FTA vs PTA
Times have changed since the cold war era, and so has the trade between countries. Though there is a world body to govern trade between countries known as International Trade Organization, countries have this practice of according preferential treatment when they become a member of a block of countries to help in increasing the volume of trade in goods and services. Two terms PTA and FTA are commonly heard in regard to trade between countries these days. These are similar concepts and hence there is a lot of confusion in the minds of common people as to what they actually mean, and if they are same, why have two acronyms for the same purpose of improving trade ties.
What is PTA?
PTA stands for Preferential Trade Agreement, and is an economic pact between participating countries to help improve quantity of trade by gradually reducing tariffs between participating countries. The barriers to trade are not altogether removed, but a preference is shown towards participating countries in comparison to other countries of the world. There are departures from WTO in the sense that duties and tariffs are reduced significantly. WTO aims to have same tariffs and duties in international trade between countries but in the case of PTA, these tariffs are reduced much more than what GATT allows.
What is FTA?
FTA stands for Free Trade Agreement, and is considered to be an advanced stage in trade between participating countries of a trade block. These are countries that agree to eliminate altogether artificial barriers and tariffs in trade between participating countries. Countries that share cultural links and geographical links are much more likely to have a trade block of this magnitude. One such block is European Union where free trade is practiced between the countries of the union.
What is the difference between FTA and PTA?
The aim of PTA and FTA being similar, thin line dividing these agreements gets blurred at times but it is a fact that PTA is always a starting point and FTA is the final goal of participating countries in a trade block. Whereas PTA aims at reducing tariffs, FTA aims at elimination of tariffs altogether.
Related Links:
1. Difference Between Tariff Barriers and non Tariff Barriers
2. Difference Between GATT and GATS