We explain what FTAs or Free Trade Agreements are, their objectives, advantages and disadvantages. Plus, examples from around the world.
What is a Free Trade Agreement (FTA)?
It is called the Free Trade Agreement (FTA, for its acronym) certain type of international trade agreement governed by the rules of the World Trade Organization (WTO), according to which two or more nations tariffs for exports and imports are significantly reduced of goods and services coming from the other signatory countries.
FTAs are signed by governments to build free trade areas, stripped of tariffs, tax barriers and other protectionist mechanisms, thus allowing free trade between their territories. However, do not necessarily lead to any type of economic, social or political integration between the signatory nations, but it is a strictly commercial agreement.
Although these types of treaties are common today, The first in history was the Franco-British Free Trade Treaty (known as the Treaty of Cobden-Chevalier) signed in 1891 between the United Kingdom and France. It unleashed a wave of bilateral tariff agreements between the rest of the European nations of the time, paving the way for multilateral trade in the region.
See also: Economic blocks
Objectives of Free Trade Agreements
In general, every Free Trade Agreement proposes:
- Eliminate any type of tariff barrier or measures that restrict trade between the signatory nations.
- Promote conditions for fair competition between the commercial actors involved, as well as private investment opportunities.
- Provide an adequate rights framework for the intellectual property protection.
- Stimulate production of the nations involved and healthy competition between them.
- Provide spaces for peaceful conflict resolution.
Importance of Free Trade Agreements
Free Trade Agreements form a fundamental part of global economic initiatives which are moving towards the gradual regional or even global integration of markets and economic actors.
By opposing protectionism, that is, the defense of national markets, they propose a more integrated global panorama, for better and worse, in which borders are not an impediment to the flow of products, services and capital.
Advantages and disadvantages of Free Trade Agreements
Among the advantages of signing an FTA are:
- Export and import facilities between the signatory countries, and greater profits for the commercial actors dedicated to it.
- Its binding nature, that is, mandatory, introduces to commerce fixed conditions that provide stability because they are predictable and certain.
- Promotes foreign investment facilitating the entry of capital.
- It allows nations to export to their neighbors those areas in which they are best, as well Better quality products go further in the global market.
On the other hand, the disadvantages of this type of agreements are:
- Favors markets with greater purchasing power so it is possible to reproduce certain conditions of economic inequality among the signatory countries.
- Not all economic sectors of a country benefit equally from the treaty, and in fact small local producers are unable to compete on an equal footing with large foreign producers.
- In the same way, can contribute to increased unemployment and economic instability in commercially weaker nations.
- Promotes business relocation since large corporations can relocate their factories to countries with greater availability of labor (i.e., cheaper labor), which is to the benefit of the company and not the nations involved.
Examples of Free Trade Agreements
Some of the best-known free trade agreements today are:
- The ANSA-China Free Trade Area (2010) It is a free trade agreement established between China and the States that make up the Association of Southeast Asian Nations (ASEAN): Vietnam, Singapore, Thailand, the Philippines, Malaysia, Laos, Indonesia, Cambodia, Burma and Brunei.
- The Free Trade Agreement between the United States, Central America and the Dominican Republic (2004) A commercial alliance that, as its name indicates, involves the United States, Dominican Republic, El Salvador, Honduras, Nicaragua, Guatemala and Costa Rica, and that has been widely criticized from a political and economic point of view.
- The Arab Economic Unity Council (1997) A pan-Arab free trade zone, that is, for all Arab countries, signed by 14 nations: Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia and the Arab Emirates.
- The Trans-Pacific Strategic Economic Partnership Agreement (2006) Trade agreement involving four nations of the Pacific Rim: Brunei, Chile, New Zealand and Singapore, seeks to defend the commercial interests of the region and eliminate tariffs to significantly increase commercial exchange.
- The Treaty between Mexico, the United States and Canada or T-MEC (2018) It is a free trade agreement between these nations that was signed, reviewed in 2019 and came into force in 2020. This pact replaced the old North American Free Trade Agreement (NAFTA).
References
- “Free Trade Agreement” on Wikipedia.
- “What is a Free Trade Agreement?” (video) in Commerce and Customs (Mexico).
- “What are free trade agreements?” at Utel University Blog.
- “What you should know about trade agreements” in the Ministry of Foreign Trade and Tourism of Peru.
- “Trade agreements” in The Encyclopaedia Britannica.
