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What is a Free Trade Area?

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  • Written By: Mary Elizabeth
  • Edited By: Bronwyn Harris
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  • Last Modified Date: 09 November 2016
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Free trade is trade between countries that is undertaken without protective tariffs, quotas on imports or exports, or other types of limitation. A free trade agreement is an arrangement between countries whereby trade of products and services are agreed to pass without restriction between them. A free trade area is a region in which the countries have made an agreement not to restrict trade and/or to limit the imposition of tariffs and quotas.

North America is one of the world’s largest free trade areas. It was formed by the NAFTA agreement (North American Free Trade Agreement) that was made by Canada, the United States, and Mexico on 1 January 1994. Through NAFTA, the countries of North America agreed to encourage trade across their borders. The United States is also a member of the CAFTA-DR free trade area, which includes the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. In addition, the US has free trade agreements with Australia, Bahrain, Chile, Israel, Jordan, Morocco, Oman, Peru, and Singapore, and agreements have also been signed, but not implemented by Congress, with the countries of Colombia, South Korea, and Panama.

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Another free trade area is ASEAN-China (Association of South East Asian Nations). Members include Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, and the People’s Republic of China. ASEAN became a free trade area in 1992. The ASEAN-China free trade area came into existence on 1 January 2010. ASEAN-India came into force on the same day.

The CEFTA (Central European Free Trade Agreement) free trade area began with Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia as members. CEFTA was expanded in 2006 to include Albania, Bosnia and Herzegovina, Croatia, Moldova, Montenegro, Serbia, the UN interim administration mission in Kosovo (UNMIK), and the former Yugoslav Republic of Macedonia. Ratifications by these additional countries took place in 2007.

An African free trade area, AFTZ (African Free Trade Zone), also referred to by the name African Free Trade Area, is in the works for the eastern and southern nations of Africa. Other free trade area in Africa include the SADC (South African Development Community), COMESA (Common Market for Eastern and Southern Africa), EAC (Eastern African Community), and ECOWAS (Economic Community of West African States). There is overlap between these zones.

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