Regional Trade Agreements
Regional agreements seek to liberalize trade over a much smaller group
of countries than the entire WTO membership. Three standard forms of
regional trade-liberalizing agreements are free trade areas, customs unions
and common markets.
A free trade area (FTA) is the least comprehensive of the three. It
allows for tariff-free trade among the member countries, but it leaves each
member free to establish its own trade policy with respect to other
countries. As a result, members are required to maintain customs points
at their common borders to make sure that imports into the free trade
area do not all enter through the member that is levying the lowest tariff
on each item. They must also agree on rules of origin to establish when a
good is made in a member country and hence is able to pass tariff-free
across their borders, and when it is imported from outside the FTA and
hence is subject to tariffs when it crosses borders within the FTA. The
three countries in North America formed a free-trade area when they
created the NAFTA in 1994.
In recent years, Canada has signed bilateral free-trade agreements with
Israel, Chile, Costa Rica, Peru, Colombia, and Jordan, among others. It is
currently in negotiations with Japan and India for free-trade agreements,
and it is in exploratory discussions with China. In 2017, the
Comprehensive Economic and Trade Agreement (CETA) between