Preferential trade agreements (PTAs) are bilateral or multilateral agreements that aim to reduce or eliminate trade barriers between participating countries. They are also known as regional trade agreements (RTAs) and are a popular approach to enhance economic integration and trade liberalization. There are several types of PTAs, each with its own features and objectives. In this article, we will discuss the main types of PTAs and their characteristics.
Free Trade Agreements (FTAs)
FTAs are the most common type of PTA and aim to remove all trade barriers, including tariffs and quotas, among participating countries. They are usually signed between two or more countries with the goal of increasing trade and investment flows. FTAs often include provisions for intellectual property protection, environmental standards, and labour laws.
A customs union goes beyond a free trade agreement by establishing a common external tariff on goods imported from outside the group. This means that member countries agree to apply uniform trade policies towards third countries. The European Union is an example of a customs union, where tariffs on goods imported from non-EU countries are the same for all member states.
Common markets are a step further than customs unions and aim to integrate not only trade but also factors of production such as labour and capital. In a common market, member countries allow the free movement of goods, services, capital, and labour. The European Union’s Single Market is an example of a common market.
Economic and Monetary Unions
An economic and monetary union is a form of regional integration that goes beyond a common market. It involves the adoption of a common currency and a common monetary policy among participating countries. The most prominent example of an economic and monetary union is the Eurozone, which comprises 19 EU member states that have adopted the Euro as their currency.
Preferential Trade Agreements with Developing Countries
PTAs with developing countries aim to enhance their economic growth by providing them with preferential access to the markets of developed countries. These agreements usually include provisions for technical assistance and capacity building to help developing countries benefit from the PTA. The African Growth and Opportunity Act (AGOA) is an example of a PTA with developing countries, which provides duty-free access to the US market for eligible African countries.
Preferential trade agreements have become a popular tool for enhancing economic integration and trade liberalization. FTAs, customs unions, common markets, economic and monetary unions, and PTAs with developing countries are the main types of PTAs, each with its own features and objectives. The choice of PTA depends on the level of integration that countries wish to achieve and the objectives they want to pursue.