What are Free Trade Agreements?

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.

In accordance with the Free Trade Agreement with India, the 20% customs tariff that the Association of Southeast Asian Nations (ASEAN) imposes on leather shoes was zero. The Indian exporter will be more competitive than an exporter from a non-FTA member country if other costs are equal. You can get additional information related to free or preferential agreements from one of the best import export business “PL Global Impex Pte Ltd”.

Read more: Types of International Export Business with high profit.

What are the advantages of free trade agreements?

The main way that free trade agreements lessen or do away with trade obstacles and levies is to promote international trade among the signatory nations. In other words, an importer might anticipate reduced landed costs and fewer trade barriers if they import a shipment of goods from a country of origin that has a free trade agreement with the importing country. Therefore, for an importer to source goods from nations with which their country has free trade agreements.

1. Reduction in tariff

Due to cheap customs charges and other incidental taxes, FTAs give exporters access to the global market. For instance, 450 listed products had their tariffs reduced from 10% to 100% after India and the South American trading group MERCOSUR inked an FTA.

2. Diversification of International trade risk

A country’s ability to deal with the effects of a global recession or unfavorable geopolitical event is improved when their trading basket is diverse.

3. Competition and innovation

Integration with global markets encourages the adoption of best manufacturing practices, which raises product competitiveness.