Free Trade Agreements (FTA) between two countries or group of countries agree to eliminate tariffs, quotas and preferences on most of the goods (if not all) between them. Countries choose FTA if their economical structures are complementary, not competitive. Many governments, throughout the world have either signed FTA, or are negotiating or contemplating new bilateral free trade and investment agreements. India has already signed five FTAs and another twenty odd ones are under negotiations. The FTA between India and Singapore is the most noteworthy of all.

Between countries, many trade and non-trade barriers (such as immigration restrictions, cultural, language barriers etc.) to the easy exchange of goods often occur. It is commonplace for there to be import duties of one kind or another (as goods enter a country) and the levels of sales tax and regulation often vary by country. The aim of a free trade area, created by FTAs, is to so reduce barriers to easy exchange that trade can grow as a result of specialisation, division of labour, and most importantly via (the theory and practice of) comparative advantage. It is assumed that free trade and the removal of regulations on investment will head to economic growth reducing poverty and increasing standards of living and generating employment opportunity.

FTAs are also important from a geopolitical and diplomatic point of view. In fact, most FTAs are driven by geopolitical strategic consideration than mere economic reasons. For example, the administration of Japan and India are under pressure from their respective political leaderships to clinch a FTA despite major points of disagreement, purely for political/diplomatic reasons.

Past experience in FTAs show that these kinds of agreements allow transnational corporations (TNCs) more freedom to exploit workers shaping the national and global economy to suit their interests. In simple terms it removes all restrictions on businesses to the advantage of all the participating nations.

FTAs may not always be struck on a parity of status or obligations. Under the Indo-Sri Lankan FTA, India agreed to phase out tariff on goods within three years whereas Sri Lanka did it in eight years. These issues are negotiated by factoring in the population, market size of each country, industrial productivity, tariff rates and volume of trade between the contracting countries among others.

However, FTAs should not turn into a Trojan horse. Adequate measures should be put in place to safeguard the domestic industry and workers. Anti dumping law should be fine tuned in keeping with such FTAs. Rules of Origin should be well defined under every such FTA and strictly adhered to. Loss on revenue due to reduction of tariff has to be made up by increased volume of trade.