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2nd Reading
2nd Reading
2nd Reading
Free trade agreements are entered into by two or more countries who
want to seal the economic cooperation among themselves and agree on
the terms of trading. In the agreement, member countries specifically
identify the duties and tariffs that are to be imposed on member
countries when it comes to imports and exports.
The key terms of free trade agreements and free trade areas include:
Free trade area and customs union both deal with tariffs and trading.
However, they are different in many ways.
A free trade area is concerned with removing tariffs, and regulations that
are applied to member countries who trade with each other. Members
establish a common set of policies that regulate trade terms, tariffs, and
quotas.
Another thing about a free trade area is that imports from outside the
area do not confer the benefit of the free trade agreement. For example,
two countries that are members of a free trade area, such as the U.S. and
Mexico, refrain from imposing tariffs on each other. However, if a U.S.
company imports bananas from South America, they would be subject to
tariffs.
2. Customs union
3. Single market
A single market basically creates a level playing field for every member
and not only encompasses tradable products and goods but also allows
the citizens of each member country to work freely throughout the area.
1. Increased efficiency
The good thing about a free trade area is that it encourages competition,
which consequently increases a country’s efficiency, in order to be on par
with its competitors. Products and services then become of better quality
at a lower cost.
2. Specialization of countries
3. No monopoly
When there is free trade, and tariffs and quotas are eliminated,
monopolies are also eliminated because more players can come in and
join the market.
4. Lowered prices
5. Increased variety
Despite all the benefits brought about by a free trade area, there are also
some corresponding disadvantages, including:
When imports are freely traded, domestic producers are often able to
copy the products and sell them as knock-offs without fear of any legal
repercussions. Therefore, unless the FTA includes provisions
for intellectual property laws and enforcement there are no protections
for exporting companies.
2. Unhealthy working conditions
Since member countries are no longer subject to import taxes, they need
to think of ways to compensate for the reduced tax revenue.