Free trade agreements (FTAs) have become a common topic of discussion in recent years, especially with the rise of protectionist and nationalist policies. Simply put, FTAs are agreements between two or more countries that aim to reduce or eliminate barriers to trade, such as tariffs or quotas, in order to promote economic growth.
The concept of free trade is based on the idea that when two countries specialize in producing the goods and services that they are comparatively more efficient at producing, and then trade with each other, both countries will benefit from the exchange. This is because each country can obtain the goods and services they need at a lower cost than if they had to produce everything themselves. Free trade agreements aim to facilitate this exchange by lowering the costs of trade, making it easier for businesses to engage in cross-border commerce.
FTAs can take different forms depending on the countries involved and the sectors that are being liberalized. For example, some FTAs may only focus on goods, while others may also include services, investment, and intellectual property. Additionally, some FTAs may have specific provisions related to labor and environmental standards, or dispute settlement mechanisms.
One of the most well-known examples of an FTA is the North American Free Trade Agreement (NAFTA), which was signed in 1994 between Canada, Mexico, and the United States. NAFTA eliminated most tariffs on goods traded between the three countries, and also established rules for investment and intellectual property. The agreement has been credited with boosting trade between the three countries, but also criticized for causing job losses in some industries.
Another example of an FTA is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was signed in 2018 between 11 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). The CPTPP aims to reduce tariffs and promote trade in goods and services, as well as establish rules for investment, intellectual property, and labor standards. Notably, the United States withdrew from negotiations for the agreement in 2017.
Overall, FTAs are seen by many as a way to promote economic growth, increase efficiency, and reduce poverty. However, they are not without their challenges and controversies, particularly regarding their impact on domestic industries and workers. As such, the debate over free trade agreements and their meaning is likely to continue.