Free trade agreement

What is a free trade agreement?

A free trade agreement is the documentation in place surrounding an agreement between two countries (or more) to help encourage trade between those nations. 

In practice, that means the documentation should outline how imports and exports can be helped, by minimizing any red tape. Red tape can impede a company’s ability to trade, so a free trade agreement is put in place to take out some of the sting and difficulties surrounding exporting or importing to another country. Those difficulties, without a free trade agreement, could be limiting the amount of certain products sold as well as subsidies or tariffs imposed by a country’s government. 

How does a free trade agreement work?

A free trade agreement can take years of work by nations to agree upon. However, when they are agreed, they work by implementing terms under which trade can occur. They specify regulations that businesses have to follow to be trading legally, and in that way, free trade agreements can help improve standards and quality of work. 

Free trade does not mean a total eradication of rules that businesses need to abide by when exporting or importing goods. It is more that Governments are trying to help the businesses within their specific country trade as much as possible. Trade agreements are therefore a negotiation to help the citizens of each country, by aligning aims and opinions, to have as much common ground as there can be. That’s why some regulations still exist - particularly with regards to the amount of goods that can be imported or exported - as no two countries will completely agree with one another over trading. 

Free trade agreement benefits

While some of the advantages of a free trade agreement are not always realized, there are a number of benefits that are at least intended. For example, a well structured and written free trade agreement can help economic productivity. By taking out the barriers to free trade that can sometimes exist across borders, what is left is the ability to buy and sell goods easily. That helps stimulate economic activity. 

Additionally, when a good free trade agreement is in place, there should be less corruption. That is because there are less people in positions that are susceptible to bribery. Finally, it helps optimize a business’s potential. It means that a business can buy and sell to a larger market and thus expand as much as they can. They are not just limited to one country and that market.  

Contractbook and free trade agreement

Free trade agreements can help businesses become more profitable and productive. That’s one of the reasons we are so passionate about contracts - they can help a company strengthen business working relationships and therefore be more productive as a result.