International trade involves the exchange of goods and services between different countries, involving multiple jurisdictions with varying rules and regulations. This can often make trade difficult or even impossible. Thus, to overcome these challenges and promote free trade and economic cooperation between nations, countries enter into free trade agreements from time to time.
A free trade agreement will usually involve countries agreeing to certain rules and principles about how trade between them will be governed. However, all barriers are rarely ever removed and no free trade agreement is truly “free”, though they do generally make trade much easier.
Under the terms of such an agreement, trade transactions for both goods and services can take place with little to no friction and government intervention. Usually, a free trade agreement will do away with or significantly minimize tariffs, quotas, subsidies and trade prohibitions. Most free trade agreements will also include various exceptions on certain goods and services which then may be traded in a limited fashion or not at all.
Pushing Agendas
Often times, more developed markets will use free trade agreements to encourage emerging and frontier markets to adopt better industry standards and practices such as fair wages, no child labour, no forced labour, good working conditions, consistent monetary, fiscal and other policies and free trade in general. Usually, these are designed for the greater good and work well. For example, the GSP programmes promoted by the EU under various trade agreements.
Frontier and emerging markets with goods and or services that are highly coveted by more developed markets may also use free trade agreements to gain better access to developed markets in exchange for removing trade barriers related to the highly coveted goods or services.
Often times, trade agreements will also be used for various political and diplomatic purposes. A great example being China’s RCEP which, while being a great boon for global trade, also serves the purpose of cementing China’s domination in the region and furthering the Belt and Road Initiative.
Sometimes Divisive
Free trade agreements can often divide public opinion and may also become highly politicized, frequently resulting in popular but poor policy decisions. Ultimately though, free trade agreements usually bring many more advantages than disadvantages and work to promote peaceful cooperation amongst the international community.
