- What is an FTA?
-
An FTA, or free trade agreement, is a negotiation between two or more countries to eliminate all tariffs and nontariff barriers to trade between the markets of the participating countries. Individual countries may still apply differentiated tariffs and other trade barriers to countries that are not signatories of the agreement.
- What areas are typically covered in an FTA?
- In addition to ensuring the free flow of goods and services between countries through the elimination of market access barriers, FTAs often contain technical components dealing with labor standards, health regulations, workers' rights, environmental protection, anti-corruption measures, protection of intellectual property rights, and dispute settlement procedures.
- Are services included in FTAs?
- Yes. Although every FTA is negotiated separately and may contain different provisions, barriers to trade in services are protectionist measures no different than barriers to trade in goods. In a free trade agreement, all barriers to trade are eliminated.
- What is the difference between an FTA and a preferential trade agreement?
- Although different definitions for preferential trade agreements exist, preferential trade agreements generally do not guarantee free trade between partner countries. These agreements may be limited to certain products or may be one-way tariff reductions. For instance, a developed country may give a developing country preferential treatment in access to some or all of its market without demanding reciprocal treatment.
- What is the difference between an FTA and a customs union?
- While each member state of an FTA may choose to maintain different external tariffs to nonparticipating countries, member states of a customs union agree to one common policy in applying external tariffs to outside trade partners. The EU is an example of a customs union. France and Germany both apply the same tariffs to imports from the United States. Under the terms of the U.S.-Australia FTA, the United States and Australia may each apply different tariffs to imports from France.
- With which countries does the United States have a free trade agreement?
-
The United States has implemented FTAs with Mexico and Canada (NAFTA), Israel, Jordan, Chile, Singapore, and Australia. The U.S.-Morocco FTA will enter into force in the coming months. Ratification processes are in the final stages with on the U.S.-Bahrain FTA and the Dominican Republic and Central America FTA (DR-CAFTA). The latter is an FTA between the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic and is awaiting votes in the legislatures of Costa Rica, Nicaragua, and the Dominican Republic before implementation.
Negotiations continue on FTAs with Panama, Thailand, the Andean countries of Colombia, Ecuador, Peru, and Bolivia, and the five member countries of the Southern African Customs Union (SACU-Botswana, Lesotho, Namibia, South Africa, and Swaziland). Bilateral negotiations began in March 2005 with the United Arab Emirates (UAE) and Oman.
- What is the difference between a multilateral, bilateral, and regional agreement?
- A multilateral agreement is negotiated between more than two countries that do not make up an entire region. One example of this is the WTO. A bilateral agreement is negotiated between two countries. An example of a bilateral agreement is the U.S.-Chile FTA. A regional agreement is negotiated between all the countries in a region. NAFTA is a regional agreement between the countries of North America -Canada, Mexico, and the United States.
- What is a tariff?
- A tariff is a fee imposed on imported goods. It gives locally produced goods a price advantage over the same goods produced abroad and imported. Revenues from a tariff are collected by governments.
There are two types of tariffs. An ad valorem tariff is a fee calculated as a percentage of the value of an imported good. (e.g., a 5% ad valorem tariff would require $5 to be added to an import valued at $100.) A specific tariff is a set dollar amount applied per unit of an imported good. (e.g., a $5 specific tariff would require $5 to be added to every imported good regardless of its value.)
- What is a customs duty?
- A customs duty is another name for a tariff when applied to imports. It is a fee imposed on some imported goods.
- What is an import quota?
- A quota is another form of an import restriction that is a nontariff barrier to trade. The quota is set by a national government and is a maximum amount of some import as measured based on quantity or value. Determining who is allowed to import under the quota is usually done through direct allocation or sales of import licenses. The licenses can be held by individuals or firms, both foreign and domestic.
- What is a subsidy?
- There are two types of subsidies. An export subsidy is a payment from the federal government to a domestic firm that is exporting a good in order to help the firm compete internationally and increase exports. A production subsidy is money given to a domestic firm for reasons not directly linked to competing in international trade.
- What is a nontariff barrier (NTB)?
- A nontariff barrier is any policy that is a barrier to trade other than a tariff. These policies can include bureaucratic regulations, procedures, or standards that deliberately disadvantage foreign producers. However, such policies when properly directed at protecting consumers' health and safety are not considered to be NTBs.
- What is a certificate of origin?
- A certificate of origin is a document certifying the origin of an export required by some countries and usually obtainable through organizations like your local chamber of commerce.
- How can free trade benefit U.S. small businesses?
- Small businesses are the largest group of U.S. exporters as well as the major users of imported raw materials. 70% of new jobs in the United States are created in small businesses. These businesses are able to benefit from free trade because it brings them increased market access. While large businesses can afford to set up foreign affiliates in order to overstep trade barriers, small businesses rely on exports for access to foreign markets. Thus, free trade can expand current markets or open up new ones, either of which widens the customer base. It can lead to improved competitiveness that allows for increased growth and increased profits
- How can both the United States and a third-world country benefit from an FTA?
- Free trade benefits all partners to an FTA. In more general terms, trade between two countries with different economic means can benefit both countries under the principle of comparative advantage. Although the can produce most goods and services more cheaply than a third-world country, the latter can certainly produce a number of goods and services at a relatively lower price. Each partner can focus on those goods and services that it produces best in comparison to its partner, given the forces of market competition.
- How can I find out if a U.S. product is marketable in a foreign market?
- Find your local Export Assistance Center online: http://www.export.gov/eac/index.asp. Or contact a trade specialist by phone: 800-USA-TRADE.
- What is the WTO?
- The World Trade Organization, or WTO, is an international organization established January 1, 1995, and located in Geneva. It serves as a forum in which representatives of its 148 member countries negotiate the rules of international trade and settle trade disputes. The rules of trade are set through a number of multilateral trade agreements signed at an ongoing series of negotiating rounds. The Doha Round is the name of the negotiations currently in progress. The WTO aims to liberalize trade, but the rules of trade also recognize the need to protect consumers.
- What is GATT?
- The General Agreement on Tariffs and Trade (GATT) is the precursor to the WTO and now is one of the WTO's three main agreements (along with GATS and TRIPS). It governs trade in goods. The legal text includes detailed lists of commitments on tariff levels and quotas made by individual countries regarding special allowances for certain foreign products.
- What is GATS?
- The General Agreement on Trade in Services (GATS) is the set of regulations that governs trade in services within the WTO system. The legal text includes detailed lists of commitments made by individual countries on the allowed level of market access for foreign service providers in certain sectors.
- What is TRIPS?
- TRIPS, or Agreement on Trade-Related Aspects of Intellectual Property Rights, deals with the protection and enforcement of intellectual property rights including trade in counterfeit goods. There are no additions to the legal text of this agreement regarding differentiated market access.
- What is most-favored-nation (MFN) treatment?
- Within the WTO, MFN treatment means that countries must treat all their trading partners (who are also members of the WTO) the same. This principle is found in all three of the main WTO agreements. FTAs and special market access for developing countries can be exceptions to this rule.
- What is national treatment?
- National treatment is a principle found in all three main WTO agreements. It means that imported goods, services, and intellectual property must be treated the same as domestic goods, services, and intellectual property. It only applies after the import has entered the domestic market so that charging customs duties on imports is not a violation of the principle.
