Free Trade

Reviewed by Anjaneyulu | Updated on Sep 25, 2022



Free trade is a trade policy that reduces or eliminates restrictions on imports and exports. It can also be understood as the free market idea applied to international trade. Free Trade Agreement (FTA) governs free trade among countries.

What is Free Trade?

FTA is a multinational agreement to form a free-trade area between two or more nations to reduce barriers and to execute imports and exports among them. International laws will be considered while framing these agreements, and they are also known as treaties between the countries.

FTA, a form of trade pact, determines the tariffs and duties that countries impose on imports and exports to reduce or eliminate trade barriers; thus, encouraging international trade.

Any country may enter into a free trade agreement with any other country. It is to be noted that India has viewed FTAs as an important tool to enhance its trade and investment, and signed several trade agreements with various countries or groups. India is one among the top countries in Asia with the maximum number of FTAs either in operation or under negotiation/proposal.

According to the Asian Development Bank(ADB) Institute, India currently has 42 trade agreements either in effect, signed, under negotiation, or proposal. Out of these trade agreements, 13 are in effect and one is signed but not yet implemented; 16 under negotiation; and 12 are proposal/under consultation/study. Most FTAs between India and other Asian countries are quite different from each other in terms of the level of their economic development.

FTAs are complicated documents by nature. There is a need to answer the following questions to know whether the content of an FTA apply to your business or not: 1. Is the product or service included within the FTA remit? 2. What are the dutiable advantages for the product or service? 3. What are the rules and documentary requirements on claiming duties at lower rates? 4. What are the tax advantages that may apply to business operations? 5. How can a person implement and claim these?

Such advice needs to be handled by professional firms, which are familiar with India FTA agreements. India has been somewhat procedural about some of its trade agreements.

Despite this, certain FTAs, such as those with the Association of South-East Asian Nations (ASEAN) region has provided significant reductions on trade tariffs. Benefits from India FTA cannot be overstated and should always form a part of your overall business strategy for investing in India.

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