade policy aims to scale India's goods and services exports to US$2 trillion by 2030, leveraging FTAs and export promotion schemes.

UPSC Previous Year Questions (Selected)

The questions below are paraphrased from recent UPSC examinations to illustrate how trade policy is tested:

1. Prelims 2017: With reference to anti-dumping duty, consider the following statements: (1) It is imposed when imported goods are priced below fair value. (2) The DGTR recommends anti-dumping duty, which the Ministry of Finance notifies. Which of the statements given above is/are correct? Answer: Both statements are correct.
2. Prelims 2020: In the context of India's foreign trade, what is the difference between a Free Trade Agreement (FTA) and a Preferential Trade Agreement (PTA)? Answer: An FTA removes or reduces tariffs on a substantial range of goods and often covers services and investment, whereas a PTA offers tariff concessions on a limited list of products without broad elimination of duties.
3. Mains 2021 (GS III): Discuss the relevance of non-tariff barriers in India's trade policy. How does India balance quality concerns with its commitments under the WTO? Answer: Candidates should discuss SPS and TBT measures, BIS quality control orders, import monitoring systems and the need for transparency and notification under WTO rules.
4. Prelims 2022: Consider the following: import tariffs, sanitary and phytosanitary measures, free trade agreements and countervailing duties. Which of these are classified as non-tariff barriers? Answer: Only sanitary and phytosanitary measures are non-tariff barriers; tariffs and countervailing duties are tariffs, while free trade agreements reduce barriers.

Practice MCQs

1. Which of the following best describes a Preferential Trade Agreement (PTA)?
   1. An agreement that eliminates tariffs on all goods among members
   2. An agreement offering tariff concessions on a limited list of products
   3. An agreement focused exclusively on investment protection
   4. A multilateral agreement negotiated at the WTO
2. Non-tariff barriers include:
   1. Import quotas and licensing requirements
   2. Basic customs duties
   3. Export subsidies alone
   4. Preferential tariff rates
3. Which Indian authority conducts anti-dumping investigations and recommends duties?
   1. Central Board of Indirect Taxes and Customs
   2. Directorate General of Trade Remedies
   3. Competition Commission of India
   4. Ministry of External Affairs
4. The Trade and Economic Partnership Agreement (TEPA) with EFTA includes which of the following features?
   1. A binding commitment to invest US$100 billion in India
   2. Complete elimination of duties on all agricultural imports from EFTA
   3. Exclusion of services trade
   4. An agreement only covering tariff concessions, without investment
5. In the WTO framework, the term "bound tariff rate" refers to:
   1. The rate actually applied at customs
   2. The maximum tariff a member has committed not to exceed
   3. The preferential rate under an FTA
   4. The rate used for export subsidies

Answer Key: 1 - B, 2 - A, 3 - B, 4 - A, 5 - B.

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