What Are Free Trade Agreements?
Free trade agreements create preferential arrangements, usually between countries that want economic growth. Free trade agreements differ from basic trade agreements, as they aim to eliminate tariffs or taxes, such as those on services, goods and investments. Free trade agreements are guided by many rules and offer different benefits, liked reduced trade quotas. Establishing a free trade agreement, however, does not guarantee economic vitality.
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Basics
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Countries can join an existing agreement or create a new one. Agreements can overlap, as well as have time restrictions that require renewal. The United States has signed multiple trade agreements (both bilateral--between itself and another country--and multilateral, involving multiple countries), but only 17 countries have free trade agreements with the United States. Examples include Canada, Mexico, Costa Rica, Australia, Israel, Morocco and Singapore.
NAFTA
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Canada, Mexico and the United States began NAFTA (the North American Free Trade Agreement) in 1994. The trade agreement facilitates trade across the three countries essentially without imposing taxes. For example, companies can manufacture and assemble products in Mexico (to realize lower costs), and then transport goods to the United States to be sold.
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ASEAN
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The Association of Southeast Asian Nations, or ASEAN, began in 1967 and includes Thailand, Malaysia, the Philippines, Singapore, Indonesia, Myanmar, Vietnam, Brunei, Laos and Cambodia. Through the association's trade agreement, tariffs between the countries have been reduced to less than 5 percent, although the goal is to establish a completely free-trade zone before 2020.
CARICOM and AFTZ
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The Caribbean Community, or CARICOM, is a treaty organization among Caribbean countries, including the Bahamas, Barbados, Belize, Haiti, Jamaica, Suriname, Guyana and Trinidad and Tobago.
The African Free Trade Zone, or AFTZ, was launched primarily among countries located in eastern and southern Africa, such as Zambia, South Africa, Botswana, Kenya, Ethiopia, Sudan, Egypt and Libya.
GAFTA
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Established in 1998, the Greater Arab Free Trade Area, or GAFTA, links 18 Arab countries, such as Morocco, Algeria, Egypt, Libya, Saudi Arabia, Lebanon, Jordan, Bahrain and Qatar. Twelve GAFTA members allow trade without authentications of documents, like certificates of origin, from member countries.
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