You’ve mostly heard about free trade between countries. These type of agreements are concluded as per international law to create a free-trade area between relevant countries. Nations taking part in free trade must adhere to this law in order to avoid trade policies that unfairly favor only one of the nations.
Free trade agreements come in two types: the bilateral and multilateral. Bilateral Free Trade Agreements occur when two nations both agree to relax trade restrictions with each other to expand business opportunities. Things tend to be different with Multilateral Free Trade Agreements, as they are done among three or more countries.
It is through these treaties that tariffs and subsidies imposed on imports and exports are determined. This is done to generally reduce and remove trade barriers while at the same time encouraging international trade. They often include clauses on trade facilitation and issues involving investment, government procurement, intellectual property, and technical standards.
If this is not enough, parties to a free-trade area are not required to establish and maintain identical external tariffs regarding trade with non-participating countries, as is the case in custom unions. What this simply means is that participating countries may establish whatever tariff regime applying to imports from non-participants as they deem necessary.
The essence of Free Trade Agreements lies in creating a fairer trading relationship between the participating countries. This action goes a long way in helping promote equality through the creation of a fair set of rules. That comes in handy and especially at this time when the world has become much more competitive in the last couple of years.
What makes free trade between countries worthwhile is the fact that there are more chances of economic growth. Free trade has the potential to reduce import tariffs, which leads to the decrease of businesses’ production costs. That automatically translates to economic growth.
Better, free trade between countries allows businesses and employers to become empowered to adapt to the changing demands of the global marketplace. Once they do this, they remain competitive, thus driving long-term growth among members.
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