Free Trade Area

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Free Trade Area
At the lowest level there is the preferential trade area, this means that the members charge each other lower tariffs than those applicable to non-members; however there is no free movement of goods within the area.
A free trade area means that the barriers and quotas to mutual trade are removed.

For instance, the members of the North American Free Trade Area (NAFTA), Canada, Mexico and the United States, pledge to do away with the barriers to mutual trade. Unlike a customs union, each member continues to determine its own commercial relations with non-members.
Other examples of free trade area are the ones between Mexico and the EU; between Canada and Chile; between the US and Jordan;
FREE TRADE AREA
This is the preferred option for countries embarking on economic integration and for those unwilling or unable to engage in higher levels of integration. An FTA can be limited to particular sectors, thus retaining a high level of control at the national level and preventing exposure to competition for the other sectors. The authority to decide how third countries are to be treated remains unaffected (independent trade policy) in an FTA. However, rules of origin (ROO) have to be agreed upon among members so as to determine which products can be transferred duty-free. In the case of NAFTA a product has to have been substantially transformed so that a change in tariff classification has occurred, or it must have 50% (62.5% for cars) member-country content to qualify for duty-free treatment. There are extensive and complex provisions on how such content is arrived at and what documentation is necessary at the border. If there were no such ROO third country, products could be landed in the lower duty jurisdiction and then transferred duty-free to the higher tariff member thereby circumvent its tariff. As a result, in an FTA border controls are…...

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