Free trade agreement
Free-trade agreement (FTA), also known as treaty is an agreement to form a free-trade area between the cooperating states according to international law.
Updated: May 31, 2024
Free trade agreement:
Free-trade agreement (FTA), also known as treaty is an agreement to form a free-trade area between the cooperating states according to international law.
Some facts about Free trade agreement:
- Bilateral and multilateral are two types of trade agreements.
- Bilateral trade agreements happens between two countries when they agree to loosen trade restrictions between the two of them to expand business opportunities where as Multilateral trade agreements happens among three or more countries.
- Multilateral trade agreements are the most difficult to negotiate and agree.
- FTA is a form of trade pacts that encourages international trade by determining the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers.
- Usually, these agreements center on a chapter providing for preferential tariff treatment.
- But, clauses on trade facilitation and rule making in areas such as investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues are also often included.
- Both customs unions and free-trade areas have internal arrangements which is concluded by parties in order to liberalize and facilitate trade among themselves.
- The approach to third parties is the crucial difference between customs unions and free-trade areas.
- A customs union requires all parties to establish and maintain identical external tariffs in order to trade with non-parties, where as parties to a free-trade area does not have such requirement.
- Whatever tariff regime applying to imports from non-parties as they deem necessary may be established and maintained by parties to a free-trade area.
- Parties will adopt a system of preferential rules of origin in a free-trade area without harmonized external tariffs to eliminate the risk of trade deflection.
- Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions under a free trade policy to inhibit their exchange.
- The International Trade Centre (ITC) has developed the Market Access Map with the objectives to facilitate businesses, governments and researchers in market access issues.
Legal aspects of free trade agreements:
- Free trade areas formation is considered an exception to the most favored nation (MFN) principle in the World Trade Organization (WTO) as the preferences that parties to a free-trade area grant each other go beyond their accession commitments.
- Although WTO members are allowed to establish free-trade areas or to adopt interim agreements necessary for the establishment as per Article XXIV of the GATT, there are several conditions with respect to free-trade areas, or interim agreements for the formation of free-trade areas.
- Firstly, WTO law allows the establishment of a free-trade area to grant preferential treatment among its member is legitimate, but the parties to a free-trade area are not allowed to treat non-parties less favorably than before the area is established.
- Secondly, the tariffs and other barriers to trade must be eliminated to substantially all the trade within the free-trade area
- The Secretariat must be notified by WTO members when they conclude new free trade agreements.
- The texts of free trade agreements are need to be reviewed under the Committee on Regional Trade Agreement.
- A free trade agreement is allowed by Article XXIV of the GATT.
WTO's Regional Trade Agreements Information System:
- The database is constructed based on the official source of information on free trade agreements that referred to as regional trade agreements in the WTO language as WTO members are required to notify to the Secretariat their free trade agreements.
- Users are allowed to seek information on trade agreements notified to the WTO by country or by topic such as goods, services or goods and services by using this database.
- Users are provided with an updated list of all agreements in force.
- Reports, tables and graphs containing statistics on these agreements, and particularly preferential tariff analysis are displayed
- A variety of foreign government activities that affect your business are addressed by U.S. FTAs.
- Bilateral and multilateral are two types of trade agreements.
- Bilateral trade agreements happens between two countries when they agree to loosen trade restrictions between the two of them to expand business opportunities where as Multilateral trade agreements happens among three or more countries.
- Multilateral trade agreements are the most difficult to negotiate and agree.
- FTA is a form of trade pacts that encourages international trade by determining the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers.
- Usually, these agreements center on a chapter providing for preferential tariff treatment.
- But, clauses on trade facilitation and rule making in areas such as investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues are also often included.
- Both customs unions and free-trade areas have internal arrangements which is concluded by parties in order to liberalize and facilitate trade among themselves.
- The approach to third parties is the crucial difference between customs unions and free-trade areas.
- A customs union requires all parties to establish and maintain identical external tariffs in order to trade with non-parties, where as parties to a free-trade area does not have such requirement.
- Whatever tariff regime applying to imports from non-parties as they deem necessary may be established and maintained by parties to a free-trade area.
- Parties will adopt a system of preferential rules of origin in a free-trade area without harmonized external tariffs to eliminate the risk of trade deflection.
- Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions under a free trade policy to inhibit their exchange.
- The International Trade Centre (ITC) has developed the Market Access Map with the objectives to facilitate businesses, governments and researchers in market access issues.
- Free trade areas formation is considered an exception to the most favored nation (MFN) principle in the World Trade Organization (WTO) as the preferences that parties to a free-trade area grant each other go beyond their accession commitments.
- Although WTO members are allowed to establish free-trade areas or to adopt interim agreements necessary for the establishment as per Article XXIV of the GATT, there are several conditions with respect to free-trade areas, or interim agreements for the formation of free-trade areas.
- Firstly, WTO law allows the establishment of a free-trade area to grant preferential treatment among its member is legitimate, but the parties to a free-trade area are not allowed to treat non-parties less favorably than before the area is established.
- Secondly, the tariffs and other barriers to trade must be eliminated to substantially all the trade within the free-trade area
- The Secretariat must be notified by WTO members when they conclude new free trade agreements.
- The texts of free trade agreements are need to be reviewed under the Committee on Regional Trade Agreement.
- A free trade agreement is allowed by Article XXIV of the GATT.
- The database is constructed based on the official source of information on free trade agreements that referred to as regional trade agreements in the WTO language as WTO members are required to notify to the Secretariat their free trade agreements.
- Users are allowed to seek information on trade agreements notified to the WTO by country or by topic such as goods, services or goods and services by using this database.
- Users are provided with an updated list of all agreements in force.
- Reports, tables and graphs containing statistics on these agreements, and particularly preferential tariff analysis are displayed
- A variety of foreign government activities that affect your business are addressed by U.S. FTAs.