Free Trade Agreements Meaning
Posted On April 9, 2021
Let us assume, for example, that Japan sells bicycles for $50, that Mexico sells them for $60, and that they both expect a $20 dollar in the United States. If tariffs on Mexican products are removed, U.S. consumers will transfer their purchases of Japanese bicycles to Mexican bicycles. The result is that Americans will buy from a more expensive source, and the U.S. government does not receive customs revenue. Consumers save $10 per bike, but the government loses $20. Economists have shown that when a country enters such a “trade” customs union, the cost of trade diversion can outweigh the benefits of enhanced trade with other members of the customs union. The result is that the customs union could degrade the country. In the first two decades of the agreement, regional trade increased from about $290 billion in 1993 to more than $1 trillion in 2016. Critics are divided on the net impact on the U.S. economy, but some estimates justify the net loss of domestic jobs at $15,000 a year as a result of the agreement. For the purposes of this definition, the North American Free Trade Agreement (NAFTA) (1992) is a free trade agreement.
– the Southern Common Market (Mercosur) (1991) a customs union, although an “incomplete customs union” since not all tolls are reduced to the same level and trade conflicts are recurrent. The U.S. Free Trade Area (FTAA) provided by the United States would, once it comes into force, a free trade zone from Alaska to Tierra del Fuego. Overall, the United States currently has 14 trade agreements involving 20 different countries. Given that hundreds of free trade agreements are currently in force and are being negotiated (approximately 800 according to the rules of the intermediary of origin, including non-reciprocal trade agreements), it is important for businesses and policy makers to keep their status in mind. There are a number of free trade agreement custodians available at national, regional or international level. Among the most important are the database on Latin American free trade agreements, established by the Latin American Integration Association (ALADI) , the database managed by the Asian Regional Integration Center (ARIC) with information agreements concluded by Asian countries and the portal on free trade negotiations and agreements of the European Union.  1.