A Free Trade Agreement (FTA) is a treaty or agreement under international law that establishes a free-trade area between two or more cooperating states. It is a legally binding arrangement that aims to reduce or eliminate trade barriers like tariffs, quotas, and certain regulatory restrictions on goods and services. FTAs can be bilateral (between two countries) or multilateral (among three or more countries).
The concept's history traces back to the Cobden-Chevalier Treaty between Britain and France in 1860. Following World War II, the General Agreement on Tariffs and Trade (GATT) was established in 1947 to reduce global tariffs and combat the protectionism that had contributed to the collapse of international trade. The GATT provided a legal basis for regional blocs under Article XXIV.
FTAs function by granting preferential treatment to member nations, primarily through the reduction or elimination of import tariffs. A key mechanism is the Rules of Origin (ROO), which determines if a product qualifies for preferential tariffs by proving it originated in a member country. Modern FTAs extend beyond goods to include provisions on investment, intellectual property protection, and technical standards.
FTAs are closely connected to the World Trade Organization (WTO), which supplanted the GATT in 1995. The formation of an FTA is an exception to the WTO's Most Favored Nation (MFN) principle, which requires equal treatment for all members. This exception is permitted under Article XXIV of GATT for goods and Article V of the General Agreement on Trade in Services (GATS) for services.
India has renewed its focus on FTAs since 2021, signing seven new agreements after a ten-year gap. Recent examples include the CEPA with the UAE in May 2022 and the Economic and Trade Agreement with Australia in December 2022. India's new strategy involves negotiating comprehensive agreements that cover wider economic cooperation, including non-tariff barriers and mobility of skilled professionals. A major recent development is the conclusion of the India–EU FTA negotiations on January 27, 2026. While tariffs are reduced on a majority of goods, India maintains exclusion lists to protect sensitive sectors like dairy and agriculture.