Trade glossary · mechanics

Free trade agreement (FTA)

Also known as: FTA

A treaty between two or more countries that reduces or eliminates tariffs, quotas, and other trade barriers. Examples: USMCA, EU single market, RCEP, ASEAN.

An FTA carves out an exception to MFN: members give each other preferential access not available to outsiders. Modern FTAs go beyond tariffs to cover services, investment, IP, government procurement, and dispute settlement. The largest FTAs by GDP coverage are the EU single market, USMCA, and RCEP. As of 2024 ~360 FTAs are notified to the WTO.

Examples

  • USMCA (US-Mexico-Canada): replaced NAFTA in 2020.
  • RCEP (Regional Comprehensive Economic Partnership): largest FTA by population, signed 2020.
  • CPTPP (formerly TPP): 11 Pacific countries, in force 2018.

Related terms

Most-favoured-nation (MFN)
A WTO principle requiring members to grant any trade concession given to one country to all other members equally, except within registered FTAs.
Rules of origin
Criteria determining the country of origin of a product, used to apply tariffs, FTAs, and trade remedies. A car assembled in Mexico from US-made parts may be classified differently depending on origin rules.
WTO
World Trade Organization — the multilateral institution that administers global trade rules and dispute settlement. Successor to GATT (1995).