India shifts trade strategy, favours PTAs over FTAs with South Africa, Mercosur & others: Official
India is pursuing Preferential Trade Agreements (PTAs) rather than comprehensive Free Trade Agreements (FTAs) with several developing economies, including South Africa, according to an official statement.
The rationale given is that a full FTA with an economy like South Africa would require deeper, broader opening of the Indian market than a targeted PTA, which instead identifies specific product categories of mutual interest for both sides.
India is also negotiating a PTA with Mercosur (the South American bloc anchored by Brazil, Argentina, Paraguay, and Uruguay) and exploring similar PTA options with Mexico and Kenya, while Ecuador has separately expressed interest in a full FTA with India.
The government stated it is following a "whole of government, whole of stakeholders" consultative approach for ongoing trade negotiations, citing recent stakeholder consultations on issues such as shipbuilding capacity and urea diversion; a Commerce Secretary visit to Chile was also indicated as part of assessing further deal prospects.
PTA vs FTA — Structural and Legal Differences
A Preferential Trade Agreement (PTA) reduces tariffs on a limited, positive list of specified products between the signatory countries, whereas a Free Trade Agreement (FTA) eliminates or substantially reduces tariffs on almost all traded goods (a negative list approach, where only a small set of "sensitive" items are excluded). FTAs are consequently more ambitious in tariff-line coverage and market access depth than PTAs.
Key Details
- PTA: positive list of products with duty concessions; narrower, more controlled market opening
- FTA: negative list approach; duty removed on "substantially all trade," per the requirement under GATT Article XXIV
- A Comprehensive Economic Partnership/Cooperation Agreement (CEPA/CECA) goes further than an FTA, bundling goods, services, investment, and other areas such as IPR and competition policy into one integrated package (e.g., the India-Korea CEPA)
- India-UAE CEPA (signed February 2022, operationalised 1 May 2022) was India's first major trade pact after the India-Japan CEPA (2011), targeting USD 100 billion in bilateral merchandise trade by 2030
The stated policy shift favours the narrower PTA structure over full FTAs with economies such as South Africa and Mercosur members, allowing India to open only select sectors rather than committing to broad tariff elimination.
WTO Legal Basis — GATT Article XXIV and the Enabling Clause
FTAs and customs unions are permitted as exceptions to the WTO's Most Favoured Nation (MFN) principle under Article XXIV of GATT, which requires that such arrangements cover "substantially all trade" and not raise barriers against non-members. Separately, the 1979 Enabling Clause — formally the "Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" — permits developing countries to enter into preferential arrangements with each other under more relaxed criteria than Article XXIV requires.
Key Details
- GATT Article XXIV (1947): governs FTAs and customs unions; requires "substantially all trade" coverage; applies to all WTO members
- Enabling Clause (1979 Tokyo Round decision): allows developing countries to extend preferential (not necessarily comprehensive) tariff treatment to each other outside Article XXIV's stricter conditions
- MFN principle (GATT Article I): normally requires equal treatment of all WTO trading partners; both Article XXIV and the Enabling Clause are recognised exceptions
- South-South PTAs, such as those India is negotiating with South Africa, Mercosur, and Kenya, typically rely on the more flexible Enabling Clause route rather than Article XXIV
By favouring PTAs with developing economies, India is operating within the more flexible Enabling Clause framework rather than the stricter "substantially all trade" requirement that would apply to a full FTA under GATT Article XXIV.
Mercosur and India's Regional Trade Engagement
Mercosur (Mercado Común del Sur) is a South American customs union comprising Argentina, Brazil, Paraguay, and Uruguay (with Bolivia acceding as a full member and Venezuela suspended), established by the 1991 Treaty of Asunción. India has held an existing Preferential Trade Agreement with Mercosur since 2009, covering a limited list of tariff lines, and is now negotiating an expansion of this arrangement.
Key Details
- India-Mercosur PTA: signed 2004, entered into force 2009; covers a limited list of about 450 tariff lines with partial tariff concessions
- Mercosur founding treaty: Treaty of Asunción, 1991; full members include Argentina, Brazil, Paraguay, Uruguay, and Bolivia
- India is pursuing an expanded/deepened PTA with Mercosur to widen product coverage, distinct from initiating a new agreement from scratch
- Parallel PTA exploration is underway with Mexico and Kenya, while Ecuador has sought a full FTA — illustrating India's differentiated approach based on partner-country development level and market complementarity
The Mercosur negotiations referenced in the news are a widening of an existing PTA relationship, consistent with the broader stated strategy of using calibrated, product-specific agreements rather than comprehensive FTAs with developing-country partners.
- India-UAE CEPA: signed February 2022, in force from 1 May 2022; target of USD 100 billion bilateral trade by 2030
- India-Mercosur PTA: in force since 2009, covering roughly 450 tariff lines; currently under negotiation for expansion
- GATT Article XXIV: legal basis for FTAs/customs unions among all WTO members; requires "substantially all trade" coverage
- Enabling Clause (1979): legal basis for preferential arrangements among developing countries outside Article XXIV's stricter norms
- Countries/blocs named for PTA-track negotiations: South Africa, Mercosur, Mexico, Kenya
- Country seeking a full FTA with India (per the report): Ecuador