Free Trade Agreement

In a free trade agreement (FTA), two or more nations come to an understanding on a variety of issues, including investor protections, intellectual property rights, and obligations affecting trade in products and services. The major objectives of trade agreements for the United States are to lower export barriers, safeguard American interests that compete abroad, and strengthen the rule of law in the FTA partner nation or countries.

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How can US exporters benefit from FTAs?

If you’re trying to export your goods or services, the US government may have negotiated advantageous terms through an FTA to make the process simpler and less expensive for you. Gaining access to FTA benefits for your product could mean keeping additional records, but it could also provide it a competitive edge over goods from other nations. U.S. FTAs often include a broad range of governmental actions that have an impact on your company, including:

  • Tariffs on qualifying products may be cut or eliminated: For instance, a nation that typically levies a 12% tariff on imported goods can remove that tax on goods that originate (as defined by the FTA) in the United States. You become more marketable as a result.
  • Protection of Intellectual Property: ensuring that American-owned intellectual property rights are upheld in the FTA partner nation.
  • Product Standards: Exporters from the United States have the option of taking part in the creation of product standards in the FTA partner nation.
  • Selling to the government: A U.S. company’s capacity to submit a bid for specific government contracts in the FTA partner nation.
  • Service providers: The capacity of American service providers to offer their services in an FTA partner nation.
  • Fair treatment for American investors is contingent upon them receiving the same favorable treatment as the FTA partner country’s own investors and their investments, as well as investors and their investments from any other third-party nation.

Key Takeaways

    • What does FTA stand for? Free trade agreement, a legally binding agreement between nations that lets companies access new markets more easily by removing certain trade obstacles, such as tariffs and non-tariff barriers.

Why is a Free Trade Agreement important?

Free trade agreements (FTAs) are legally binding agreements between nations that let firms access new markets by removing trade obstacles including tariffs and non-tariff barriers. For companies doing business abroad, they establish more stable and open conditions.


What is the difference between an FTA and a PTA?

A preferential trade agreement or accord (PTA) has the potential to be unilateral, which is the main distinction between it and a free trade agreement (FTA). In other words, they are easing of trade restrictions from one country to another without necessarily requiring a reciprocal action from the other. Preferential trade accords, which are often extended by affluent nations to developing nations as a sort of diplomatic favoritism, typically require waivers from the World Trade Organization, at least for member states.


How do I know if my shipment qualifies for Free Trade Agreement benefits?

Depending on the country of origin, importing country, and free trade agreement in place, there are several steps to take in order to assess whether or not a shipment is eligible for FTA advantages. However, in general, the process boils down to being able to establish and prove that the product(s) being imported originated in a nation of origin that is a party to the FTA, either in whole or beyond a set threshold as indicated in the free trade agreement. The majority of FTAs also contain provisions for items that may not technically or strictly speaking have come from a member state but yet underwent significant “transformation” (e.g., raw materials being processed or manufactured into finished goods), which may in fact make those products eligible for benefits. If an importer decides that the products being imported might be eligible, they must show this to customs officials using certain documents (usually referred to as “certificate of origin”). Software programs are available to assist importers in determining if their cargo qualify for FTA incentives.

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