A Free Trade Agreement (FTA) is a formal agreement or pact between two or more countries or trading blocs to reduce or eliminate customs duties, quotas, and non-tariff barriers on a substantial portion of trade between them. The core purpose of an FTA is to integrate with global markets, diversify export markets, and secure cheaper access to raw materials and capital goods, thereby stimulating manufacturing and attracting foreign investment.
India's first trade agreement was the Preferential Trade Agreement (PTA) known as the Bangkok Agreement in 1975, but its first bilateral FTA was the India-Sri Lanka Free Trade Agreement (ISFTA), signed on December 28, 1998, and implemented on March 1, 2000.
An FTA works by reducing or eliminating tariffs on traded items, with a key mechanism being the use of a negative list that specifies the few products on which duty is not reduced. This contrasts with a PTA, which uses a positive list for duty reduction. Key provisions cover not only goods but also services, investment, and non-tariff measures like Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT).
The concept connects to the World Trade Organization (WTO), which refers to FTAs as Regional Trade Agreements (RTAs), and to more comprehensive pacts like Comprehensive Economic Partnership Agreements (CEPA).
India has shown a renewed focus on FTAs since 2021. Recent major agreements include the India-UAE CEPA, signed on February 18, 2022, and the India-Australia Economic Cooperation and Trade Agreement (ECTA), which entered into force on December 29, 2022. A significant development is the signing of the India-EFTA Trade and Economic Partnership Agreement (TEPA) on March 10, 2024, with the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland).