A Free Trade Agreement (FTA) is an agreement between two or more countries.
Under this Agreement, they decide that when they are buying things from each other, they will not tax that purchase a lot.
For instance, if a table costs 100 rs to make and the import duty is 35%, the importer must sell it at 135 and above to make money. But if the
import duty is only 10%, then the trader can sell it at 110 and above. This means, he can sell the table cheaper.
If the importer can sell things from a country cheap, he will buy more from that country. The country that is making these things will sell more and make more money.
This is how FTA helps international business.
What is a PTA?
A Preferential Trade Agreement between India and its trading partner provides “right of entry” to certain products. This is done by reducing tariffs on an agreed number of products. India enjoys several PTAs with countries such as Bangladesh, China, South Korea, and Sri Lanka.
How is a FTA different from a PTA?
PTAs serve to reduce tariffs on products but not eliminate (remove completely) them while FTAs completely eliminate tariffs.