Free Trade Agreements – Importance and Advantages

Nations have thrived due to the concept of comparative advantage. The resultant efficiency and specialisation have helped them to achieve higher real incomes.

Foreign Trade Agreement (FTA) is an arrangement between nations or trading blocs that have agreed to eliminate or reduce customs duties in international trade. FTAs cover everything from goods, services, investment, and intellectual property rights.

Importance of Free Trade Agreements

Trade agreements play an important role in development of commerce between nations by facilitating cooperation and providing access to each other’s industries. Free flow of goods and services enables countries to specialize in products it can produce efficiently and cheaply as compared to other countries.

As per the Ministry of Commerce, India has signed 13 FTAs with its trading partners. The economic impact assessment of FTAs has shown that there has been progress in both exports and imports with FTA partners.

Implementation of Free Trade Agreements

The tariff concessions in an FTA are implemented through customs notifications. When the concessions are implemented in a phased manner the Central Board of Excise and Customs issues annual notifications on its website.

Some of the Indian products for which ASEAN countries have eliminated their tariffs are:

• Thailand: Textile and clothing, footwear, organic chemicals, pharmaceuticals, automobiles, etc.
• Indonesia: Fruits and vegetables, textiles, machinery, processed food, organic chemicals, marine products, etc.
• Malaysia: Footwear, processed food, vegetables and fruits, clothing and textiles, organic chemicals, etc.