Free trade refers to the exchange of goods and services between countries without tariffs, quotas and other barriers.
It’s designed to facilitate greater competition, broaden access to global markets, encourage innovation, and drive economic growth.
To achieve a position where businesses can trade freely across borders and in international markets, governments will enter into free trade agreements.
After the UK left the European Union (EU), many businesses had questions about how we would trade with the EU and what agreements might be negotiated.
But what is a free trade agreement? What benefits do they have? And is there a UK-EU free trade agreement in place?
What is meant by free trade agreement?
A free trade agreement (FTA) is a legally binding accord between two (or more) countries that is designed to facilitate trade in goods and services between them.
It does this by removing barriers to trade like tariffs, quotas, and other restrictions on the movement of goods, services and capital. FTAs will typically liberalise trade relationships between parties, making it easier for companies from each country to do business across borders.
One aim of FTAs is to widen access to markets for companies and provide consumers with greater access to goods and services. In theory, free trade agreements should help to encourage economic growth and activity.
FTAs can also provide other benefits such as promoting regulatory cooperation between countries, protecting intellectual property rights, and enhancing the competitiveness of participating countries in the global marketplace. They also play an important part in diplomacy, creating mutual trust and cooperation, and promoting regional stability between countries.
Free trade agreements are complex documents and will often take years of skilled negotiation to find a compromise.
Typically, there will be a range of challenging issues that will need to be overcome. Different countries will have strengths in different sectors, as well as sectors of the economy they wish to protect. For example, arguments over environmental standards often hamper free trade agreements. In the UK, a concern to protect high standards of farm welfare has occasionally been a roadblock to agreements.
However, despite the obstacles, free trade agreements are in place across the world facilitating the movement of goods and services and supporting the global economy.
Some examples of free trade agreements include the European Free Trade Agreement (EFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the United States-Mexico-Canada Agreement (USMCA), ASEAN Free Trade Area (AFTA) and the European Union’s single market.
What are the benefits of a free trade agreement?
Sometimes the media talks about a new era of protectionism in which countries are moving away from free trade. In fact, the reverse is true. More free trade agreements are being signed covering a greater proportion of global trade.
This is happening because whatever the domestic politics, governments understand that facilitating free trade is vital for securing economic growth. As described above, free trade agreements make it easier and more cost-effective for businesses to export their goods and services to other countries, which can lead to increased sales, more profits and growing business.
FTAs can also lead to lower prices for consumers, easing pressure on squeezed household budgets. They do this through the reduction and elimination of tariffs on imported goods, widening choice for consumers. This can make it more affordable for consumers to access a wider range of products, improving their standard of living. By exposing domestic producers to overseas competition, it’s hoped that it can spur innovation and productivity.
Does the UK have any free trade agreements?
The UK has more than 70 trade agreements in place with countries across the world.
Since leaving the EU, the UK has signed trade agreements with a number of countries including significant deals with Australia and New Zealand.
It has also become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) a free trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The CPTPP is one of the world’s largest free trade areas by GDP, with members representing nearly 14 per cent of the world economy.
The British government is continuing negotiations with a number of countries to facilitate new free trade agreements UK, including with the USA.
Does the UK have a free trade agreement with the EU?
The UK and the EU negotiated a free trade agreement in the weeks leading up to the former’s exit from the European Union. The agreement, known as the Trade and Cooperation Agreement (TCA), was signed on December 24 2020, and came into effect on January 1 2021 after the UK left the EU’s single market and customs union.
The UK-EU trade agreement aims to facilitate trade and investment between the UK and the EU by reducing barriers to trade and providing a framework for cooperation in various areas.
Under the TCA, there are no tariffs or quotas on trade in goods between the UK and the EU, provided that the goods meet certain rules of origin requirements.
However, there are still some non-tariff barriers to trade, like customs checks and regulatory differences, which can increase the cost and complexity of trade.
Liverpool City Region Freeport
Freeports are designated zones where normal tax and customs rules do not apply. These can be airports or other hubs as well as maritime ports. At a freeport, imports can enter with simplified customs documentation without paying tariffs.
SSO International Freight Forwarding is the first customs site operator at the new Liverpool City Region Freeport
Contact us to find out more about the freeport, its role in supporting free trade and how your company can benefit.