Free Trade Agreements Explained: Types and Benefits
Free Trade Agreements - Definition
A free trade agreement (FTA) is a legal agreement between two or more countries and is intended to provide benefits to its signatories by reducing the rate of duty on imported goods.
Primary Free Trade Agreements Benefits
1. Cost Competitive Advantages
Due to the reduction or elimination of tariffs applicable to your product or service subject to FTAs, there are cost advantages to bringing a product or service to a new market compared to a competitor who cannot benefit from an FTA.
2. Speed To Market (Decrease Barriers to Trade)
When your product is subject to FTAs, it can enter a market more quickly as member countries are subject to reduced border-crossing delays.
Let’s Talk Numbers! Canadian and USA Free Trade Agreements
Currently, there are 20 countries with 14 free trade agreements with the US and 51 countries with 15 FTAs in Canada.
Keep reading to discover the different types of FTAs.
Types of FTAs
A unilateral agreement occurs when developed countries extend preferential tariff treatment to developing countries without receiving any preferential rates in return to help them foster exports and economic development.
Unilateral Free Trade Agreements Examples
- Generalized System of Preferences - Canada
- Generalized System of Preferences - United States
- Generalized System of Preferences - European Union
Bilateral trade agreements occur between two countries to expand access to each other's markets by eliminating barriers such as tariffs, import quotas and export restraints.
Bilateral Free Trade Agreements Examples
- Australia–United States Free Trade Agreement
- Canada–Costa Rica Free Trade Agreement
- Chile–Mexico Free Trade Agreement
Multilateral agreements are similar to bilateral FTAs, except they occur among three or more nations. However, unlike multilateral FTAs, they are much more difficult and time consuming to negotiate.
Multilateral Free Trade Agreements Examples
- Canada-United States-Mexico Agreement (CUSMA)/United States-Mexico-Canada Agreement (USMCA)
- Canada-European Union Comprehensive Economic and Trade Agreement (CETA)
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Looking for more information? Watch our on-demand video to learn more about the essentials of free trade agreements.