Preferential Agreement and Free Trade Agreement: Compare and Contrast
Preferential Agreement and Free Trade Agreement are two terms often used in the world of trade and business. Both seem to be similar, but they are different in terms of scope, objectives, and implications. In this article, we will compare and contrast Preferential Agreement and Free Trade Agreement to help you understand their differences.
Preferential Agreement
Preferential Agreement is a type of trade agreement where two or more countries agree to lower trade barriers for each other. It is often used as a stepping stone for negotiating a more extensive, Free Trade Agreement. Preferential Agreements aim to grant preferential treatment to member countries by reducing tariffs and other barriers to trade.
The scope of Preferential Agreements is often limited to specific products or sectors. For instance, a Preferential Agreement between two countries may only apply to agricultural products, textiles, or technology. Preferential Agreements are less ambitious than Free Trade Agreements since they only reduce trade barriers for a limited number of products.
Preferential Agreements have been a popular tool for developing countries to enhance their economic growth. They enable countries to expand their export markets and benefit from economies of scale. However, Preferential Agreements can also result in trade diversion. Non-member countries may face higher tariffs and trade barriers outside the Preferential Agreement, making it difficult for them to compete with member countries.
Free Trade Agreement
A Free Trade Agreement is a more comprehensive agreement between two or more countries aimed at eliminating trade barriers entirely. Free Trade Agreements are more ambitious than Preferential Agreements since they seek to reduce or eliminate all trade barriers, including tariffs, quotas, and regulatory barriers.
Free Trade Agreements are designed to promote economic cooperation and integration among member countries. They aim to create a level playing field for all countries to compete fairly. Free Trade Agreements can result in increased trade, investment, and job creation. However, they can also have negative effects on some sectors and industries, particularly those that are less competitive.
Free Trade Agreements are often negotiated between countries with similar economic systems and levels of development. The agreements can result in significant economic benefits for member countries, but they can also have social and environmental impacts. For instance, Free Trade Agreements can result in a loss of jobs in some sectors, particularly in manufacturing and agriculture.
Comparison
Preferential Agreement and Free Trade Agreement differ in scope, objectives, and implications. Preferential Agreement aims to grant preferential treatment to specific products or sectors, while Free Trade Agreement aims to eliminate trade barriers entirely. Preferential Agreement is a stepping stone for negotiating Free Trade Agreement, while Free Trade Agreement is more ambitious and comprehensive.
In terms of implications, Preferential Agreement can result in trade diversion, while Free Trade Agreement can have positive and negative effects on various sectors and industries. Preferential Agreement is often used by developing countries to expand their export markets, while Free Trade Agreement is often negotiated between countries with similar economic systems and levels of development.
Conclusion
In conclusion, Preferential Agreement and Free Trade Agreement are two types of trade agreements that differ in scope, objectives, and implications. Both agreements aim to reduce or eliminate trade barriers, but Free Trade Agreement is more ambitious and comprehensive. Preferential Agreement is often used as a stepping stone for negotiating Free Trade Agreement, while Free Trade Agreement can have significant economic, social, and environmental impacts. Ultimately, the choice of which agreement to pursue depends on the economic, social, and political priorities of the member countries involved.