What Is A Free Trade Agreement?

Free Trade Agreements (FTA) are negotiated agreements between two or more countries whereby each cooperate and agree on certain obligations that affect trade in goods and services. These trade agreements will generally present in two forms: bilateral and multilateral trade agreements.

Bilateral trade agreements are between two countries, such as the Japan-Australia Economic Partnership Agreement, where both agree to lower tariffs and other restrictions between each other.

Multilateral trade agreements are between three or more countries and can be complex and powerful. The largest and most well known multilateral trade agreement is the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico.

FTAs generally promote policies that involve the trade of goods without taxes, tariffs, and other trade barriers. Typically, these agreements are designed to reduce barriers to trade between the signatories.

Understanding the Benefits of FTAs: Countries and Businesses

Benefits to Countries

Countries promote and advocate FTAs in order to boost their industries’ access to new markets, significantly increasing those industries’ reach and access to new potential customers. In addition, FTAs are designed to benefit consumers through an expansion of competition in the market which increases supply and, ultimately, lowers prices.

Benefits to Businesses

FTAs can also benefit those looking to import or export goods through lower barriers and reduced taxes and tariffs; however, with this lowered cost comes an increased requirement for due diligence from those seeking to import or export their goods.

Read more about managing trade compliance in a complex environment.

How Free Trade Agreement Software Helps Businesses Leverage FTAs

Claims for Preferential Treatment

The process for utilizing and benefiting from Free Trade Agreements is heavily reliant on accurate record keeping. It begins with a claim for preferential treatment, which is usually made on the customs document used by the importing country; however, in some cases, these claims can be made up to a year from the date of importation. The process for submitting can be different in each of the countries involved in an FTA.

Certificates of Origin

Alongside the claim, in order to qualify goods for preferential treatment and tariffs, a certificate of origin must be completed by the exporter. A producer or manufacturer may also complete a certificate of origin. This certificate must be present at the time the claim is made.

Reasonable Care

Both the certificate of origin and the claim for preferential treatment are required to demonstrate reasonable care. This is a process by which importers provide information to allow U.S. Customs and Border Protection (CBP), in the case of U.S. FTAs, to properly assess duties, collect statistics, and determine if the applicable legal requirements have been met.

Descartes Offerings:

CustomsInfo

Through the use of Descartes Customs Info™ Reference and Descartes Customs Info™ Manager, businesses can accurately assess duties and understand the Free Trade Agreements that may be in place. Descartes Customs Info™ Reference supplies a single access point where companies and individuals can access up-to-date information regarding existing Free Trade Agreements. Utilizing this information provides the opportunity for substantial savings on a business' global supply chain.

 

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