- Definition: Preferential arrangement where members reduce tariffs on trade among themselves.
- They maintain their own tariff rates for trade with non-members.
- Difference from Multilateral Trade Agreements:
- Scope: FTAs are bilateral or regional (between a few countries). Multilateral agreements (like WTO) involve many countries globally.
- Tariffs: FTAs reduce tariffs among members; multilateral agreements aim to reduce tariffs for all members (MFN principle).
- External Tariffs: FTA members maintain individual external tariffs; some multilateral arrangements (like Customs Union) have common external tariffs.
- Commitment: FTAs are preferential; multilateral agreements are non-discriminatory (MFN).