Free-Trade Agreement (FTA).
News: US and Canada agree on free trade pact.
Source: The Hindu
FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them. FTAs, normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc.). FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy, etc.
A free-area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA).
Article 1 of GATT (General Agreement on Tariffs and Trade) which enunciates the most favoured nation (MFN) principle of WTO states that "any advantage, favour, privilege, or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties."
However, derogations from this MFN principle are permitted for forming FTAs under specific conditions as per the following provisions of the WTO Agreements:
o Article XXIV of GATT for goods
o Article V of GATS (General Agreement on Trade in Services) for services.
o The specific conditions under Article XXIV of the GATT permitting FTAs, are:
o FTA members shall not erect higher or more restrictive tariff or non-tariff barriers on trade with non-members than existed prior to the formation of the FTA.
o Elimination of tariffs and other trade restrictions be applied to "substantially all the trade between the constituent territories in products originating in such territories."
o Elimination of duties and other trade restrictions on trade within the FTA to be accomplished "within a reasonable length of time," meaning a period of no longer than 10 years
o Moreover, the "Enabling Clause", allows developing countries to form preferential trading arrangements without adhering to the conditions under Article XXIV.
India’s FTA ,
• India - ASIAN
• India South Asia Free Trade Agreement
• Indo Sree Lanka FTA
• Indo Malasia
• India Singapore
• Japan India
• India Korea
IL & FS Issue
News: Firm and Decisive Government Action taken to preserve value and assets of IL& FS Government stands fully committed to ensure much needed liquidity arranged for the IL& FS from the financial system so that no more defaults take place and the infrastructure projects implemented smoothly.
IL&FS, incorporated in 1987, is a large Systemically Important Non-Deposit Accepting Core Investment Company (CIC-ND-SI).
It has numerous infrastructure assets and has played a major role in infrastructure development and financing in the country. It has 169 group companies, as in 2017-2018, including subsidiaries, joint venture companies and associate entities.
A series of defaults by IL&FS Group companies in August and September, 2018 on term-deposits, short-term deposits, inter-corporate deposits, commercial paper and non-convertible debentures and the rating downgrades in some and default on some other financial instruments has resulted into massive effect in the financial markets causing redemption pressure on the mutual funds, which held such financial instruments and has also adversely impacted the sentiments on the stock markets, money markets and debt markets.
The redemption pressure on mutual funds has created a large systemic risk leading to quality papers being sold at steep discounts to meet the redemption demand.
The debt market shocks got transferred to the equity market sparking sell off particularly in NBFC stocks and sectors linked with NBFC financing.
The IL&FS Group, especially its subsidiary companies, IL&FS Engineering and Construction Company Limited (IL&FS Engineering) and IL&FS Transportation Networks Ltd. had got into major problems beginning 2012.
This led to massive delays in execution of projects and a number of projects had become stalled infrastructure projects even before 2014.
This affected their financial performance and significantly increased the leveraging as delayed projects were kept afloat by more and more debt financing.
IL&FS Engineering had a series of losses beginning 2011-12 and minimal profit started after 2015-16. IL&FS Transportation Network Ltd. witnessed significant erosion of profit starting from 2012-13 and the net debt also increased more than two times from Rs. 13939 crore to Rs. 29961 crore in 2017-18.
Deterioration in the financial performance and substantial leveraging of the IL&FS Group started many years ago on account of stalled projects in infrastructure sector largely owing to wrong decisions and policy paralysis before 2014.