A free trade agreement, as its name suggests, is a contract between two or more nations that establishes a free trading zone. In a free trade zone, trade barriers between the participating nations are loosened, which often results in lower or eliminated import levies and tariffs. The North American Free Trade Agreement (NAFTA), which was later replaced by the United States Mexico Canada Agreement, is among the most significant free trade agreements (USMCA).

Importance of Free Trade Agreements

Trade agreements are crucial for the growth of international trade since they promote collaboration and open up access to one another’s businesses. Countries can specialize in commodities they can produce effectively and cheaply relative to other countries thanks to the free flow of goods and services.

According to the Ministry of Commerce, India has 13 free trade agreements (FTAs) with other countries. Exports and imports with FTA partners have advanced, according to the economic effect evaluation of FTAs.

Preferential Trade Agreements (PTA)

A unique status granted in trade by multiple nations is known as a preferential trade agreement (PTA) or generalized system of preferences (GSP). Up to 4,800 products from 129 selected beneficiary countries and territories can enter the United States duty-free thanks to an agreement that is intended to support economic growth in developing nations. By the previously mentioned US government’s Trade Act of 1974, GSP was implemented on January 1, 1976. But according to the Indian government, since the World Trade Organization (WTO) was founded in 1994, the plan has been spreading.

Difference between a free trade agreement and a preferential trade agreement

A preferential trade agreement (PTA) has the potential to be unilateral. It is the main distinction between it and FTA. In other words, they are easings of trade restrictions from one country to another without necessarily requiring a reciprocal action from the other. Preferential trade accords (PTA), which are often extended by affluent nations to developing nations as a sort of diplomatic favoritism.

Read more: What is FTA and PTA?