What are Free Trade Agreements?
Free trade agreements have an effect on income distribution within a state and influence trade patterns. In simplified terms, exporting sectors profit from preferential market access while import-competing sectors lose as a result of stronger competition.
How do FTAs differ from customs unions?
Which areas are covered by FTAs?
What are Preferential and Regional Trade Agreements?
Preferential trade agreements (PTAs) – PTAs differ from FTAs. Also referred to as partial scope agreements, they offer preferential market access by reducing tariffs on trade in goods. FTAs are sometimes incorrectly referred to as preferential trade agreements due to the preferential character of liberalisation under such treaties.
Regional trade agreements (RTAs) – the WTO uses the term regional trade agreements as a generic name for customs unions, FTAs and partial scope agreements. This can be explained by the fact that, initially, such treaties are within the jurisdiction of the WTO’s Committee on Regional Trade Agreements. In reality, trade agreements do not have to be regional (e.g. the EU-Canada FTA).
What are rules of origin?
Rules of origin are applied in order to prevent trade deflection which occurs when third parties trans-ship goods via an FTA member state and obtain the same level of preferential market access without fulfilling any reciprocal obligations. Goods which do not meet origin criteria cannot benefit from preferential tariffs under an FTA.
RoO are negotiated separately for every FTA and are attached to the main agreement in the form of a protocol.
There are two main types of RoO: 1) wholly obtained, where the good is produced entirely in one country, and 2) substantial transformation, where the good needs to undergo a certain process in order to be considered originating from a given country. Substantial transformation may be of three types: 1) change in tariff classification (CTC), 2) minimum local value-added content (VC), and 3) required specific production process (SP).
What are mega-regionals and what is the current state of play?
The Trans-Pacific Partnership (TPP) – signed after seven years of negotiations in February 2016 by 12 countries which account for over 40% of the world’s economy (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam). The United States withdrew from the agreement following Donald Trump being sworn in as President in November 2016 and calling TPP a ‘potential disaster for our country’. Leaders from Australia, Canada, Japan, Mexico, New Zealand and Singapore met in Switzerland in January to discuss ways to “take the TPP forward” without the US. It remains uncertain whether the world’s biggest trade deal could survive without American involvement.
The Transatlantic Trade and Investment Partnership (TTIP) – an FTA between the EU and the US which together make up about 46% of the world’s economy. Negotiations on the trade deal began in February 2014. However, following the US withdrawal from the TPP, the future of the agreement remains in doubt. Donald Trump expressed the intention to withdraw from the negotiations and the TTIP is no longer featured on the White House website.
Trade in Services Agreement (TiSA) – an FTA on trade in services currently being negotiated by 23 countries (Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, the EU, Hong Kong China, Iceland, Israel, Japan, Korea, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland, Turkey and the United States). The December 2016 meeting on TiSA was cancelled and the future of the agreement remains uncertain.
Where to find more information on FTAs?
WTO – recognising the need to enhance transparency and increase understanding of the impact of trade agreements, the WTO gathers information on FTAs and provides a forum for discussions on how FTAs affect the multilateral trading system
WTO database – this database contains information on only those agreements that have either been notified, or for which an early announcement has been made, to the WTO
DG Trade, the European Commission – information on the EU’s trade agreements
Bilaterals.org – republishes articles on FTA negotiations from around the world. Focuses mainly on the negative effects of trade and investment liberalisation