What are Free Trade Agreements?
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
May 7, 2022
What are Free Trade Agreements?
A Free trade Agreement (FTA) is an agreement between two or more countries where the
countries agree on certain obligations that affect trade in goods and services, and protections
for investors and intellectual property rights, among other topics. For the United States, the
main goal of trade agreements is to reduce barriers to U.S. exports, protect U.S. interests
competing abroad, and enhance the rule of law in the FTA partner country or countries.
Currently, the United States has 14 FTAs with 20 countries. FTAs can help your company to
enter and compete more easily in the global marketplace through zero or reduced tariffs and
other provisions. While the specifics of each FTA vary, they generally provide for the reduction
of trade barriers and the creation of a more predictable and transparent trading and
investment environment. This makes it easier and cheaper for U.S. companies to export their
products and services to trading partner markets.
Key Benefits of Free Trade Agreements
If you are looking to export your product or service, the United States may have negotiated
favorable treatment through an FTA to make it easier and cheaper for you. Accessing FTA
benefits for your product may require more record-keeping but can also give your product a
competitive advantage versus products from other countries. U.S. FTAs typically address a wide
variety of government activities that affect your business:
Reduction or elimination of tariffs on qualified. For example, a country that normally
charges a tariff of 12% of the value of the incoming product will eliminate that tariff
for products that originate (as defined in the FTA) in the United States. This makes you more
competitive in the market.
Intellectual Property Protection: protection and enforcement of American-owned
intellectual property rights in the FTA partner country.
Product Standards: the ability for U.S. exporters to participate in the development of
product standards in the FTA partner country.
Selling to the government: the ability for a U.S. company to bid on certain government
procurements in the FTA partner country.
Service companies: the ability for U.S. service suppliers to supply their services in the
FTA partner country.
Fair treatment for U.S. investors providing they be treated as favorably as the FTA
partner country treats its own investors and their investments or investors and investments
from any third country.
A free trade agreement (FTA) between two countries or a group of countries can be used
to set the rules for how countries treat each other when it comes to doing business together.
While we look to pursue New Zealand’s trade goals through the World Trade
Organization (the WTO), involving over 160 economies, the WTO’s consensus decision-making
process means that progress can be slow, and agreements may not address the specific
interests and issues of individual countries. FTAs offer an additional avenue to advance our
trade interests.
The focus of an FTA is primarily on economic benefits and encouraging trade between the
countries by making it more efficient and profitable. Agreements usually remove tariffs on
goods, simplify customs procedures, remove unjustified restrictions on what can or can’t be
traded, and make it easier for business people to travel or live in each other’s country. But
FTAs may also have political, strategic, or aid benefits.
FTAs are legally binding, so they provide certainty and security for exporters, importers and
investors. They help businesses to become, and remain, competitive in those markets.
What’s covered in an FTA?
New Zealand’s overall objective in any FTA negotiation is the establishment of a modern,
high-quality, comprehensive, forward-looking, and commercially-meaningful agreement that
facilitates the growth and development of our trade and investment relationship with our
trading partner(s). We therefore typically cover a range of trade-related issues in the
negotiations - including those listed below.
Trade in goods
New Zealand seeks elimination of tariffs on all goods within commercially meaningful
timeframes. This is supported by transparent, liberal and flexible rules of origin to ensure it is
simple to decide where a product is “from” and whether it is eligible to benefit from the FTA.
New Zealand seeks to ensure that rules of origin are neutral, meaning that they do not
favour the producers of inputs over the producers of final goods, or favour one industry sector
over another. We prefer self-declaration of origin as the basis for evidencing origin in the first
instance under the FTA. New Zealand also seeks FTA provisions that enhance the speed and
transparency of import, export, transit, and transhipment related customs procedures,
including through the adoption of automated systems to the maximum extent practicable. An
FTA can help both sides to manage risks associated with imported products more effectively
and efficiently as well as promote cooperation and collaboration to build strong institutional
relationships to resolve specific trade concerns.
New Zealand seeks to include mechanisms to improve communications and consultation to
resolve trade access issues in an objective and scientific manner that allows us to take the
measures necessary to protect the life or health of our people, animals, and plants, provided
such measures are not inconsistent with the WTO Agreement on the Application of Sanitary
and Phytosanitary Measures.
Similarly, FTA outcomes further the implementation of, and can build on, the WTO
Technical Barriers to Trade Agreement by aiming to facilitate the acceptance of conformity
assessment results on both sides, promote self-certification, and support unilateral recognition
where appropriate.
Services and investment
Through an FTA, countries may agree not to discriminate against services providers or
investors from other countries, and not to put certain barriers in place that restrict trade and
investment. This can provide new opportunities for New Zealand exporters in areas such as
private education, ICT services, professional services and transport services, and provides
increased certainty and transparency for New Zealand services suppliers and investors.
A fundamental principle for New Zealand is that any outcome on services and investment
must safeguard the right of our government to regulate for legitimate public policy purposes.
FTAs can facilitate visa access for business people from New Zealand and our trading partners
that supports the development of our trade and economic relationship.
Digital economy
FTAs can also address digital economy issues. New Zealand seeks outcomes that realise the
opportunities presented by e-commerce while managing the risks that arise, in particular by
retaining necessary public policy safeguards to address issues such as consumer protection and
the protection of personal information in the digital environment.
Government procurement
Countries make commitments which smooth the way for businesses to compete for
government tenders for goods and services on a non-discriminatory basis in each other’s
markets.
Intellectual property (IP)
Countries commit to how intellectual property from each party with be protected in each
other’s market. New Zealand consistently rank amongst the top countries for IP protection with
modern and highly regarded IP system that allows IP owners to efficiently and effectively
protect and enforce their IP.
So we generally seek IP outcomes that sit within current domestic policies and legislative
settings, taking into account the need to retain appropriate flexibility to ensure these settings
are, and over time remain, appropriately calibrated for a small net importer of intellectual
property seeking to incentivise innovation and creativity.
Trade and competition
FTAs can reiterate the importance of maintaining and enforcing competition law,
transparency and due process with provisions on competition policy cooperation and
consultation/notification, particularly where anti-competitive behaviour may have affected
trade and investment between the countries. For example, New Zealand often seeks to
incorporate rules to restrict and discipline certain categories of subsidies of particular concern,
including those that damage our export markets or harm the environment such as subsidies
that promote the use of fossil fuels or unsustainable fishing practices.
Trade and sustainable development (including environment and labour)
New Zealand seeks provisions in FTAs that give effect to the key principles set out in the
2001 Framework for Integrating Environment Objectives in Trade Agreements, including
commitments that labour and environment laws, policies, regulations and practices will not be
used for trade protectionist purposes, or be weakened to encourage trade or investment. This
can establish opportunities for cooperation on trade related labour and environment issues of
mutual interest and a robust consultation and disputes mechanism to resolve issues or disputes
arising between the Parties. The strongest outcomes on environment and labour of any of New
Zealand’s trade agreements to date are contained in the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP).
