Preferential trade agreements and free trade agreements are both designed to help countries trade with each other in a more efficient and profitable way. However, the two types of agreements differ in their objectives, scope, and implementation. In this article, we will dive deeper into the differences between preferential trade agreements and free trade agreements.
Preferential Trade Agreements
Preferential trade agreements (PTAs) are trade agreements that offer a preferential treatment to its members by reducing or eliminating trade barriers such as tariffs, quotas, and other non-tariff barriers. Under this agreement, participating countries offer each other special treatment that is not extended to other countries outside the agreement.
The main objective of preferential trade agreements is to promote trade between member countries by creating a more favorable environment for their trade. This is usually done by lowering barriers to trade among members and creating a more stable and predictable trading environment.
PTAs are generally less comprehensive than free trade agreements and do not require member countries to remove all barriers to trade or follow a common set of rules. Moreover, membership in preferential trade agreements is usually limited to certain regions or economic blocs.
Examples of preferential trade agreements include the ASEAN Free Trade Area (AFTA), the Common Market of the South (MERCOSUR), and the South Asian Free Trade Area (SAFTA).
Free Trade Agreements
Free trade agreements (FTAs) go beyond preferential trade agreements by seeking to eliminate all barriers to trade between member countries. Under an FTA, countries agree to remove all tariffs, quotas, and other non-tariff barriers to trade in all sectors.
The main objective of free trade agreements is to promote trade between member countries by creating a level playing field for trade. This is usually done by removing trade barriers and establishing common rules for trade.
FTAs cover a broad range of issues beyond traditional trade in goods and services, including intellectual property, investment, labor, and the environment. Moreover, membership in FTAs is not limited to certain regions or economic blocs.
Examples of free trade agreements include the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the European Union (EU).
Conclusion
Preferential trade agreements and free trade agreements are both designed to promote trade between member countries. However, free trade agreements go beyond preferential trade agreements by seeking to eliminate all barriers to trade between member countries.
PTAs are usually limited to certain regions or economic blocs and cover a narrower range of issues than FTAs. On the other hand, FTAs cover a broad range of issues beyond traditional trade in goods and services and membership is not limited to certain regions or economic blocs.