FTA, Free Trade Agreement

Free trade is commerce between countries without government interference and protective duties. An agreement between various countries to trade goods and services without preferences, quotas, tariffs or excise duties is known as an FTA or a free trade agreement. A free trade agreement minimizes certain complications involved in commercial exchange to boost trade based on comparative advantage. Comparative advantage is the ability of a country to produce goods at a cost lower than another country.

Free Trade Agreement: Importance

There are a number of things that make free trade agreements important.

Obstacles such as taxes, quotas and tariffs are removed.

The inability to distort trade policies gives every player an equal opportunity in the global market. The absence of government interference prevents the formation of monopolies and oligopolies.

Capital can move freely across territorial borders.

• Free access to markets and market information.
• Greater opportunities of employment, with the free movement of labor between countries.

History of Free Trade Agreements

The theoretical questioning of protectionism began in England and other parts of Europe during the sixteenth century. Rationalizations were made to advocate the policy of free trade. Adam Smith, in the mid-eighteenth century, proposed the thought that free trade was the reason for the prosperity of most of the civilizations.

The emergence of the Dutch as an economic power, after the dominance of Spain declined, brought the free trade versus mercantilism dispute into the limelight. Classical liberals promoted the concept of free trade on the basis of its favorable position in terms of world security.

FTA: List of Agreements

Some of the important free trade agreements operating among the various nations of the world are listed below:

• North American Free Trade Agreement (NAFTA): Mexico, Canada and the US.
• European Economic Area (EEA): EU and non-EU members of Europe
• ASEAN Free Trade Area (AFTA): Southeast Asian nations
• Latin American Integration Association (ALADI): South American countries
• Commonwealth of Independent States Free Trade Agreement (CISFTA): CIS

Free trade agreements also strengthen the political relations between countries apart from benefiting them commercially.