Understanding A Free Trade Area

Did you know that there is a difference between a free trade area and free trade zones? It may seem like the same thing but in actuality it is two different aspects of one overall economic gain for the countries involved. In the FTA, there are thirty four countries that are joined together, including such powerhouse nations as the United States, the United Kingdom and Japan. A free trade zone, on the other hand, is free of tariffs and taxes, which entices industries to relocate to that area. This may sound confusing so keep reading.

The free trade area is made up of thirty four countries, as previously mentioned. These countries have an agreement to eliminate or reduce importation taxes or tariffs on specific imported goods. Take for example the trades that occur between Canada and the United States. The United States buys a product from Canada and because of the trade deal between the two countries; the taxes on the goods are reduced or eliminated. It allows for the individual companies to set their own prices.

Okay, that was a bit on the technical side and may have seemed a bit dry. Let us try to break it down into terms that are a bit easier to understand. Goods and services are produced within a country in surplus. That means that we produce more than we need so we want to sell the remaining products to make money. People in another country want to buy our product. If there is no trade deal in place, then the product is taxed. It is then left up to the importing country to make up the difference in pricing, to generate revenue. For free trade to work, it means that there will be lower taxes and tariffs on goods so the people of that country can buy the product at a lower price.

There is far more to a free trade area than meets the eye. If you are an economist, then you know the stages of economic integration and that trade areas are only the second part of the six phase process towards total economic integration. But for the layman, you probably do not need to know all of that. You simply need to know the basics about trading and how it affects you in your daily life.

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