A Booster of Economy: Free Trade Agreement

What is a free trade agreement?

18 Jun '24
5 min read


The term free trade agreement is often used in the sphere of international relations and we had often heard the term in media because of its trait as a booster of economy. It is an agreement with supports a nation and its businesses to grow on a much bigger scale by selling their goods and services freely without any tax. It also shows a strong relationship between nations as only partners or allied Nations sign this agreement and it becomes a sign of true friendship of not only governments but also of their citizens in general.

When a free trade agreement is signed, both the countries or the organization of countries waive off taxes and duties on certain goods or on all goods and services which then empowers the countries to grow their GDP on a massive scale which in turn create many jobs and can provide an abundance of jobs resulting in reduction of poverty and increasing the living standards of all the citizens of the country. It's often seen that, once a free trade agreement is signed, it will be difficult for governments to break the relations from the other country because it can break the free trade agreement which can damage the economy and the people of that country into a big problem. A free trade agreement is not only a guarantee of growth, but it is also a guarantee of peace in the world as none of the governments will wage a war as the financial risk is huge. It also helps in resolving certain disputes that have arisen because of miss happenings and the faulty nature of business.

There are various groups which had signed free trade agreements:

1. North American free trade agreement (NAFTA) - this was a free trade agreement which was signed in 1992 between the United States of America, Mexico and Canada. The purpose of this agreement was to grow this region of North America substantially, but more emphasis was from the United States of America because he wanted the market access of these two countries as Canada is also an English-speaking country, which can be an advantage in trade and in the case of Mexico, it doesn't produce many goods and so an open market was ready for the US.

2. African continental free trade agreement (AFCFTA) - it is one of the biggest free trade agreements as in this agreement all the African countries have signed it, making it a huge market for all the African countries to trade in. It was signed in 2018 and it benefited them much, especially after the end of corona virus. 

3. ASEAN free trade agreement (AFTA) - the primary motive of this free trade agreement was to support the developing countries of southeast Asia, namely Brunei, Cambodia, Indonesia, Malaysia, Laos, Myanmar, Vietnam, Philippines, Singapore and Thailand. Many of these countries were newly independent (except Thailand as Thailand was already independent) and so to push their GDP growth, they tried to sign a free trade agreement with Europe or with USA but both didn't want to give access of their market to these developing countries and so they finally decided to sign a free trade agreement within themselves. It was signed in 1992. 

4. The greater Arab free trade agreement (GAFTA) - This free trade agreement was signed between the 18 Arab league countries in 1997.

Apart from these, India has also signed various free trade agreements like:

1.  India-Sri Lanka Free Trade Agreement (ISFTA) signed in 1998.
2. India-Nepal Treaty of Trade, signed in 1950, the first free trade agreement of India.
3. India-Bhutan Agreement on Trade, Commerce, and Transit, signed in 1972.
4. India-Singapore Comprehensive Economic Cooperation Agreement (CECA), 2005.
5. India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), signed in 2010, which is an agreement with the southeast Asian countries.
6. India-South Korea Comprehensive Economic Partnership Agreement (CEPA), Signed in 2009.
7. India-Japan Comprehensive Economic Partnership Agreement (CEPA), signed in 2011.
8. India-Malaysia Comprehensive Economic Cooperation Agreement (CECA), signed in 2011.
9. India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), signed in 2021.
10. India-UAE Comprehensive Economic Partnership Agreement (CEPA), signed in 2022.
11. India-Australia Economic Cooperation and Trade Agreement (ECTA), signed in 2022.
12. The India-EFTA Trade and Economic Partnership Agreement (TEPA), signed in 2024. 

But among these trade agreements, the agreements in which India had achieved a trade surplus are the most important ones like:

1.    India has a trade surplus with Australia as India has exported much more goods and especially services which had contributed immensely and one more important thing is that we are able to import a huge amount of coal from Australia because coal is cheaper in Australia and as we have reduced our imports of coal from China, we were in an immediate need of coal. 

2.    Indian has a trade surplus with the four European countries with whom India has signed EFTA namely Switzerland, Iceland, Norway & Liechtenstein as talks with the European union was halted and so Indian government decided to sign that agreement with them.

3.    India has a trade surplus with its closest neighbour Sri Lanka, Bhutan and Nepal as both the countries have high demands of goods and services and as India is their neighbour, the cost of shipping is very less and so India is in advantage every year which always give the Indian economy a boost in GDP growth.

If you have any questions regarding the free trade agreement, then write it in the comment section.

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Written by Naman raj gulbani

Author, poet, entrepreneur