Preferential Agreement and Free Trade Agreement
Preferential Agreement vs Free Trade Agreement: Understanding the Key Differences
International trade has become an integral part of the global economy, and governments worldwide are increasingly relying on preferential agreements and free trade agreements to facilitate trade between countries. While both agreements are aimed at boosting trade, there are significant differences between the two. In this article, we will explain the differences between preferential agreements and free trade agreements to help you understand which one is the most suitable for your trade goals.
Preferential Agreements
Preferential agreements are used to give a preference to a particular group of countries or products, giving them an advantage over other countries or products that fall outside the agreement. These agreements are typically bilateral or multilateral in nature and provide concessions in tariffs and quotas. The goal of preferential agreements is to encourage trade between the participating countries while protecting domestic industries from foreign competition.
Preferential agreements are often used by developing countries to gain easier access to markets in developed countries. For example, the African Growth and Opportunity Act (AGOA) is a preferential agreement that provides duty-free access to the US market for certain products from eligible sub-Saharan African countries. However, preferential agreements are not as comprehensive as free trade agreements, and they typically cover only a limited range of products, countries, and trade barriers.
Free Trade Agreements
Free trade agreements (FTAs) are agreements between two or more countries that eliminate or reduce barriers to trade, such as tariffs, quotas, and other trade barriers. Unlike preferential agreements, free trade agreements are comprehensive and cover all goods and services traded between the participating countries. These agreements are designed to promote free and open trade between countries and to increase economic growth through increased trade.
Free trade agreements are often used by developed countries to gain access to new markets in developing countries. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between 11 countries that aims to create a free trade zone in the Asia-Pacific region. The agreement eliminates tariffs on a wide range of products and services, including agricultural, industrial, and manufactured goods.
Which One to Choose?
Choosing between preferential agreements and free trade agreements depends on your trade goals. If you are a developing country looking to gain easier access to developed markets, preferential agreements may be a better option. However, if you want to increase your exports and gain access to new markets, free trade agreements may be the way to go. Keep in mind that free trade agreements can be challenging to negotiate and may take years to implement, and they may have far-reaching consequences for domestic industries and jobs.
Conclusion
Preferential agreements and free trade agreements are two types of trade agreements aimed at boosting international trade. While preferential agreements provide concessions to specific countries or products, free trade agreements are comprehensive and cover all goods and services traded between countries. When choosing which agreement to pursue, it is crucial to consider your trade goals and the potential impact on your domestic industries and jobs. Ultimately, the success of any trade agreement depends on its implementation and how it benefits the participating countries in the long run.