What is the difference between a free trade agreement and a preferential trade agreement?

Question

What is the difference between a free trade agreement and a preferential trade agreement?

What is the difference between a free trade area and a free trade agreement?

Answer 1

A free trade agreement stipulates free (cero tariff) trade between countries/states. In practice, this also includes broader provisions, such as agreements on movement of capital, goods and people (such as NAFTA). A free trade agreement will also mostly include all or a large portion of goods.

In contrast, a preferential trade agreement is much less broad covering preferential (i.e. low or lower other countries) tariffs for a set of products or services. A preferential trade agreement can also just be unilateral or for a particular amount of years, etc.

A free trade area is an area inside a country or state where free-trade rules (in general, but depending on the country and circumstance) apply. These areas are intended mostly for the import and export of goods, and are useful for a country that imports a good as an input by which another good is produced, thus lowering tariff costs for the producers.

A free trade agreement is, of course, not a physical place (see explanation above).

Further, I recommend simply wikipedia in this case...

Answer 2

free trade is the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens. Formerly insular economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively.

Free trade enables nations to concentrate their efforts on manufacturing products or providing services where they have a distinct comparative advantage, according to the theory first espoused by economist David Ricardo two centuries ago. A free trade policy should enable a nation to generate enough foreign currency to purchase the products or services that it does not produce indigenously. The process works best when there are few if any barriers to entry for such imports. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade.

While....

trade agreement is any contractual arrangement between states concerning their trade relationships. Trade agreements may be bilateral or multilateral—that is, between two states or more than two states.

For most countries international trade is regulated by unilateral barriers of several types, including tariffs, non-tariff barriers, and outright prohibitions. Trade agreements are one way to reduce these barriers, thereby opening all parties to the benefits of increased trade.

In most modern economies the possible coalitions of interested groups are numerous, and the variety of possible unilateral barriers is great. Further, some trade barriers are created for other, non-economic reasons, such as national security or the desire to preserve or insulate local culture from foreign influences. Thus, it is not surprising that successful trade agreements are very complicated. Some common features of trade agreements are reciprocity, a most-favored-nation (MFN) clause, and national treatment of non tariff barriers.