A Free Trade Agreement (FTA) is a legally binding treaty between two or more sovereign states that establishes a free-trade area. The core purpose of an FTA is to reduce or eliminate tariffs and other trade barriers on goods and services between the member countries, thereby facilitating trade and deepening economic relationships. The concept of free trade gained significant traction in the 20th century, with the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, which aimed to dismantle barriers restricting international trade. The legal basis for modern FTAs is provided by Article XXIV of the GATT 1994, which allows member nations of the World Trade Organization (WTO) to form free trade areas as an exception to the "most-favored-nation" principle.
An FTA works by setting clear rules for trade, which typically center on a Tariff Elimination Schedule where duties are phased out over several years. Key provisions include the removal of non-tariff barriers like discriminatory technical standards, the protection of Intellectual Property rights, and the establishment of formal dispute resolution mechanisms. Crucially, FTAs rely on strict Rules of Origin (RoO) to ensure that preferential tariff benefits are reserved for goods genuinely produced within the member nations, preventing third-party countries from "laundering" their products through the free-trade area. FTAs are distinct from a Customs Union, as FTA members maintain their own independent external tariffs against non-member countries.
India has recently accelerated its use of FTAs as a geo-economic tool, signing seven new trade agreements since 2021, after a ten-year gap. For instance, the India-UK Free Trade Agreement was signed in 2025, aiming to double bilateral trade by 2030. The Oman FTA became operational on June 1, and India is set to implement at least two to three more substantive FTAs within six months of June 2026. This recent shift signifies a move towards a more open economy and a strategy to diversify export markets and attract foreign investment.