[PDF] features of free trade area

What is a free trade area (FTA)?

A free trade area (FTA) refers to a specific region wherein a group of countries signs a trade agreement that seals the economic cooperation among them. The FTA’s main goals are to bring down barriers in trading, specifically tariffs and import quotas, and encourage the free trade of goods and services among its member countries.

What are the benefits of a free trade area?

The goal is to create a trade policy that all countries in the free trade area can feasibly agree upon. The benefits of free trade areas include providing consumers with increased access to less expensive and/or higher quality foreign goods and the lowering of prices as governments reduce or eliminate tariffs.

What is a free trade area without harmonized external tariffs?

In a free trade area without harmonized external tariffs, to eliminate the risk of trade deflection, parties will adopt a system of preferential rules of origin. The term free trade area was originally meant by the General Agreement on Tariffs and Trade (GATT 1994) to include only trade in goods.

How many free trade areas does the United States have?

The United States participates in 14 free trade areas with 20 countries as of 2022. One of the best-known and largest free trade areas was created by the signing of the North American Free Trade Agreement (NAFTA) on Jan. 1, 1994. This agreement, signed by Canada, the United States, and Mexico, encouraged trade among these North American countries.