A free trade agreement (FTA) is defined by the World Trade Organisation as an agreement between countries that removes tariffs and other restrictions on “substantially all” goods traded between them.
These agreements differ from customs unions in that countries remove tariffs on goods traded between them but do not adopt the same tariffs on goods imported from other countries.
Because FTA partners charge different external tariffs, FTAs require complex rules that define whether a good produced in one FTA partner is eligible for tariff-free treatment in another. These “rules of origin” prevent valuable parts such as engines and high-tech components that are made outside an FTA from being slipped into a high external tariff FTA partner from a low external tariff FTA partner.
Modern FTAs sometimes remove barriers for trading services and the sectors covered vary according to the economic relationships between the countries involvedView all facts