In an interconnected global economy, international trade plays a vital role in driving economic growth and prosperity.
Free trade areas have emerged as a powerful tool to enhance trade relations between nations, promoting the flow of goods and services while reducing barriers to commerce. They remove barriers to trade, making it easier for businesses to sell and buy goods, helping to reduce prices, widening choice and driving economic growth.
As the UK adjusts to life outside of the European Union, there is a renewed focus on free trade, with the government signing free trade agreements with a number of countries and free trade groups.
What is a free trade area, how do they work and what benefits can they deliver for businesses and consumers alike?
What is a free trade area?
A free trade area (or free trade zone) is a designated geographical region where participating countries agree to eliminate, or significantly reduce, barriers to trade such as tariffs, quotas, and other restrictions on the movement of goods and services.
The primary objective of a free trade area is to promote the seamless flow of trade among member countries by creating a preferential trading arrangement within the designated area.
In a free trade zone, member nations remove or reduce tariffs, which are taxes imposed on imported goods, allowing goods to be traded more freely between countries without incurring additional costs. By eliminating or lowering these trade barriers, free trade areas aim to stimulate economic growth, boost international commerce, and enhance the competitiveness of domestic industries.
One important aspect of a free trade area is that each participating country retains its sovereignty in terms of trade policies with non-member countries. This means that member countries can establish their own trade regulations, including imposing tariffs or trade restrictions on countries outside the free trade zone. However, when it comes to trading within the free trade area, the agreed-upon rules and regulations promote open and unrestricted trade.
A free trade area may be defined as being between two countries who sign a free trade agreement, but in most cases, it will usually refer to a number of countries who come together to create a wider free trade community.
The European Union is one such example of a free trade area, as too is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a vast free trade area spanning the Asia-Pacific which the UK recently joined.
What are the benefits of a free trade area?
Advocates of free trade areas believe that they have a number of benefits for participating nations.
They provide increased market access for businesses by eliminating or reducing trade barriers. This enables companies to tap into larger consumer bases in member countries, expanding their potential customer reach and facilitating exports. This enhanced market access contributes to increased trade volume, supporting domestic industries and stimulating overall economic growth.
By eliminating or substantially reducing tariffs, the cost of imported goods becomes more affordable for consumers thanks to reduced duties. This not only benefits consumers by offering a wider range of goods at lower prices but also encourages competitiveness among domestic producers who are forced to innovate.
Free trade zones can also attract foreign direct investment (FDI) by providing a stable and attractive business environment. Investors are attracted to countries that offer access to a larger market and a predictable regulatory framework.
Establishing free trade areas can also support cooperation in other fields and strengthen diplomatic efforts between participating nations.
How can businesses benefit from free trade areas?
Businesses benefit from free trade areas through increased market access, cost savings, competitive advantage, optimised supply chains, access to foreign investment, networking opportunities, and easier trade facilitation.
Businesses can expand their customer base, enhance profitability, improve competitiveness, and capitalise on new growth opportunities in both domestic and international markets.
Liverpool Freeport will play a key role as the UK looks to develop its economy and trading links in the post-Brexit era.
How SSO International Forwarding can help
If you’re looking to take advantage of some of the emerging opportunities offered by the UK’s new free trade agreements, then SSO International Forwarding can help.
Our comprehensive range of import and export services makes it easy for you to move into new markets and grow your business.
SSO International Forwarding are the first customs site operator in the new Liverpool Free Port.