Trade agreements are broadly classified in to five types.
Preferential Trade Agreements (PTAs)
regional agreement in which members of the PTA impose a preferential
tariff or lower customs duty on the products originating from the member countries.
Free Trade Agreements (FTAs)
FTA is a special case of PTA where all tariff and non-tariff barriers
are abolished and free access is allowed to the products of member
countries. In both PTA and FTA, each member is free to maintain
different most-favoured-nation (MFN) barriers on non-members. Rules of
Origin between the members of FTA is agreed to ensure that genuine
products of the FTA partners alone are given duty-free access
Customs Unions (CUs)
A Customs Union moves beyond a free trade area by establishing a
common external tariff on all trade between, members and non-members.
Customs Unions typically contain mechanisms to redistribute tariff
revenue among members.
Common Markets (CMs)
A Common Market deepens a customs union by providing free flow of
factors of production such as labour and capital in addition to the flow
of outputs.
Economic Unions (EUs)
In an Economic and Monetary Union, members share a common currency and macro-economic policies (Example European Union).
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