Free Trade Area
A free trade area (FTA) is a form of regional economic integration in which member countries eliminate tariffs and other barriers to trade among themselves, while each member retains its own trade policy toward non-members. It is generally considered the first and least restrictive stage of economic integration.[1]
Definition
In a free trade area, goods and services can move freely among member countries, but each member maintains its own tariffs and regulations on trade with non-members. To prevent goods from entering through the lowest-tariff member and then moving freely within the area, members typically apply rules of origin.[1]
Rules of origin
Rules of origin determine which goods qualify for preferential treatment under the agreement. They specify how much of a product's value must originate within the member countries for it to be considered a product of the area. These rules are designed to prevent trade deflection—the practice of routing goods through the lowest-tariff member.[1]
Examples
| Agreement | Members |
|---|---|
| NAFTA (now USMCA) | United States, Canada, Mexico. |
| ASEAN Free Trade Area (AFTA) | Southeast Asian nations. |
| European Free Trade Association (EFTA) | Several European countries outside the EU. |
Comparison with customs union
| Feature | Free trade area | Customs Union |
|---|---|---|
| Internal tariffs | Eliminated | Eliminated |
| External tariffs | Each member sets its own | Common external tariff |
| Rules of origin | Required | Not required |