During the FTA negotiation process, participating countries agree to offer each other preferential market access. This is done by reducing the Most Favoured Nation (MFN) tariffs: import tariffs applied on imports of goods from all third party countries.

The reduced tariffs are known as preferential tariffs as they offer preferential treatment to FTA members. They are negotiated under each agreement separately and differ substantially between agreements.

Under an FTA, the preferential tariffs applied by members can differ for the same product – preferential import tariff offered by one FTA party can differ from the tariff offered by another for the same product.

While preferential tariffs are often set at 0% it is important to note that FTAs do not offer duty free access for all products (i.e. all tariff lines in HS Classification). Preferential tariffs can be set at any level between the MFN tariff and 0%.

In addition the liberalisation of tariffs can also occur in stages over a number of years. For example, a duty on a product can be reduced from 8% MFN rate over three years: lowered to 5% in the first year, to 3% in the second year to 0% in the third year.

Before trading goods under preferential tariff treatment exporters / importers should verify the preferential rates for their products under the trade agreement they intend to use (see Exporters / importers checklist).