Free Trade Agreement

What is a Free Trade Agreement?

A free trade agreement, or FTA, is an arrangement between two or more nations that reduces trade barriers between them in order to allow for easier imports and exports. With this agreement, goods and services can be exchanged across borders with little or no restraints, such government tariffs, taxes, or prohibitions, among participating countries.

In today’s trade economy, most FTA’s are implemented through a formal, treaty-like agreement and include some regulatory measures. In fact, very few trade agreements actually result in completely free trade.

Despite restrictions, FTA’s have proven to be one of the most efficient and effective ways to open markets to foreign goods and services and to boost exports. This is because FTA’s both reduce trade barriers and protect the interests of domestic businesses, through enhanced regulations in FTA partner countries.

What important FTA’s is the US a part of?

Possibly the most important Free Trade Agreement that the U.S. holds with foreign nations is known as the USMCA, or the United States-Canada-Mexico Trade Agreement (formerly known as NAFTA).

This trilateral agreement allows for duty-free imports and exports between the three countries if a significant portion of the ingredients or parts of the goods were manufactured in one of the three countries. To qualify the product must fulfill the requirements, known as the “Rules of Origin,” which vary from agreement to agreement.

Some other important trade agreements:

• AUSTA: United States-Australia Trade Agreement

• Israel-United States Free Trade Agreement

• United States-Korea Free Trade Agreement

• CAFTA-DR- Central America Free Trade Agreement, Dominican Republic

• United States-Panama Free Trade Agreement