Prelims Perspective: What needs to be learned?

• Free Trade Agreement
• Levels of Economic Integration 

Mains Perspective: Notes need to be prepared

• Implications of Free Trade Agreements on the Indian Economy (GS III- Economy)
• Effects of agreements involving India and/or affecting India’s interests (GS II – IR)

What needs to be known?

• Free Trade Agreement (FTA)
  • What is it?: Eliminates tariffs and quotas on most goods and services among members, but each retains its own external tariffs. Examples include NAFTA (now USMCA) and EFTA.
  • Levels of Economic Integration
    • Preferential Trade Agreement (PTA): Countries offer reduced tariffs on select goods to each other while maintaining individual trade policies with outsiders. This is the shallowest form.
    • Free Trade Area (FTA)
    • Customs Union: Adds a common external tariff (CET) on non-members to an FTA, harmonizing trade policy toward outsiders. The EU began as one.
    • ​Common Market: Extends customs union by allowing free movement of factors like labor and capital across borders.
    • Economic and Monetary Union: Harmonizes fiscal, monetary policies, and often adopts a single currency, with supranational institutions. The Eurozone exemplifies this.
    • Complete (Political) Union: Full unification of economic, fiscal, and political policies under a central authority, with synchronized sovereignty.

Source: The Hindu