A Free Trade Agreement (FTA) is a treaty between two or more countries to reduce or eliminate barriers to trade such as tariffs, import quotas, and export restrictions. The goal is to make trade between the countries easier, cheaper, and more efficient.
Table of Contents
Key Features of a Free Trade Agreement
- Tariff Elimination or Reduction: Gradual or immediate removal of customs duties on goods traded between member countries.
- Market Access: FTAs often provide preferential access to markets that might otherwise be restricted.
- Rules of Origin: Specifies which goods qualify for reduced tariffs to prevent misuse by non-members.
- Intellectual Property Protection: Some FTAs include provisions for the protection of patents, copyrights, and trademarks.
- Investment and Services: Many modern FTAs go beyond goods and include investment, services, e-commerce, and dispute resolution mechanisms.
- Non-Tariff Barriers: FTAs may work to reduce technical barriers, like safety standards or licensing rules.
Examples of FTA
- India-Sri Lanka FTA(ISLFTA)
- South Asian Free Trade Area (SAFTA)
- India-ASEAN Free Trade Agreement
- North American FTA (NAFTA) (replaced by USMCA)
- European Union Single Market (internal FTA among EU members)
Advantages of FTAs
- Boosts exports and imports by lowering costs
- Encourages economic growth and job creation
- Promotes foreign direct investment (FDI)
- Strengthens diplomatic and economic ties
Criticisms of FTAs
- May harm domestic industries due to increased competition
- Risk of trade imbalances
- Can lead to over-dependence on specific markets
- Sometimes perceived as favoring larger or more developed countries
FTA vs Customs Union vs Multilateral Trade
| Type | Tariff Elimination | Common External Tariff | Examples |
|---|---|---|---|
| FTA | Yes (internal only) | No | India-ASEAN FTA, NAFTA |
| Customs Union | Yes | Yes | European Union (for goods) |
| Multilateral | Among many nations | Varies | WTO agreements |
Also read: India’s Free Trade Agreements
India UK Free Trade Agreement FTA
Free Trade Agreement (FTA): Definition, How It Works, and Example
Advertisement
