In short, a free trade agreement is a bilateral trade agreement between two parties. It regulates the conditions of trade in goods between two parties and generally focuses on the elimination of tariffs and barriers to trade. Recent trade agreements concluded by the EU also cover other areas, including competition, protection of intellectual property rights, customs cooperation, regulation. As a general rule, services are not treated as extensively in FTA as goods. The best possible outcome of trade negotiations is a multilateral agreement that includes all major trading countries. Then, free trade will be expanded to allow many participants to get the most out of trade. The General Agreement on Tariffs and Trade (GATT), co-founded by the United States after World War II, is an excellent example of a multilateral trade agreement. [Editor`s note: Since this was written, GATT was transformed into the World Trade Organization (WTO) in 1995.] The world`s major countries launched GATT in response to the waves of protectionism that crippled world trade during the Great Depression. With more than 100 member countries, GATT is both an international agreement that sets the rules of world trade and an international institution that provides a forum for members to negotiate the removal of barriers to trade. Please note that the elimination of customs duties applies only to goods originating in a signatory State, i.e. originating in the Contracting Parties.
It is important to note that the origin of the goods is not determined by where the goods are shipped from. On the contrary, there are complex rules for determining the origin of goods agreed and documented in a free trade agreement. As a result, many countries have turned away from GATT and turned to bilateral or regional trade agreements. One such agreement is the United States-Canada Free Trade Agreement (USCFTA), which entered into force in January 1989. The USCFTA eliminated all tariffs on trade in goods between the United States and Canada and reduced restrictions on trade in services and foreign investment, categories that do not fall under the GATT. Economists estimated that the USCFTA would increase Canada`s national income by 0 to 8 percent, with the estimate depending on the assumptions underlying the analysis. Total U.S. profit roughly equals Canadian profit, but gains as a percentage of U.S.
income are much smaller, with the U.S. economy being about ten times larger than the Canadian economy. The United States also has a free trade agreement with Israel and is negotiating with Canada to bring Mexico into a North American Free Trade Agreement (NAFTA), and it has considered bilateral or regional trade agreements with other countries in Latin America, Asia and the Pacific. Recently, free trade zones have also been established in parts of South America. The agreement removes around 99% of tariffs on Japanese products sold to the EU. Around 94% of tariffs on EU exports to Japan will be abolished and will rise to 99% in the future. The difference reflects exceptions for products such as rice, which enjoys strong political protection against imports into Japan. There are important distinctions between customs unions and free trade areas. Both types of trading blocs have internal agreements that the parties conclude to liberalize and facilitate trade between them. The fundamental difference between customs unions and free trade areas lies in their approach to third parties [clarification of concepts].
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