Key Concepts & Self-Assessment22 Key Facts
Review key What Is a Free Trade Agreement and Why Do Countries Sign One? exam facts and rate your mastery to track revision.
Progress: 0/22 Rated 0 Mastered 0 Review Later
#1
A Free Trade Agreement (FTA) is a bilateral or plurilateral treaty that eliminates or reduces tariffs, quotas, and trade barriers between member states.
#2
FTAs operate under the economic theory of Comparative Advantage, formulated by British political economist David Ricardo in 1817.
#3
Under WTO law, Article XXIV of GATT 1994 permits FTAs as an exception to the fundamental Most-Favoured-Nation (MFN) principle.
#4
Article V of the General Agreement on Trade in Services (GATS) similarly authorizes preferential economic integration agreements for services.
#5
In a Free Trade Area, member states eliminate internal tariffs while retaining sovereign control over their independent external tariffs.
#6
In a Customs Union (such as the European Union Customs Union or MERCOSUR), members adopt a unified Common External Tariff on third-party goods.
#7
A Common Market permits the free cross-border mobility of all four factors of production: goods, services, capital, and labor.
#8
Rules of Origin (ROO) are strict legal requirements determining the economic nationality of a product to prevent trade deflection.
#9
Trade deflection occurs when third-party goods are routed through a low-tariff treaty partner to enter another partner duty-free.
#10
Rules of Origin are verified through Value Addition criteria (e.g., requiring 35% local value addition) or Change in Tariff Classification (CTC).
#11
Non-tariff barriers (NTBs) targeted by modern agreements include sanitary and phytosanitary (SPS) rules and technical barriers to trade (TBT).
#12
Comprehensive Economic Partnership Agreements (CEPA) are deeper than standard FTAs, covering investment, IPR, services, and digital trade.
#13
India enacted the landmark India-UAE Comprehensive Economic Partnership Agreement (CEPA), which entered into full effect on 1 May 2022.
#14
The India-Australia Economic Cooperation and Trade Agreement (ECTA) came into force on 29 December 2022, expanding raw material access.
#15
In March 2024, India signed the Trade and Economic Partnership Agreement (TEPA) with the four-nation European Free Trade Association (EFTA).
#16
EFTA comprises Switzerland, Norway, Iceland, and Liechtenstein, committing to a 100-billion-dollar foreign direct investment pledge in India.
#17
India withdrew from negotiations for the 16-nation Regional Comprehensive Economic Partnership (RCEP) in November 2019 in Bangkok.
#18
India exited RCEP to protect vulnerable domestic dairy farmers, agriculture, and MSMEs from surges of subsidized industrial imports.
#19
FTAs generate economic 'trade creation' (shifting consumption to lower-cost partners) but can also cause 'trade diversion' from efficient non-members.
#20
Trade remedies embedded within FTAs include bilateral safeguard mechanisms, allowing emergency duty snapbacks during sudden import surges.
#21
Bilateral investment treaties (BITs) often accompany modern FTAs, establishing Investor-State Dispute Settlement (ISDS) arbitration frameworks.
#22
India is actively negotiating comprehensive bilateral free trade agreements with the United Kingdom, the European Union, and Oman.
Subject Specialist Commentary
Analytical perspective & practical exam advice from the Master10 academic board
A Free Trade Agreement is a treaty between two or more countries to lower or eliminate import tariffs, quotas, and customs duties on traded goods. Grounded in David Ricardo's economic principle of comparative advantage, such deals allow nations to specialize in producing what they make most efficiently. While lowering prices for consumers, these agreements help domestic businesses access foreign markets and expand cross-border investment without facing heavy taxes.
In UPSC economics and State PSC papers, focus on the stages of trade integration. A classic exam trap is confusing a free trade area with a customs union; remember that free trade members keep their own independent external tariffs, whereas a customs union adopts a shared common external tariff. Also, memorize WTO GATT Article XXIV, which permits these agreements as a legal exception to the Most-Favoured-Nation rule, alongside Rules of Origin.
Related Knowledge Topics to Discover
Looking for more GK practice?
Explore 52,789+ questions across 65 General Knowledge categories.