International Business Law

What is FTA (Free Trade Agreement)?

• FTA is an agreement that results from cooperation between at least two countries to reduce trade barriers— import quotas, taxes and non-tariff barriers, such as regulatory legislation — and to increase trade with each other. 
• Free Trade Agreements must be mutually beneficial to the countries involved. Countries considering an FTA typically look to determine whether the FTA will bring them economic benefit. But the rationale behind FTAs is not exclusively economic – it is often underpinned by political and strategic considerations. 
• What may an FTA cover? 
• Goods
• Services
• Investments
• Rule of Origin
• Trade remedies
  - Anti-dumping
  - Anti-subsidiaries
  - Safeguard measures
• Rule issues
• Other issues: Some of FTAs include government procurement and competition policy.  

Two types of FTAs:

• Bilateral Trade: (http://en.wikipedia.org/wiki/List_of_bilateral_free_trade_agreements)
• Multilateral trade:
  (http://en.wikipedia.org/wiki/List_of_free_trade_agreements)

Why enter into a Free Trade Agreement? (Economics, Political & Economic Goals)

• Gains from Trade—Comparative advantage

Fear of foreign competition, once the countries produced everything they needed, and imposed heavy taxes to keep out foreign goods. However, economist David Ricardo showed that international trade could make everyone have better life.

He pointed out that, even though a country could produce everything at as lowest cost as possible, with what economists call an ‘absolute advantage’, it is still better to focus on the produce it can make more efficiently (sacrifice the other goods), and let the rest of the world do the same.

This is the principle of Comparative advantage. Base on this, it could persuade many countries to sign up to the Free Trade Agreements. But unfortunately, it can take a long time for countries to get agreements.

Nowadays, all the Free Trade Agreements should attach to WTO.

There are following some key factors to explain why we need FTAS.

Static effects.

The “Static Effects” of FTAs could refer to the effect on price changes induced by preferential tariff or nontariff. In Free Trade areas, due to reducing the cost of tax, exports, imports, and products of import-competing could be equalized.