Free Trade Agreement and Preferential Trade Agreement: What`s the Difference?
Trade agreements have been an integral part of international trade for centuries. In order to facilitate trade between two or more countries, trade agreements are signed. The purpose of these agreements is to regulate the flow of goods and services between the countries. Two main types of trade agreements are Free Trade Agreement (FTA) and Preferential Trade Agreement (PTA).
Free Trade Agreement (FTA)
A Free Trade Agreement (FTA) is an agreement between two or more countries where they agree to eliminate trade barriers such as tariffs, quotas, and other non-tariff barriers. Under an FTA, member countries agree to allow the free movement of goods and services between them without any restrictions. This means that goods and services can be imported and exported between the countries at a lower cost.
FTAs are often comprehensive and cover a wide range of areas such as trade in goods, services, intellectual property, and investment. They are designed to create a level playing field for businesses operating in member countries and to promote economic growth.
Preferential Trade Agreement (PTA)
A Preferential Trade Agreement (PTA) is an agreement between two or more countries where they agree to reduce trade barriers on a selected range of goods or services. Under a PTA, member countries agree to offer preferential treatment to each other`s exports by reducing tariffs or implementing other trade concessions.
PTAs are often used by developing countries to promote their exports and gain greater access to developed markets. They are usually less comprehensive than FTAs and usually only cover a limited range of goods or services.
Key Differences between FTA and PTA
The main difference between a Free Trade Agreement and a Preferential Trade Agreement is the scope of the agreement. FTAs are more comprehensive and cover a wider range of goods and services, while PTAs are more limited in scope and only cover a selected range of goods or services.
Another difference is that under an FTA, member countries agree to eliminate all trade barriers between them, while under a PTA, member countries agree to offer preferential treatment to each other`s exports by reducing tariffs or implementing other trade concessions.
Finally, FTAs are usually signed between developed countries, while PTAs are often signed between developed and developing countries.
Conclusion
In conclusion, both FTAs and PTAs are important tools for promoting international trade. While FTAs are more comprehensive and cover a wider range of goods and services, PTAs are more limited in scope and only cover a selected range of goods or services. It`s important to understand the differences between these two trade agreements before entering into any trade negotiations. As global trade continues to grow, FTAs and PTAs will continue to play an important role in promoting economic growth and development around the world.