Preferential Trade Agreements:

Preferential trade agreements (PTAs) refer to a trade agreement between nations that reduces tariffs for certain products to the countries who sign the agreement. While the tariffs are not necessarily eliminated, they are lower than countries not party to the agreement. It is a form of economic integration. Preferential Trade Agreements (PTAs) are agreements among a set of countries involving preferential treatment of bilateral trade between any two parties to the agreement relative to their trade with the rest of the world. Preferences, however, need not extend to all trade between the two, and the coverage could depend on the type of PTAs. Customs unions and the so-called free trade areas are common forms of PTAs. Members of most PTAs belong to a well-defined geographical area, such as for example,North American Free Trade Area (NAFTA), the European Union (EU), and Association of Southeast Asian Nations (ASEAN). For this reason regional PTAs are called Regional Trade Agreements (RTAs). A preferential trade agreement is perhaps the weakest form of economic integration. In a PTA countries would offer tariff reductions, though perhaps not eliminations, to a set of partner countries in some product categories. Higher tariffs, perhaps non-discriminatory tariffs, would remain in all remaining product categories. This type of trade agreement is not allowed among WTO members who are obligated to grant most-favored nation status to all other WTO members. Under the most-favored nation (MFN) rule countries agree not to discriminate against other WTO member countries. Thus, if a country's low tariff on furniture imports, for example, is 5%, then it must charge 5% on imports from all other WTO members. Discrimination or preferential treatment for some countries is not allowed. The country is free to charge a higher tariff on imports from non-WTO members, however. In 1998 the US proposed legislation to eliminate tariffs on imports from the nations in sub-Sahara Africa. This action represents a unilateral preferential trade agreement since tariffs would be reduced in one direction but not the other.