One significant driving force working on to boost economic growth is international trade. Trans-Atlantic Trade & Investment Partnership (TTIP) and Trans-Pacific Partnership are the two mega-regional spots that are always in public debate, but there’s a lot more than this.
About 420 regional trade agreements listed by the World Trade Organization are working on to shape the global trade in the whole world. However, it is essential to note down that not all of them are FTAs or Free Trade Agreements.
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What is meant by Free Trade Areas?
Quoting exactly the OECD definition, a free trade area is a group of “countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members.”
The important & foundation of these sort of agreements is free to trade&exchange of goods and services. The free movement is in the sense of both price and region-wise. However, it should be taken not of that not all products are exempted from their tariffs.
The main aim of the free trade agreement is to increase the benefit margin of the customer. This kind of agreement also helps in reaching a new market, boosting up the reach of local products and setting up more industries thus more jobs emerging.
Types of Trade Agreements
There are three types of trade agreements:
- Unilateral Trade Agreement – a country imposes trade restrictions, but no other country reciprocates.
- Bilateral Trade Agreements: Both the nation loosens up their trade restrictions for the profitability of both side.
- Multilateral Trade Agreement: It has three or more countries and is one of the most challenging trade agreements to negotiate. All the participating countries have to come up to the same agreement. This kind of trade agreement is the true essence of Free Trade Areas.
World’s Major Free Trade Areas
On the basis of comparative advantages, free trade is allowed between countries with no or few price control. This helps in meeting the deficit of countries, and with good trade deals, a country gets more efficient, and profitability is established between all the participating countries.
Agreeing countries have to develop a set of terms and conditions before the trade policy sets foot on land. This includes price tariffs, customs clearance, taking not of possible trade disputes, transportation medium, management of intellectual property rights and many others.
Let’s have a look at some of the major Free Trade Area in the world and the gains of individual countries from the policy:
North American Free Trade Agreement (NAFTA) – the United States of America, Canada, and Mexico
This trilateral trade agreement was established in the year 1994 with member nations of the U.S.A, Canada,and Mexico. The total trade of trilateral merchandise exceeded the US $1.12 trillion in 2014. Tariffs, however, weren’t entirely abolished until recently in 2008.
This trade supported over 3 million jobs in the US and created over 4.7 million jobs in Canada since 1993. With this trade agreement, Canada has become the largest good exporter to the US. Impact on Mexico is harder to assess, but GEA, a Mexican Economic Consulting firm has reported that farm exports have tripled the price of basic household goods has cut down to half after the implementation of this trade policy.
Association of Southeast Asian Nations Free Trade Area (AFTA)
This trade agreement was signed in Singapore in the year 1992. Indonesia, Malaysia, Brunei, Singapore, Thailand, and the Philippines were the original members when the deal went on the table. To this, the latest addition of countries was Cambodia, Laos, Vietnam, and Myanmar.
All import and export duties have been removed between these nations. The trade deal has entered into agreements with other countries also, like China, elimination up to 90 percent tariff on imported goods. This deal has helped over 600 million people and has a GDP of US $2.3.
Southern Common Market (MERCOSUR)
Dealing with Southern American economy, MERCOSUR is one of the world’s leading economic bloc. The free movement of goods, services, capitals, and people is still to become a reality as the disputes have slowed down the progress. Still, MERCOSUR has a major influence on the global economy.
Common Market of Eastern and Southern Africa (COMESA)
It was established in the year 1994. It aims to develop the regional condition & human resources for better services to the population. United Nation reported the primary focus of COMESA to establish one of the largest economic and overcome barriers to trade.
It has 19 member states with the annual billings of exports going higher than $80 billion. COMESA is a significant marketplace be it for Africa or the rest of the world.
EU is the world’s largest economy and also the owner of the tag of ‘biggest importer and exporter’. It is a single market, with no tariff, taxes, the quota on trade. This single market permits free movement of people, capital, goods, and services.
By 1993, the establishment of a single market was complete and thus formed the European Union. It also has free trade agreements with other countries like Mexico, South Africa, and South Korea.
Free Trade Agreement is crucial when all the countries come to a common understanding and negotiation to help better exchange of required goods and services with lowered cost. It is a bilateral economic benefit, pulling up the overall economic growth rate. Major Free Trade Areas in the world happen to be holding up the largest portion of the world economy and are delivering the customers with lowered prices for the services.