Free trade agreement (FTA)

Free trade agreement (FTA)

Part of: Prelims and GS-II – International Relations

Context  Recently, the Union minister for Commerce & Industry has said that India is looking to have a free trade agreement (FTA) with 5 countries – UAE, UK, Australia, Canada and Israel.

What is a free trade agreement (FTA)?

• FTA, also called Regional Trade Agreement (RTA) is a pact between two or more nations to reduce barriers to imports and exports among them.
• Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
• The concept of free trade is the opposite of trade protectionism or economic isolationism.
• FTA is implemented by means of a formal and mutual agreement of the nations involved.
• However, a free-trade policy may simply be the absence of any trade restrictions.
• There are two types of trade agreements – bilateral and multilateral.
  • FTA is an example of a Bilateral trade agreement.
  • Multilateral trade agreements are agreements among three or more countries, and are the most difficult to negotiate and agree.
• FTAs determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers, thus encouraging international trade.