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  • Free Trade Agreements

Free Trade Agreements

Trade is of great significance to all nations in the modern world. Trade without barriers (Free trade), is promoted by World Trade Organisation (WTO). While article-1 of GATT enunciates the principal of ‘Most Favoured Nation (MFN) i.e. equality in trade treatment for all WTO signatory countries, it permits forming Free Trade Agreements (FTA) or Preferential Trading Agreements (PTA), in derogation of the principle of MFN.

PTA and FTA are agreements between countries/blocks to reduce or eliminate tariff and non-tariff barriers. Other documents such as Comprehensive Economic Partnership Agreement (CEPA) or Comprehensive Economic Co-operation Agreement (CECA) between countries too seeks to achieve the same objective.

The benefits of free trade include:

  • Encouragement to countries to specialise in goods/services where they have a comparative advantage.
  • Trade creation occurs when consumption switches from high-cost producers to low-cost producers, leading to lower prices for consumers.
  • Economic welfare of the exporting country.
  • Specialisation in certain goods which benefit from economies of scale, lower average costs and greater efficiency.
  • Global competition prevents domestic monopolies from charging extremely high prices.
  • Deeper co-operation between trading partners leading to mutual benefits and efficient use of resources.
  • Opening-up opportunities beyond a country’s geographical boundaries.

BDO in India, with its deep understanding and global footprint, is adequately equipped to assist its clientele to tap the benefits of Trade Agreements.